The Bruges Group’s latest report has exposed that the UK is facing a maximum potential loss of €149.2 billion on its financial commitments to the EU and the Euro.

The report reveals the full extent of our obligations in respect of the present and future debts of EU institutions including:

How the Government’s defined position is questionable in law and therefore has led it to underestimate its full potential exposure to EU debt; and

That the true extent of the UK’s potential exposure is €149.2 billion because:

The European Central Bank (ECB) is entitled to call upon the Bank of England for up to €50 billion of the UK’s currency reserves should the viability of the ECB be at risk;

The European Investment Bank (EIB) can call upon up to €35.7 billion from the UK, should it lose money on the loans that it has made to governments and organisations in vulnerable economies such as Greece, Portugal, Spain, Italy and Ireland;

The UK currently has a €60 billion liability to the European Financial Stabilisation Mechanism (EFSM). Solvent members are required to jointly take on the insolvent member’s debt; and

The UK’s €1.9 billion of paid-in capital to the EIB and a further €1.6 billion to the European Central Bank (lodged to pay the UK’s share of its costs) is also at risk.

They go on to show that:

The UK is linked far more directly into the mechanisms for the funding of the EU and for carrying out the operations to deal with the Eurozone debt crisis than the debate about further IMF contributions would infer.

The Bruges group recommend that the exposure through the European Union should reduce in 2013, if the EFSM can be transitioned into a longer-term Eurozone-only arrangement, be that the EFSF or the European Stability Mechanism (ESM).

However, they note that the extra €35.7 billion of uncalled capital to the EIB is an ongoing, unconditional and irrevocable commitment, while the exposure to the European Central Bank is in their opinion a wild card.

The evidence of how deeply the UK is committed to the European Union’s financial mess is becoming clearer. Reassurances that UK tax payers are not expected bear these burdens look rather more threadbare following this report.

Tags: Banking, Central Banking, debt, EU, euro, Financial Crisis, Referendum