Osborne urges euro debt response

21 July 2011 Last updated at 08:41 GMT

Mr Osborne has said the UK cannot insulate itself from the eurozone's problems George Osborne has urged eurozone members to "get a grip" on the sovereign debt crisis plaguing Europe to prevent it spreading further.

The chancellor told the Financial Times unless action was taken there was the risk of economic damage on the scale caused by the 2008 banking crisis.

He was speaking before countries using the single currency hold a crunch meeting to discuss the Greek crisis.

Germany and France said they had agreed a common position on how to handle it.

If Greece's financial problems are not stabilised, there are fears of a wider "contagion" with concerns about the capacity of countries such as Italy and Spain to restructure their debts.

'Very worried'

The UK is not a member of the eurozone and Mr Osborne is not attending the meeting.

While he told the FT he was optimistic that the 17 eurozone members would make progress on the challenges facing them, he stressed the dangers of not doing so were considerable.

"We see the potential for a set of economic events that could be as damaging as 2008," he said.

"I am very worried. This building (Treasury) is very worried and this government is very worried."

While not contributing to eurozone bail-outs of Greece and Portugal, the government has consistently stressed that a stable eurozone is in the UK's interest - as 40% of the UK's trade is with Europe.

Mr Osborne acknowledged that despite not being in the single currency area, the UK could not be insulated from the problems in the eurozone.

"The economic situation is tough. We face a lot of difficult economic situations at the moment with the eurozone, with America.

"Britain was already carrying some heavy weights on the road to recovery. We had the deepest banking crisis, the biggest deficit. Now added to that have been some additional weights on our journey from abroad. That is not an excuse, it is an explanation."

The eurozone is looking at ways for the private sector to take a bigger role in supporting Greece's debts - potentially by expanding the bail-out package to include the purchase of Greek bonds.

Amid calls from within the eurozone for greater fiscal integration to help struggling economies, Mr Osborne said there was a "remorseless logic" to this and the idea of issuing eurozone bonds was "worthy of serious consideration".

'More active role'

But he stressed the UK would not be taking part in any eurozone financial solutions.

"Britain's taxpayers stand behind the pound. Europe's taxpayers are going to have to stand behind the euro," the chancellor said.

Labour has said that the UK should be playing the role of "honest broker" in eurozone discussions.

"The British government should not be saying it is a eurozone problem because this affects the British interest," said shadow chancellor Ed Balls.

And former Labour chancellor Alistair Darling said eurozone leaders needed to come up with a "convincing" response not a short-term fix to stop the problems spreading.

"You can see a real calamity facing us," he told the BBC.

"If America has problems and starts getting downrated in relation to its credit, we have got this continuing problem in Europe and you already have got very sluggish growth in this country.

"This is going to have a real impact ... and I do think our government ought to have been playing a more active role in encouraging our partners in Europe to sort this problem out.

"This is something we can quite properly do even though we are not a member of the eurozone."

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