British Chancellor, Finance Secretary, George Osborne was meeting European finance ministers Friday to discuss the details of a possible bail-out of Portugal, amid fears that British tax-payers will have to find more than 4 billion pounds as part of a rescue package, the Treasury said.
Osborne flew out to Budapest last night for a two-day summit in the Hungarian capital after Portugal's prime minister Jose Socrates said his country would be seeking European help.
Lisbon has yet to make a formal request for financial assistance but the size of any bail-out is estimated at between 75 billion to 85 billion euros (65 billion pounds to 75 billion pounds). As well as the size of any bail-out, European finance ministers will also thrash out possible conditions that could be attached to it such as austerity measures. The make-up of any package, as well as interest rates, are all topics up for discussion. Officials said the final deal would be similar to that offered to Greece and Ireland. But the British Government will not be offering Portugal a bilateral loan as it did to Ireland.
Portugal's plea for help came as the European Central Bank put up interest rates by a quarter of one per cent, putting further pressure on ailing economies within the eurozone.
Yesterday, Osborne said Lisbon's debt crisis showed why the Government had to take firm action to tackle the record deficit in Britain's public finances. But Labour accused him of "desperate scaremongering", warning that the coalition Government's austerity programme had in fact put the UK into the group of "slow-growth" economies alongside Portugal. And there was anger among Conservative MPs at the prospect of the UK being forced to help rescue another member of the eurozone, having already contributed emergency funding to Ireland.
The terms of a deal signed by Osborne's predecessor Alistair Darling in the dying days of the Labour government, means that Britain is committed to contributing a share of any bail-out provided before 2013 under the European Financial Stability Mechanism (EFSM). The officials at the Treasury have confirmed Britain could be required to underwrite a loan of up to about 4.4 billion pounds- 13.6 percent of the 37.5 billion euros remaining in the EFSM fund - as well as 4.5 percent of any IMF loan to Portugal.
Eurosceptics argued any Portuguese bail-out should be funded from the separate 440 billion-euro European Financial Stability Facility, which involves only eurozone countries and imposes no liability on the UK. Addressing the British Chambers of Commerce annual conference in London, Osborne said the UK could now be in a similar plight to Portugal if the coalition Government had not pushed through its emergency cuts plan.
"These risks are not imaginary - they are very, very real," he said.