George Osborne has backed down over the use of an EU bailout fund to give an emergency loan to Greece. But the chancellor said there would be an “impregnable ringfence” around the up to £850m of British money in the fund to prevent any losses to the taxpayer in the event of any default.

The chancellor argued it was a major victory for Britain in the EU because he had made it a “red line” that UK funds would not be threatened. But Eurosceptics will paint it as an example of Brussels reneging on an agreement with the UK, as David Cameron thought he had secured an opt-out from the EU-wide bailout fund being used after it was set up to help Ireland and Portugal in 2010.

The compromise has been stitched together because Greece needs an emergency cash lifeline of €7bn (£4.9bn) by Monday to avoid a catastrophic banking collapse.

Speaking after the deal, Osborne said it was a “significant victory and strengthened the protections for the UK in the latest Greek bailout and any future bailouts of eurozone countries”.

“I said British taxpayers’ money would not be on the line in any agreement and that’s precisely what we have achieved,” he said.



“I made clear to my European counterparts that this was an absolute red line for Britain. While we have sought to be constructive and want to see a stable solution to the Greek crisis, it could not have been right for Britain to have allowed its taxpayers’ money to be on the line in what is an issue for the eurozone itself to resolve.

“These have been tough talks, but the agreement announced this evening means an impregnable ringfence around British taxpayers’ money, which will not be at risk in any way in this emergency financing for Greece.‎”

He said the European commission has agreed these changes will be legally binding, and that it established an important principle in EU law that eurozone and non-eurozone countries have different responsibilities.

Under the rescue package, Greece will get its loan through the European Financial Stabilisation Mechanism (EFSM), which borrows against the EU budget of which the UK contributes 14% or around £850m.

In the event of a default by Greece, non-eurozone countries will not be liable for the bill because their contributions are being ringfenced. If that were to happen, the cash would instead come from the profits made on holdings of Greek bonds by the European Central Bank.

Over the last week, Osborne has repeatedly insisted he would oppose any deal in which UK taxpayer cash was put on the line, arguing that the “eurozone needs to foot its own bill”.

Germany also expressed scepticism about reviving the EFSM, as did countries such as Denmark and the Czech Republic.

However, the commission formally proposed using the EFSM on Wednesday “in the absence of a better solution” and a decision will now be made by the council of finance ministers.