UK Politics

George Osborne: Disorderly euro exits would damage UK

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Media captionGeorge Osborne said what happens in the eurozone could have a profound effect on the British economy

George Osborne has warned if countries start "falling out of the euro in a disorderly way", the UK - although not a member - would be badly affected.

The chancellor was speaking after the latest meeting of EU finance ministers in Brussels ended without a deal.

Mr Osborne had hoped to see progress on implementing a recent agreement to strengthen EU banks and increase the size of the eurozone rescue fund.

Instead, he became embroiled in a spat over a financial transaction tax.

The tax is favoured by the European Commission and countries like France.

Prime Minister David Cameron has said the UK was "not opposed in principle" to the idea but any such tax must be implemented globally to avoid disadvantaging any nation.

Mr Osborne told the meeting of EU leaders: "There is not a single bank in the world that is going to pay this tax, not a single banker.

"The people who are going to pay this tax are pensioners," he added.

"If we could agree a financial transaction tax globally that would be a good thing, but that's not going to happen," Mr Osborne said - adding it was "fanciful" to suggest the US, China or Singapore would contemplate a similar tax.

He said there was "not anything like unanimity" on the issue and questioned whether discussing it was "really the best use of our time today".

And he said the European Commission's own figures suggested that a European financial transactions tax would have a "serious impact" on European growth.

He added: "I suggest that we put to rest the idea that there is going to be some European financial transaction tax."

Later he told Nick Robinson he was in favour of the banks paying more - but a financial transactions tax just in Europe would not be paid by bankers - and would be effectively a tax on pensioners and pension funds.

"It would do real damage, if it was just implemented in Europe, to European jobs including jobs in Britain, European prosperity, including British prosperity. That's why I'm against it if we could get international agreement on it, with every place in the world doing it, fantastic - but I don't think that's likely."

He said two-thirds of speakers at the meeting agreed that it was the "wrong thing for Europe".

On his return to the UK, Mr Osborne said: "If the euro collapsed, if countries started falling out of the euro in a disorderly way that would have a catastrophic impact on the European economy, and that would have a huge impact on all those British businesses that sell things to Greece, to Italy, to France and Germany as well.

"We would be very badly affected."

BBC political editor Nick Robinson said this latest meeting - the ninth international summit in the last eight weeks - had not been a success.

"The world is saying to Europe we are not going to pay you to bail out your problems until you begin to make an effort to solve your own."

He added that richer countries in Europe, in particular Germany, were saying to the Greeks and Italians they were not willing to bail them out until their own government and finances were in order.

The difficulty, Mr Osborne said, was that those countries then have to suffer a level of interference with their tax and spending policies that most democracies would find intolerable.

In the Commons on Monday, Mr Cameron said talk of a financial transaction tax was "cover" to distract from Europeans' failure to meet their overseas development assistance targets and pointed out 80% of it would come from UK businesses.

He then joked: "I am sometimes tempted to ask the French whether they would like a cheese tax."

Speaking ahead of the meeting, Mr Osborne said he wanted to see progress on implementing a recent agreement to strengthen EU banks and increase the size of the eurozone rescue fund - designed to stabilise the single currency area.

"The eurozone needs to show the world it can stand behind its currency. We cannot just wait on developments in Athens and Rome. We also have to make progress in Brussels.

"If we don't, that will continue to have a damaging effect on the entire European economy, including the British economy."

The government has ruled out contributing to the eurozone bailout fund but is under pressure to explain how much more it might give to the International Monetary Fund to support economies in distress in the current financial turmoil.

Separately MPs debated proposals for a proposed increase in the EU's budget. Ministers say the above-inflation rise is wrong and budgets should be frozen.

The European Commission has called for a 5.9% increase in 2014-2020, which it says is needed to meet existing spending commitments and support poorer EU members.

But the Treasury has estimated this could actually amount to a 11% rise over the period and increase annual UK contributions to the EU by £1.4 billion.

The government's motion - approved without a vote - said the increase was "unacceptable, unrealistic, and incompatible with the tough decisions being taken in the UK and in countries across Europe to bring deficits under control and stimulate economic growth".

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