By Matthew Holehouse, Christopher Hope, Colin Freeman in Athens 15 July 2015
Compromise with Juncker ought to insure Britain against Greek default, but it has soured Downing Street's relations with the European Commission
The Chancellor is prepared to back the European Commission president's controversial plan to revive a mothballed bailout programme Photo: Julian Simmonds
British taxpayers will not be left exposed for another Greek bailout, George Osborne hopes, under a compromise struck with Jean-Claude Juncker.
The Chancellor is prepared to back the European Commission president’s controversial plan to revive a mothballed bailout programme that draws in the entire EU, in exchange for guarantees that British liabilities will be underwritten to protect UK taxpayers.
Mr Juncker’s decision to tear up a binding written agreement given to Britain in 2010 that the European Financial Stability Mechanism would never again be used to rescue the Eurozone has further soured relations with David Cameron, who now doubts whether he is able to trust him.
Mr Cameron fought a lonely and unsuccessful battle to block Mr Juncker’s appointment last year, but he will now play a major role in Britain’s renegotiation.
“Of course you can’t trust Juncker. That is why he didn’t vote for him,” a source close to the Prime Minister said. Mr Cameron has endorsed an explosive call from the International Monetary Fund for Greek debt relief.
Mr Osborne had furiously denounced Mr Juncker’s plan to revive the EFSM, which uses the EU budget as collateral on cash raised on the open market, to provide up to 7 billion euros in bridging loans to Greece to stave off collapse as it is hit with 12 billion euros of debt repayments in the coming weeks. Leaving British taxpayers exposed was a “non-starter,” he said on Tuesday. "The Eurozone needs to foot its own bill."
Despite scepticism from Germany on the Juncker plan on Tuesday, it became apparent that Britain would struggle to find the allies to block the plans at a vote.
Under a compromise backed by the Commission, the EFSM rescue package could still go ahead. But Britain’s £690 million in liabilities, as well of those of other non-Eurozone states, will be insured using Greek funds known as SMP profits held by the European Central Bank. Time is of the essence - with Greece owing 4.2 billion euros to the European Central Bank on Monday - and diplomats said there was strong support for the plan among financial officials from member states.
“We are immovable on the principle that British taxpayers’ cash should not and will not be on the line in any Eurozone bailout,” said a Treasury source.
"It is because we have refused to compromise on our principles that the Commission is now proposing ways to specifically ring-fence us from any risk. As far as we are concerned this is a red line and we think that message is now being heard and understood."
However, Stephen Booth, of the Open Europe think tank, said Mr Juncker’s decision to toss aside an agreement made by 28 heads of government to mothball the EFSM and to make the Eurozone responsible for its own bailouts raises “fundamental issues of trust”.
EU officials argued the agreement made at a summit in December 2010 was merely “political” and had no legal force.
“Today’s developments are a boon to those who would like to see the UK leave the EU, and for good reason,” said Mr Booth. “This type of political agreement, so readily jettisoned in a moment of Eurozone panic, is precisely the type of agreement Cameron may, at least in part, be relying on to secure his negotiations and sell them to the British public. This episode will only increase the domestic pressure for the UK to secure treaty changes to underpin EU reforms.”
John Redwood, the former Welsh Secretary, said tearing up the agreement was an “absolute outrage” and a “slap in the face”.
Mr Cameron secured the assurance in exchange for backing greater Eurozone integration. He subsequently told the Commons it was a “black and white, clear and unanimous agreement that from 2013 Britain will not be dragged into bailing out the Eurozone.”
The agreement was trumpeted in the 2015 Tory manifesto as “the first ever return of powers from Brussels.”
Members of Syriza, the Greek ruling party, attacked the British stance as heartless.
Nikos Xydakis, a deputy culture minister in Syriza, told the Telegraph: "Mr Cameron must explain to the European people and 11 million Greeks why he wants them to suffer a social crisis. This is not about politics, this is about human souls.”
British taxpayers 'protected' as Osborne strikes deal on Greek loans - Telegraph
