May 11, 2010 3:00 am

Rivals agree UK will not prop up currency

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The eurozone bail-out could cost the UK €8bn ($10.2bn, £6.9bn) if borrowers default on their debts but, although London has agreed to play its part in a €60bn EU balance of payments facility, Labour and the Conservatives have both ruled out involvement in a €440bn eurozone loan facility.

Alistair Darling, who continues to act as chancellor while the three main parties negotiate who will form the next British government, agreed on Sunday to back a share of the balance of payments facility of loans and loan guarantees for European countries that are struggling to borrow on financial markets.

Because it pays 13 per cent of the EU budget, the UK is notionally on the hook for a similar share of the facility - or about €8bn.

But the UK would have to pay out this cash, which would add to the swollen national debt, only if all borrowers defaulted on their debts to the European Commission.

That is thought highly unlikely because earlier loans were made with strict conditions from the IMF. The only countries to default on IMF loans in recent years have been basket cases such as Iraq and Zimbabwe. When Argentina defaulted on its debts in 2001, it did so only to private sector borrowers; it paid the IMF back.

Mr Darling said yesterday: "That was one thing that I was absolutely clear about, right from the time when I arrived [on Sunday] until two o'clock this morning when we finished these negotiations. There was no way that non-euro countries should be asked to underwrite the euro currency."

Franco Frattini, Italy's foreign minister, said yesterday he hoped a new British government would rev-erse the decision not to provide support for the euro.

"They wanted to send a message. I believe, and I strongly hope, that this message will be taken back once the new government co-operates with the EU," he said. "We need everybody on board."

But the Conservative party appeared to reject that possibility, and Mr Darling has said the Lib Dems are also opposed to underwriting the euro.

George Osborne, shadow chancellor, took part in negotiations for the bail-out at the weekend and spoke to Mr Darling and other finance ministers.

Mr Osborne had "concerns" over the €8bn exposure, a spokesman said, and was worried that "this sets a precedent that might go further".

The Conservatives did not believe it was a big threat because the chances of default were thought to be small. But they "would never support the UK providing wider support for eurozone countries" by helping finance the €440bn wider bail-out package.

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