Talk of Greece's eurozone future damaging, says Osborne

Open speculation about whether Greece can remain a member of the eurozone is "damaging" for the whole of Europe, Chancellor George Osborne has said.

Stock markets fell amid political deadlock in Athens and uncertainty about its support for austerity plans.

Mr Osborne said the situation was "very serious" and all European economies were being affected by the crisis.

Government sources have ruled out the UK contributing to a support fund in the event of Greece leaving the euro.

German media say the country's finance minister wants the UK coalition government to be part of a "clean-up fund" but the prime minister's spokesman said it was up to "eurozone countries to support the eurozone".

'Recovery damaged'

Greece is currently suffering a constitutional crisis, as the country's politicians fail to reach agreement on forming a coalition government to deal with ongoing economic woes threatening to destabilise the eurozone.

A majority of Greek voters in last week's election backed parties opposed to the austerity plans demanded by the EU and the International Monetary Fund in return for two bailouts.

With no sign that Europe's leaders are prepared to renegotiate the deal, there has been increased talk that Greece could end up leaving the eurozone.

But Mr Osborne, who met EU finance ministers in Brussels on Monday, said such talk was not doing the UK or Europe any good.

"It is the uncertainty that is causing the damage," he said.

"Of course countries have got to make difficult decisions about their own public finances... but it's the open speculation from some members in the eurozone about the future of some countries in the eurozone which I think is doing real damage across the whole European economy.

"The British recovery has been damaged over the last two years by uncertainty in the euro and that uncertainty would be magnified were a country to leave. It is that uncertainty and not austerity that is doing real damage to the European recovery and indeed the British recovery."

'For the eurozone'

Former Chancellor Alistair Darling agreed that uncertainty was compounding an already difficult situation but said Greece needed a "credible plan" because austerity was not working.

"It will still involve some pain but it's got to be one where people can see there's light at the end of the tunnel."

German Finance Minister Wolfgang Schaeuble has reportedly said the UK could be involved in helping Greece should it exit the eurozone via a "clean-up fund".

But Mr Cameron's spokesman said: "It's for eurozone countries to support the eurozone. We have been clear it's for the eurozone to support their currency."

However, he did not rule out the possibility that the existing European Financial Stability Mechanism, of which the UK is part, could be used to assist Greece.

Meanwhile, shadow chancellor Ed Balls has said "the time may come" eventually for a referendum on EU membership.

Former Labour minister Lord Mandelson said recently that a referendum could be held in the fullness of time to enable the British people to have their say on the "new shape" of Europe emerging from the current economic turmoil and any ensuing steps to closer fiscal integration.

The pro-European former EU commissioner suggested this may be a way of building a consensus behind the UK's future in Europe and helping to reconcile existing differences.

Mr Balls told an audience in London it was not the right time to put the issue to a public vote and this moment was "some years away".

"People who want to entrench a pro-European relationship between Britain and the rest of Europe need to be winning arguments rather than simply sitting back and waiting for that moment," he told the Centre for European Reform.

But he said he agreed with Lord Mandelson that a referendum "might be an issue whose time comes" in the future.

The BBC's deputy political editor James Landale said Mr Balls appeared to be nudging Labour in the direction of a possible referendum some time in the next decade.

Many Conservative and Labour eurosceptics want a commitment to hold an "in-out" referendum as soon as possible. The coalition has pledged to hold a referendum if further substantial powers are handed over to Brussels.