18 May 2012 Last updated at 13:00 ET

George Osborne: Arab Spring states need financial aid

The Chancellor warned the eurozone crisis could cause instability in central and eastern Europe

Arab Spring countries need financial support to prevent extremism flourishing, George Osborne has said.

In a speech on Friday, Mr Osborne said the international community must not "choke off opportunity".

Uncertainty has deterred investment and led to shrinking growth, the Chancellor claimed.

Former soviet countries could also face "significant instability" because of the eurozone crisis, he said.

Mr Osborne was speaking at the annual meeting of the European Bank for Development and Reconstruction (EBRD).

'Challenges ahead'

He urged members of the bank - which was set up to help former Soviet bloc countries transition to market economies - to ratify rule changes that would allow the bank's special funds to be used in the southern and eastern Mediterranean.

He said: "A Middle East of open and democratic societies would transform the security of the world and brighten the prospects of millions of people.

"It is undoubtedly the greatest prospect of enlargement of human freedom and dignity since the Cold War.

"It is a testament to the courage of the people of Tunisia, Egypt, Libya, and indeed now Syria, that they yearn for what all people yearn for - economic development and political participation.

"But there are huge challenges ahead. All those countries have suffered sharp reductions of growth as uncertainty deters foreign investment and tourism, and we need to help them."

Euro crisis

The Chancellor warned against the danger of not providing the support needed, which could, he said, lead to instability.

"The best way to ensure transition fails and extremism flourishes is to choke off opportunity and not extend the hand of friendship to countries in difficulty...

"Eighteen million more jobs are needed in the region over the next decade and, if not addressed, chronic unemployment will continue to bring instability and violence."

Mr Osborne also expressed concerns about the effect of the eurozone crisis on eastern and central Europe.

"Even those countries that have made the greatest progress still need assistance, more so now than perhaps a couple of years ago, because the financial crisis has led to significant instability as the foreign banks that dominate central and eastern European banking have undergone aggressive deleveraging.

"As the storms of the eurozone crisis gather again, there is a risk that some of the good work in building a stable financial sector and creating jobs and prosperity might unwind.

"Like the UK, the region's growth prospects are closely tied to those of the euro area and deleveraging magnifies this effect."