France attacks UK over attitude to bail-out fund

11.05.10 @ 17:44

  1. By Leigh Phillips

BRUSSELS - Furious at the UK's refusal to participate in the eurozone bail-out, France has brusquely warned that Europe will not come to Britain's aid when - not if - the markets round on sterling.

  • The pound is on its own after the UK refused to participate in the euro bail-out, Mr Jouyet said (Photo: consilium.europa.eu)

The French market regulator, Jean-Pierre Jouyet, on Tuesday (11 May) told Europe 1 radio that it is inevitable that the pound will be targetted and that when that happens, Britain will be on its own.

"The English are very certainly going to be targeted given the political difficulties they have. Help yourself and heaven will help you," he continued.

"If you don't want to show solidarity with the eurozone, wait and see what happens outside it."

On the weekend, as EU leaders scrambled to cobble together a half-a-trillion-euro bail-out for the single European currency, the UK's main priority was to avoid being part of the scheme.

British finance minister Alistair Darling at the time said: "When it comes to supporting the euro, obviously that is for the eurozone countries."

Sweden and Poland however, both also outside the euro area, are to participate in the EU €440 billion "special-purpose vehicle," the EU's vast new emergency fund.

The warning from Mr Jouyet, a former Europe minister and a confidante of President Nicolas Sarkozy, comes as rating agencies are considering a downgrade from the UK's tripe-A credit rating.

On Tuesday, French bank BNP Paribas issued a shot across the bows of a possible Labour and Liberal Democrat coalition, warning that should such an alliance materialise, a downgrade was all but "guaranteed."

"A Lab/Lib government is the least liked option by markets and would almost guarantee a downgrade of the UK sovereign," reads the French bank's analysis of the UK situation.

The bank notes that Moody's, the rating agency, had said that Britain is unlikely to receive a downgrade while coalition talks were still ongoing.

"However, the implicit meaning of this statement suggests that the rating agency will look carefully into budget plans when deciding on the potential downgrade."

"We believe that a downgrade under a Lab/Lib government is more than likely since both parties agree that early expenditure cuts could harm the economy," the BNP Paribas analysis concludes.

Traders worry that such a coalition, or even a Tory-Liberal agreement, may produce obstacles to swift and deep cuts to reduce the UK's huge budget deficit.

The European Commission's spring economic projections say Britain, already home to the third largest budget deficit in the EU, is to overtake both Greece and Ireland in terms of indebtedness later this year.

Such a downgrade would raise the cost of government borrowing as interest payments would increase.

"There is not a two speed Europe but a three speed Europe. You have Europe of the euro, Europe of the countries that understand the euro, such as Poland and Sweden, and you have the English," said Mr Jouyet.

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