Osborne should lay out euro crisis stimulus plans - IFS

Chancellor George Osborne should publish broad stimulus plans for an emergency such as a break-up of the euro zone in next month's budget, the country's leading fiscal policy think-tank said on Wednesday.

The Institute for Fiscal Studies said that while austerity is needed in the coming years to fix public finances, the case for some short-term stimulus had strengthened as the economy has probably entered a mild recession.

But it acknowledged the large risks to even a temporary spending boost, saying any loss in market trust could cost Britain dearly as it has to issue 740 billion pounds to fund new borrowing and refinance maturing bonds over the next five years.

Britain's Chancellor of the Exchequer
George Osborne arrives at the
Treasury in London January 25, 2012.
REUTERS/Suzanne Plunkett

"Regardless of whether or not Mr. Osborne thinks that a substantial short-term fiscal stimulus is appropriate at the moment, he should set out now broadly what he would do under alternative scenarios where the economic outlook for the UK is sharply weaker - such as were the Eurozone to collapse" it said.

IFS programme director Gemma Tetlow said clarity now could avoid accusations of any U-turn later.

"It might be reassuring for businesses and individuals that, if something were to go wrong, the government would be prepared and in a position to do something in the short-term," she said.

The debate about the need for a short-term boost is already heating up ahead of the budget, due on March 21, as the economy contracted by 0.2 percent at the end of 2011.

Chancellor Osborne has blamed the euro zone debt crisis for Britain's meagre economic performance over the past few months. The government has said it is working on plans for all eventualities but has so far refused to give any details.

Osborne announced more spending cuts in November to meet his main target to erase the budget deficit within five years as the weak economic outlook drives up borrowing.

A Treasury spokesman said the IFS's report supported the government's deficit policy. "The IFS say that ... any fiscal stimulus big enough to make a difference would undermine investor confidence and so risk higher interest rates," he said.

Consultancy Oxford Economics, which provided the IFS with alternative growth scenarios, said if the euro zone breaks up, Britain's economy would slump by 1.7 percent this year and 0.9 percent in 2012. Its central view is for 0.3 percent growth this year and 1.9 percent next, lower than the government fiscal watchdog Office for Budget Responsibility's forecast of 0.7 percent growth in 2011 and 2.1 percent in 2013.

The IFS said under its main scenario - using the OBR's growth forecasts - the government's net borrowing was likely to be nearly 3 billion pounds lower in 2011/2012, and some 9 billion pounds lower in 2016/2017 than the OBR itself predicts.

©Reuters 2012

EU and US economic leaders spar at Davos

EU and US economic leaders spar at Davos 

Key policy-makers from Europe and the United States thrashed out ideas for pulling the eurozone out of its debt crisis at the Davos forum on Friday, days ahead of a key European summit.

While cloistered in a snow-bound conference centre high in the Swiss Alps, the global political and business elite had one eye on Greece, hoping that a long-awaited deal to write down its debt might at last fall into place.

Greek Prime Minister Lucas Papademos is in talks with banks and insurers on a voluntary exchange of bonds that would wipe 100 billion euros ($130 billion) off the country's debt of 350 billion euros.

The deal under discussion would see private creditors take a "haircut" of at least 50 percent on 200 billion euros in debt. Previous talks stalled over the amount of interest to be paid on the remaining debt.

Any failure to strike a deal could trigger a messy default, which would be an economic disaster for Greece itself, a threat to banks holding too much sovereign debt and pile on the pressure on other eurozone state.

World markets and delegates in Davos have begun to show signs of cautious optimism that a deal is near, and that Monday's EU summit will draw a line under the debt crisis and allow governments to move on to pro-growth measures.

The finance ministers of Germany and France and the head of the European Central Bank were in Davos to debate strategy and defend the beleaguered single currency area after it was attacked by Britain's leader.

They will all then meet again on Monday in Brussels for the latest in a series of high stakes EU summits, the bloc's first since Standard & Poor's downgraded the credit rating of a slew of eurozone member states.

And US Treasury Secretary Timothy Geithner was to debate the outlook for world economy after the Obama administration acknowledged that the eurozone slump is undermining American growth ahead of the November election.

The annual forum has been marked by gloom about the state of the global economy, and in particular about Europe's struggle to cope with yawning public deficits while at the same time seeking growth and jobs.

The euro has been under pressure -- amid fears that Greece or even eventually a giant like Spain or Italy could default on its debts -- and the 17-nation bloc's economy in on the brink of renewed recession.

