Humiliated Europe forced to beg China for bailout

Under pressure: David Cameron is being urged to take back powers from Brussels. Angela Merkel and Nicolas Sarkozy are battling to save the euro
12 April 2012

Europe was forced to pass a begging bowl to China to help bail out the euro today after dramatic all-night talks on how to rescue the single currency.

French president Nicolas Sarkozy announced at 4am that he will call Chinese president Hu Jintao today to discuss China contributing to a huge new bailout fund.

The move was the latest humiliation for the eurozone leaders after a week of public bickering and divisions.
After a marathon night of talks that included 90 separate meetings, the
17 eurozone members agreed a
three-pronged rescue plan - a bailout fund of at least 1 trillion (£880 billion), which is four times as big as at present; investors in Greek debts to take a "haircut" of about 50 per cent; and banks required to recapitalise by June next year.

Shares rose in London and the Far East as investors welcomed the news. However, many details of the bailout mechanism are unclear or not yet agreed and there were warnings that the markets could turn if the euro club fails to deliver.

Analysts said China, which has grown rich from mass exports to the west, would be wary of handing over money without assurances. Shen Jianguang, a Hong Kong-based economist for Mizuho Securities Asia Ltd, said: "China will need time to evaluate this plan very carefully.

What worries China is that there is so much disagreement among European policymakers. It doesn't want to be seen spending money on a plan that even Europeans don't want to support."

In a warm Commons statement, Chancellor George Osborne said: "The deal put together was much better than expected. They have started down the right road, now they have to finish the job."

He said sorting out the eurozone would be the biggest single boost to Britain's own economic prospects. "This is the solution to the crisis we have been advocating for months," he said.

But there was deep alarm among British Eurosceptics as it emerged that the 17 eurozone countries are planning now to form an inner core of Europe complete with their own Euro group president and twice-yearly summits.

The decision makes a two-tier European Union a reality - and critics said Britain could be outgunned at crucial negotiations.

"These proposals are extremely dangerous for Britain," said veteran Eurosceptic Tory MP Bill Cash. "We are looking at two Europes tied together by a treaty."

He urged Prime Minister David Cameron to publish a detailed explanation of how Britain could be affected in future and what EU Treaty changes will be needed. "The reality is that this affects the UK politically, economically and constitutionally in a fundamental way," he said.

However, Mr Osborne backed the moves by the 17 towards greater fiscal union. "We've got to allow greater fiscal union. We've got to ensure that our influence is not diminished."

He said the deal must be endorsed by MPs in each of the eurozone countries: "It is going to be a difficult road ahead, but they are on the right road and it is in Britain's national interest that they sort these problems out because the instability in the euro is having a chilling effect on the British economy."

Amid fears that Britain will become isolated in summits in future, Mr Osborne vowed to MPs in the Commons: "We are insistent that our voice will continue to be heard."

He stressed that he would insist that no decisions affecting the financial services industry would be taken without Britain taking part.

Former Cabinet minister John Redwood said there were too many unanswered questions about how the rescue deal, and the bailout in particular, would work. "Markets may believe this for a bit," he said. "The first reactions have been to rally on the news."

But he warned: "This looks like another attempt to tackle the symptoms. The underlying problems remain. Meanwhile the two-tier EU is taking shape. Euroland is becoming a club within the club. The UK needs to get on with negotiating a new relationship with it."

Mr Cameron is huge under pressure from his MPs to take any opportunity to recover powers lost to Brussels. However, No 10 sources made clear the Prime Minister will not put a gun to the eurozone leaders' heads by demanding concessions in return for approving the bailout deal.

"The priority is sorting out the crisis in the eurozone," said an official firmly.

Mark Pritchard, the secretary of the 1922 Committee, which represents Tory backbenchers, said: "I welcome this progress which is in our interests but these are substantial changes that will impact on Britain."

Justice Secretary Ken Clarke said fear about a two-speed EU was "one of the big issue we have to address in due course". He pointed out that some of the other nine countries not in the euro club intend to join, and said: "So what we have to make sure is that that does not exclude us from proper participation in decision-making."

Labour's shadow chancellor Ed Balls said Europe still lacked a "growth strategy" to boost its economies.

German chancellor Angela Merkel, who was widely seen to have done well in the talks, said: "I think we were able to meet expectations and we have done what needed doing."

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