It was said by the BBC’s Business Editor, Robert Peston this morning that the British contribution to a potential Portuguese bailout would be “close to zero”. I asked BBC chiefs for this to be rectified because it is absolutely wrong, and completely contrary to what official sources state. I also asked them for chapter and verse within one hour, along with their sources and a full calculation of how they can allege the British contribution would be “close to zero”. So far, I have heard nothing.
Peston’s calculation this morning followed a blog yesterday, in which he stated that Britain's contribution will be “minimal.” Really? On what basis? In addition to loans from the IMF, any bailout will consist of the two eurozone mechanisms, the eurozone facility (EFSF, €440bn) and the European Financial Stability Mechanism (EFSM, €60bn). The UK’s liability is incurred through its contributions to the IMF and its share in the EU Budget, against which the European Financial Stability Mechanism is guaranteed. (The UK is not a participant in the EFSF, which is supported by guarantees from eurozone member states only). The UK’s liability via the EFSM will be equal to the relative share of its contributions to the EU Budget (10.2% in 2011) – and via the IMF, it will be proportional to its quota (currently 4.8%).
In terms of the size of the overall loans package to Portugal – and in line with figures from the House of Commons research department – based on the support to Ireland and Greece in relation to the size of their economies, and allowing a margin of error, overall support to Portugal could be between €60bn and €90bn.
When we consider the balance of support between the three funding mechanisms, of which the IMF is one component, the remaining balance between the EFSF and the EFSM may well not be absolutely precise at this stage. But after the loans package to Ireland, only €35.5bn remains in the EFSM, so the liability the UK can incur through this route stands at approximately €3.6bn (£3.2bn). How can it be alleged that the British contribution therefore is “close to zero”?
Furthermore, Robert Peston’s comment in his blog piece says “only in the event that the Portuguese financial crisis exhausted the available money in the eurozone's bail-out fund – which it won't – would the UK become liable”, which implies the eurozone’s EFSF must be used and exhausted before the European Financial Stability Mechanism is called upon. This does not seem right at all. The balance of support between the EFSF, the EFSM and the IMF will be the product of negotiation if or when Portugal requests assistance. If we look at Ireland’s case, however, more support was provided via the EFSM (€25.5bn) than the EFSF (€17.7bn). Whichever way we look at it, none of this amounts to Britain’s contribution as being “close to zero”. In fact, the absolute opposite is true.
After my Urgent Question in the Commons yesterday, I said that if there is any question of the Prime Minister agreeing to the new European Stability Mechanism, this should require a quid pro quo – namely, that the British taxpayer should be relieved of the obligation to underwrite any bailout of eurozone countries by repealing the existing European Financial Stability Mechanism – which the European Scrutiny Committee, of which I am Chairman, described as “legally unsound”. If this is not repealed it will continue until 2013, hanging like a sword of Damocles over the British economy. The collapse of the Portuguese Government makes it almost inevitable that we will be called upon to underwrite the bailout of their economy to the tune of about £3.5bn. If the Chancellor of the Exchequer had announced in the Budget speech that there had been £3.5bn to pay to Portugal, there would have been uproar and dismay.