A fortnight after France was stripped of its triple A credit rating, Finance Minister Francois Baroin will join his German counterpart Wolfgang Schaeuble in a debate entitled: "How will the eurozone emerge from the euro crisis?"

After the Friday the 13th downgrade by Standard and Poor's, Baroin said the development was "not a catastrophe" and insisted that the government rather than the ratings agencies would decide French policy.

But the Davos meeting has reverberated with calls for eurozone nations to act decisively to restore confidence, Canada's leader Stephen Harper said that Europe's capitals have been guilty of complacency.

British Prime Minister David Cameron also piled on the pressure, reviving his simmering feud with the rest of Europe on Thursday by savaging France and Germany's plans for a new financial transactions tax.

"Even to be considering this at a time when we are struggling to get our economies growing is quite simply madness," he declared.

The eurozone has caused alarm far beyond the continent and Mexican President Felipe Calderon used his speech Thursday to urge Europe to "bring out the bazooka immediately" to prevent the problem from sinking Italy and Spain.

"It is necessary to bring out the bazooka immediately, before the gunpowder gets wet," said Calderon, who holds the rotating chair of G20 world powers.

"Don't forget that we are in the same boat. It is not just a question of a possible implosion of the euro, but a crisis across the world."

Geithner's address comes a day after the Federal Reserve cut its US growth forecast to 2.2-2.7 percent, about one-quarter percentage point below the previous forecasts, citing the eurozone crisis.

"We continue to see headwinds coming from Europe," Fed chairman Ben Bernanke said at a news conference.

The third day of the Davos gathering also focused on events in the Middle East and North Africa, with an address from Hamadi Jebali, the post-revolution Islamist premier of Tunisia, and a debate on Iran's nuclear ambitions.

Jebali's appearance is designed to imbue a rare spirit of optimism but he will speak just as eyes will be turned towards the head of the UN's atomic watchdog as he discusses the implications of Iran acquiring a nuclear bomb.

International Atomic Energy Agency chief Yukiya Amano will be joined at the debate by Ehud Barak, the defence minister of Iran's arch foe Israel.

Copyright © 2012 AFP. All rights reserved.

Bank inches towards more QE as global risks loom

Bank inches towards more QE as global risks loom

The Bank of England inched towards pumping more money into the faltering economy in January as the risks from the global economy still loomed large, minutes to the Bank's January 11-12 meeting showed on Wednesday.

The Bank of England is seen against
a blue sky in the City of London October 6, 2011.
REUTERS/Suzanne Plunkett

The central bank's minutes repeated the view that inflation was set to fall sharply in the coming months, though tensions in the Middle East carried the risk of a sharp rise in oil prices.

The 9-member monetary policy committee also noted that some positive developments moderated some of the most serious risks, pointing to the European Central Bank's generous provision of long-term liquidity.

The MPC voted unanimously to hold the target for asset purchases steady at 275 billion pounds and the key interest rate at the record-low of 0.5 percent, where it has been since March 2009.

"For some members, the risks of undershooting the (inflation) target meant that a further expansion of asset purchases was likely to be required," the minutes said in a slightly more assertive tone than last month.

Britain's economy has been moving closer to recession over the past few months though some less downbeat business surveys and retailers' strong Christmas sales raised hopes that the country may avoid another slump.

The Bank reiterated the view that output was likely to be broadly stagnant in the final quarter of 2011 and the first three months of 2012.

Most economists expect the central bank to announce another 50 billion pounds cash injection for the economy in February as the government's hands are tied by its pledge to erase the country's huge budget deficit over the next five years.

Bank governor Mervyn King said in his first key note speech of the year that falling inflation is providing the scope for further quantitative asset purchases if necessary.

The policymakers judged that there was no compelling reason to think that the impact of the current bout of quantitative easing would be materially different from the first round, the minutes showed.

The minutes reiterated the Bank's forecast that inflation would fall sharply in the near-term as one-off effects such as last year's increase in sales tax fell away, though the policymakers also noted the uncertainty in the medium-term.

"There was greater uncertainty about the speed and extent of the fall in inflation thereafter," the minutes said.

Mervyn King predict lower inflation

Some members continued to argue that risks to inflation were overall more finely balanced and it was less clear that it would fall below the target in the medium term.

In particular Bank chief economist Spencer Dale has indicated that he would want to see clearer signs that inflation was coming down as expected before voting for further asset purchases.

