Jean-Claude Juncker, European Commission president, discards David Cameron's deal that spares Britain from Eurozone bailouts Britain will be liable for close to £1 billion of emergency loans to Greece, it can be revealed, after Jean-Claude Juncker tore up a “black and white” deal to protect UK taxpayers from Eurozone bailouts.
George Osborne, the Chancellor, today attempted to fight off a proposal to raid the EU budget to save Greek banks from financial collapse.
Under a plan drawn up in the small hours of Sunday night as leaders wrestled to save Greece from economic collapse, Mr Juncker, the president of the European Commission, wants to revive a mothballed bailout fund. It will use the EU budget as collateral against 8.6 billion euros of short-term bridging loans to Greece.
The proposal tosses aside a written agreement between David Cameron and his counterparts that stated British taxpayers would never again be exposed to Eurozone bailouts.
Mr Cameron subsequently assured the House of Commons that Britain be exempt from bailouts, and he has repeatedly used the deal as proof that he can radically renegotiate Britain’s membership with the EU.
Indeed, the 2015 Conservative manifesto boasts: “We took Britain out of Eurozone bailouts, including for Greece – the first ever return of powers from Brussels.”
EU officials this morning said that deal – arguably Mr Cameron’s greatest diplomatic coup in Europe to date – had been assessed by lawyers as nothing more than a “political” accord with no legal force.
Mr Cameron fought a bitter and lonely battle to block the appointment of Mr Juncker, the former Prime Minister of Luxembourg.
The episode will fuel concerns among Eurosceptics that the Commission will not be an honest broker during the renegotiation of British membership of the EU. It will add to demands for full treaty change before polling day – rather than a simply protocol promising future reform.
Mr Obsorne this afternoon rang his counterparts to say the plan was a "non-starter", ahead of a meeting in Brussels on Tuesday at which he could, in theory, be out-voted.
A Treasury source said: "Our Eurozone colleagues have received the message loud and clear that it would not be acceptable for this issue of British support for Eurozone bailouts to be revisited.
"The idea that British taxpayers’ money is going to be on the line in this latest Greek deal is a non-starter."
At breakfast this morning Alexis Tsipras, the Greek premier, capitulated to German demands for a gruelling package of austerity measures in exchange for a third bailout worth more than 86 billion euros. The cash will come from the European Stability Mechanism (ESM), a rescue fund backed by other Eurozone states set up in October 2012.
However, it will may be weeks before the cash is available because the package must be signed off by half a dozen European parliaments.
In the meantime, Greece must find 12 billion euros to service its debts by the end of August, or suffer a catastrophic banking collapse. It includes a vital 4.2 billion euros to repay the European Central Bank on Monday.
To cover these short-term costs, Mr Juncker wants to revive the European Financial Stabilisation Mechanism (EFSM), a loans facility used to rescue Ireland and Portugal early in the Eurozone crisis. It works by borrowing money on the international markets, using the EU’s own budget as collateral, and can release billions with the nod of of EU finance ministers.
Britain pays around 14 per cent of the EU budget – meaning that lending Greece 8.6 billion euros would leave UK taxpayers exposed to the tune of around £850 million. The risk of default is high.
Yet Mr Cameron secured a binding written agreement with his counterparts at a Brussels summit in December 2010, explicitly prohibiting such a deal.
In exchange for British consent to treaty change to create the ESM, the text of the deal stated that the EFSM would not be used again to bailout Eurozone members.
Mr Cameron told the House of Commons: “Both the Council conclusions and the decision that introduces the treaty change state in black and white the clear and unanimous agreement that from 2013 Britain will not be dragged into bailing out the eurozone.
“Britain is not in the euro and we are not going to join the euro, and that is why we should not have any liability for bailing out the Eurozone when the new permanent arrangements come into effect in 2013.”
In 2011, Mr Cameron fought and won to prevent the EFSM from being used to bailout Greece, even before the new deal came into force.
“I wanted to seek assurances at this European Council that Britain won’t be called upon to do that,” he said at the time. “I sought those assurances, I have received those assurances. Nevertheless I will continue to be vigilant on this issue.”
Jeroen Dijsselbloem, the Dutch chief of the Eurogroup, on Monday confirmed publicly that a bailout “involving all member states” will be considered by a meeting of EU finance ministers.
Britain has no veto, with approval instead requiring the consent of 85 per cent of states, weighted for population - presenting the risk that Mr Osborne could, in theory, be out-voted by his colleagues.
Asked about the British deal, a senior EU official said: “The council decision is a political agreement, and it can be argued that it does not prevent the activation of mechanism.”
A Downing Street spokesman said: "Leaders from across the EU agreed in 2010 that the EFSM would not be used again for those Euro area, and that remains the Prime Minister's view. We have not received a proposal and one is not on the table."