Inflation has eased to 4.2 percent in December, down from the three-year high of 5.2 percent hit in September, though still more than twice the central bank's target.

The Bank forecast inflation to fall below 2 percent towards the end of this year. The Britain's large utility companies announced to cut gas and energy prices over the past couple of weeks.


©Reuters 2012

Greece 'Names And Shames' Top Tax Dodgers

Debt-laden Greece has released a list of 4,000 of the country's biggest tax dodgers as part of a name-and-shame policy to get evaders to pay up.

A famous singer, retired basketball star and former media magnate are among those on the list published by the Greek government.

The debts listed total almost £13bn, with the worst offender owing the state nearly £8.4m.

Tax evasion is endemic in Greece and its international lenders, the EU and the IMF, have insisted that Athens improve its tax collection if they are to continue bankrolling the debt-crippled country.

Greece has about £50bn in unpaid taxes, a figure equivalent to about a quarter of its economy, according to an EU report published in November.

The 'name and shame' list came as EU finance ministers met to discuss the ongoing crisis in Greece and the rest of the eurozone.

The Institute of International Finance (IIF) , which represents Greece's creditors, is also holding a press conference on Tuesday ahead of this week's World Economic Forum in Davos.

The Greek tax evader list includes veteran singer Tolis Voskopoulos, former basketball player Michael Misounof and a whole host of business tycoons.

At the top is a 58-year-old accountant who is currently serving a 504-year prison sentence for tax fraud. He allegedly owes £794m, most of which is in surcharges and fines.

With many other tax dodgers on the list also in prison or bankrupt, Greece's finance ministry acknowledged that it would be extremely hard to collect many of the outstanding debts.

Finance ministry official Haris Theocharis said: "The truth is that these lists contain debtors who in some cases have owed the money for a long period of time, so after a certain point one does not expect to be able to collect the debts.

"But I'm sure that there are possibilities ... In some cases (publication) will push debtors to settle their debts, and tax offices to redouble their efforts."

Greece 'Names And
Shames' Top Tax Dodgers

Despite repeated pledges over the past two years, Greek officials have failed to make progress in collecting outstanding debts.

Little more than a tenth of the £50bn owed in tax is seen as collectible.

Greece's 2011 budget deficit is expected to be around £16.5bn. This compares to an annual gross domestic product of about £182bn.

The Greek government has acknowledged the grave shortcomings of its tax service, even admitting that a hugely unpopular new property tax, under which non-paying households will have their electricity cut off, might not have been imposed if the tax collection system was more efficient.

©Sky News

Pressure grows over RBS bonuses

Deputy Prime Minister Nick Clegg has insisted there should be no big, million pound-plus bonus payout for the boss of the mainly state-owned Royal Bank of Scotland.

Mr Clegg dismissed reports that RBS chief executive Stephen Hester was in line for an award of £1.5 million or more as "pure speculation".

"You are asking me about a hypothetical outcome that I don't believe will arise," he told BBC1's The Andrew Marr Show.

Royal Bank of Scotland chief executive Stephen Hester
received a two million pound bonus last year

He said the Government's ability to influence bonus payments at RBS - which is 83%-owned by the taxpayer - was "constrained" as a result of contractual arrangements entered into by the last Labour government.

However he made clear that ministers expected the overall bonus pool at the bank to be "considerably lower" than it was last year.

"We have been very, very clear that in RBS - and for that matter in other banks - the bonus pool has got to be considerably lower than it was last year," he told BBC1's The Andrew Marr Show.

"The Bank of England, the Financial Services Authority, are saying exactly the same thing because any money that is spare should be where possible be used to repair the banks' balance sheets."

Mr Clegg stressed no decisions had been taken yet on the bonuses at RBS. But after David Cameron said last week that Mr Hester's bonus would be "a lot less" than the £2 million award he received last year, Labour leader Ed Miliband said the Prime Minister had to ensure the awards were kept in check.

And Mr Miliband later went further, calling for Mr Hester to be stripped of his bonus altogether. "Taxpayers are still footing the bill for what's happening at the Royal Bank of Scotland," he told BBC Radio 5 Live's Pienaar's Politics.

"If responsibility means anything I don't think he should be getting his bonus. And the Prime Minister, if he's true to his word, would exercise his responsibility to do something about that."

Jobless total hits 17-year high

Unemployment reached a 17-year high today after a 118,000 increase in the jobless total, which saw a record number of young people out of work.

The figure jumped to 2.68 million in the three months to November, the worst since the summer of 1994, giving the UK a jobless rate of 8.4%.

The number of unemployed 16 to 24-year-olds increased by 52,000 over the quarter to 1.04 million, the highest since records began in 1992.

And the number of people claiming jobseeker’s allowance in December increased by 1,200 to 1.6 million, the highest for a year after the 10th consecutive monthly rise.

Other figures showed that almost a million working days were lost in November as a result of the public sector pensions strike, the highest figure since 1989.

The Office for National Statistics reported that the number of people in full-time employment fell by 57,000 in the latest three months, but there was a 75,000 increase in part-time workers.

There was a 44,000 rise in the number of people working part-time or for themselves because they could not find a full-time job, taking the total to 1.3 million, the highest since comparable records began in 1992.

Employment increased by 18,000 to 29.12 million, while the number of people classed as economically inactive fell by 61,000 to 9.29 million, a rate of 23.1%.

The fall was mainly due to fewer women looking after a family or home, and fewer retired people under the age of 65.

Unemployment increased evenly among men and women in the latest quarter, while the number of people out of work for longer than two years increased by 1,000 to 424,000.

There was a 10,000 fall in the number out of work for more than a year to 857,000.

Average earnings increased by 1.9% in the year to November, down by 0.2 percentage points on the previous month.

John Salt, director at recruitment firm totaljobs.com, said: “Whether or not the UK is technically in recession, for those out of work the situation is already dire enough.

“Today’s figures merely confirm what our barometer has been telling us for three months now, that applications per job are at an all-time high of 23, with not enough growth in the labour market to absorb the numbers being laid off. What’s more, the signs for 2012 just aren’t good.

“The eurozone crisis threatens not only jobs reliant on exports but also in the financial services industries. With retail already struggling following a lacklustre Christmas, it is difficult to see sectors in which we’re going to see significant increases in available jobs.”

Paul Kenny, general secretary of the GMB union, said: “This rise in unemployment was made in Downing Street. The truth is that jobs are haemorrhaging in the public and private sectors and no one in the Government seems to know what to do to stop this.

“There are parts of the country in such despair that more than a quarter of households with people of working age have no one in work.

“The number one political priority has to be securing a reduction in unemployment.”

Employment Minister Chris Grayling said: “The overall level of unemployment is, and will remain, a major concern for the Government.

“The latest figures reflect the current challenging economic climate but also show more women entering the workforce and more students looking to supplement their income through work.

“When you take into account our welfare reforms, the number of jobseeker allowance claimants has actually fallen.

“Despite the exceptionally difficult economic circumstances, finding work for the unemployed will remain top of the Government’s agenda.”

Chancellor 'confident' on economy

Chancellor George Osborne has insisted the Government was doing everything possible to "weather the storm" as economic forecasters warned the UK is likely to be already in recession.

The Ernst & Young ITEM Club and the Centre for Economics and Business Research both believe that gross domestic product (GDP) shrank in the final quarter of last year and will fall again in the first three months of 2012. A recession is defined as two consecutive quarters of contracting output.

Mr Osborne said the most recent predictions by the Office for Budget Responsibility, which issues official forecasts, showed that Britain would have a negative quarter of growth but not go into recession.

He told BBC Radio 4's Today programme: "That's their forecast, but they were the first to say that it is very uncertain and one of the biggest risks to the British economy is the further deterioration of the eurozone crisis.

The Government is doing everything it can to deal with the economic crisis, Chancellor George Osborne has said

"I said openly at the end of November to the House of Commons when I made my autumn statement that if the eurozone were to go into a deep recession, that would have a real impact on the British economy.

"I'm confident the British Government is doing everything it can with a very difficult inheritance, facing a very difficult international situation to get Britain through this, to weather the storm."

The warnings come shortly after France, the second biggest economy in the eurozone, saw its AAA credit rating downgraded by Standard & Poor's in a move which signals more troubles for the single currency bloc.

Professor Peter Spencer, chief economic adviser to the Ernst & Young ITEM Club, said: "Figures for the last quarter of 2011 and the first quarter of this year are likely to show that we are back in recession and we are going to have to wait until this summer before there are any signs of improvement. But it's not going to be a repeat of 2009 - we are not going to see a serious double dip."

The ITEM Club report forecasts GDP growth of just 0.2% this year before increasing to 1.8% in 2013 and 2.8% in 2014. It said deteriorating levels of confidence will see business investment stagnate in 2012, while export prospects have already slowed.

But the group said UK companies have stronger balance sheets than in 2009 and have built up large cash stockpiles, which will provide a useful insurance policy if the situation deteriorates further.

©Press Association

Eurozone must focus on growth: Britain

Eurozone countries must concentrate on boosting growth and cutting regulation following the downgrading of several nations in the bloc, British Foreign Secretary William Hague said Sunday.

Hague said the decision on Friday by ratings agency Standard and Poor's to downgrade more than half of the members of the debt-ridden eurozone -- including stripping France of its triple-A rating -- was "serious".

"It underlines the fact that the eurozone is not through its problems... Across Europe, including in the UK, we need to redouble our efforts to get growth going," Hague said.

"That means in Europe more free trade agreements with the rest of the world, it means really pushing for the single market, it means stopping passing regulations who've made life more difficult for businesses."

Hague: European countries need growth

Britain, which is not a member of the eurozone, was the only EU member to reject a Franco-German proposal in December for a treaty across the bloc on implementing stricter fiscal discipline.

Prime Minister David Cameron said he did so to protect the City of London from moves to introduce a financial services tax.

Britain was also involved in a slanging match with France last month after the French central bank governor and senior ministers said rating agencies should be mulling a debt downgrade of Britain rather than France.

Britain's AAA rating remains intact.

Hague said it was in Britain's interest for the eurozone, its biggest export market, to recover.

"We want the eurozone countries to recover. They can best do so through that kind of financial actions and to really setting a course for growth. No more time wasting bureaucratic directives, real emphasis on free trade."

AFP 2012

Balls to outline Labour alternative

Labour faces "a big task" to regain economic credibility and win back public trust, Ed Balls is set to admit in a speech.

In a high-profile speech setting out what he terms the "economic alternative" to the coalition Government, the shadow chancellor will acknowledge that Labour should have been "clearer" before the 2010 general election that it would impose spending cuts and tax rises if re-elected.

And he will repeat his message that the party cannot make any commitments now to reverse coalition cuts or tax hikes if it returns to power.

Ed Ball want to regain trust with the electorate

Chancellor George Osborne's economic policy threatens Britain with "a decade of stagnation", Mr Balls will warn in a speech to the Fabian Society in London. Labour must offer an economic alternative which meets the twin challenges of boosting growth now through temporary tax cuts and investment in jobs and delivering reform over the longer term to build "responsible capitalism".

But he will caution: "To make that alternative work and be credible, it must be underpinned by a clear commitment to balanced but tough spending and budget discipline now and into the medium term.

"However difficult it is for me, for some of my colleagues and for our wider supporters, we cannot make any commitments now that the next Labour government will reverse tax rises or spending cuts. And we will not."

Labour's five-point plan for a temporary VAT cut and investment in jobs is needed to "stop a decade of slow growth and higher debts becoming a self-fulfilling prophecy", Mr Balls will say.

"Action now for growth, jobs and reform does not conflict with the need for a credible medium-term plan on the deficit, it reinforces it," he will argue.

This must be coupled with "long-term reform to ... build a stronger and fairer economic model for the future - what Ed Miliband has called a more responsible capitalism - which can, even in tougher times, meet our aspirations for social justice and strong public services", he will say.

But he will acknowledge that setting out an alternative to the coalition's economic policy is not enough, and that Labour must also overcome the electorate's doubts over its economic credentials.

France, Austria and Italy - Downgraded In Credit Ratings Blitz

France, Austria and Italy have all had their credit ratings downgraded by ratings agency Standard & Poor's.
France and Austria now both hold AA+ ratings, while Italy, which formerly held a BBB+ rating, now finds itself on BBB.


More countries are expected to be downgraded in the next few hours.

Francios Barion-"half-surprised"

Speaking on France 2 television, Francois Baroin said his country's notification was a "half-surprise".
"It is not good news," he said, but insisted the country was taking the right direction.
"The markets had perhaps anticipated the move, which is why their reaction was moderated this afternoon."


The euro fell to a 17-month low on the currency markets amid early reports of the news - the latest in the eurozone crisis - and stock markets across the world also declined.


It is understood the agency will confirm the announcement after markets close in the US.

French President will hold crisis meetings.

French president Nicolas Sarkozy held crisis talks with key ministers after news of the downgrade emerged.


Other countries within the single market are also at risk of a downgrade by the prominent ratings agency, among them Slovakia.


Reuters columnist Peter Thal Larsen told Sky News: "If we are talking about expectations then clearly France is what we would consider to be most vulnerable to a potential downgrade."


A French downgrade would be significant due to the country's role as one of the AAA guarantors of the eurozone's rescue fund, the EFSF, which would in turn also need to be downgraded.


Germany would then become the only major AAA-rated economy underwriting the fund.
This would make it more difficult to raise funds to bail out weaker countries, like Italy and Spain, if the need arose.

Standard & Poor - Downgraded France, Italy and Austria's credit ratings with more to come.

But Mr Larsen added that the move by Standard & Poor's (S&P) would not be particularly surprising, as the ratings agency had put several eurozone countries, including Germany, on notice a few months ago.


He said the downgrades would provide a "reality check" to the markets that the eurozone's problems are nowhere close to being solved.


Germany, The Netherlands, Finland and Luxembourg are among the countries not believed to be affected by a downgrade.


The announcement is particularly bad news for Nicolas Sarkozy who faces presidential elections later this year and has staked much of his reputation on being the man to lead France out of the crisis.
Valerie Pecresse, a French government spokeswoman, told a television channel in the country: "France today is a safe investment, it can repay its debt and the news concerning our deficit is better than expected."


Last December, when rumours of a potential French downgrade began, politicians in the country reacted strongly, suggesting that any downgrade would be unjustified.


It was even suggested publically by one senior figure that Britain should be downgraded before France because it had "as much debt, more inflation, less growth than us and...credit is slumping".
Reports of a breakdown in talks between Greece and its banks to restructure its debts also fuelled fears of a default.

Osborne sees reason for economic optimism

LONDON (Reuters) - Britain can be confident about its economic outlook this year, with inflation falling, interest rates low and plans in place to deal with a record budget deficit, Chancellor George Osborne on Thursday.

The sovereign debt crisis in the neighbouring euro zone remained a serious threat to the economy, but Osborne said in an interview with ITV News he thought the single currency would survive.

Osborne's cautious optimism came as the National Institute of Economic and Social Research, a leading think tank, said growth had slowed to just 0.1 percent in the last three months of 2011.

The Bank of England on Thursday kept interest rates at a record low of 0.5 percent, where they have been for nearly three years.

Britain is teetering on the edge of recession as global growth slows, government spending cuts bite, and all-important consumers struggle with high inflation, tax hikes and slow wage rises.

Osborne said there were "signs" the economy was turning a corner and there were reasons to be optimistic in a year when Britain will host the Olympic Games in London.

The low interest rates on British sovereign debt, a result of international markets' approval of the government's deficit-cutting programme, were a "huge boost" to the economy, he said.

"Borrowing is coming down. The job is being done as we talk. Jobs are being created in the private sector," Osborne said.

"We've been taking the right decisions. ... they've laid the foundations for growth, job growth, confidence in Britain in this important year where we host the Olympics. There are reasons to be optimistic," he added.

Consumer price inflation fell to 4.8 percent in November, and the Bank of England has forecast that weak economic growth will push inflation below its 2 percent target by the end of 2012.

The Chancellor is optimistic.

"One thing you will see this year is a fall in prices, in the rate of inflation," Osborne said.

He called the current period "challenging" but said that with the hoped-for decline in inflation, "there are some things going right as well, overall you can look to the future with a lot of confidence."

Osborne said he thought the euro would survive the sovereign debt crisis in the neighbouring euro zone, a major export market for the UK, but reiterated the effect on Britain.

"There is a lot of commitment to making the euro work. But there is no doubt that Europe needs to do more to help its economies grow and take some of the decisions that actually we've taken here in Britain to deal with our debts," he said.

"Ultimately, this year of course, what happens in the euro zone is important ... if the European continent is facing problems - that has an impact here in Britain," he added.

Osborne said he wanted to see bonuses fall at the nationalised Royal Bank of Scotland, which announced 4,450 job losses on Thursday in a cutback of its investment banking operations.

"I'm going to use my power as the shareholder to do what's necessary, to make sure that bonuses at RBS's investment bank are much lower than they were last year," he said.

High pay for bankers has become a hot political issue after the 2007-8 financial crisis that saw Britain bail out and nationalise leading banks and suffer a steep recession.

Britain owns 83 percent of RBS, Britain's fifth biggest bank after pumping in 46 billion pounds to keep it from going under.


©Reuters 2012