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Get tough on Europe, IDS tells Cameron: As minister admits bailout could cost UK £40bn, crisis talks for Tories

• Cost of Euro collapsing will be 2 per cent of GDP - but keeping it will cause a decade of austerity, report says
• UK's IMF liability is currently £29.4billion - and moves to raise it have sparked fury among Tory backbenchers

By JAMES CHAPMAN

Last updated at 8:40 AM on 7th November 2011

• Warning: Iain Duncan Smith will tell the Prime Minister to be tough on Europe

David Cameron will today hold crisis talks with Cabinet eurosceptics as it emerged that Britain’s exposure to the International Monetary Fund could rise to £40billion.

Work and Pensions Secretary Iain Duncan Smith and Northern Ireland Secretary Owen Paterson will tell the Prime Minister he needs to toughen his stance on Europe, setting out a clear timetable for clawing back powers handed to Brussels.

There is increasing concern that core EU nations are planning to use the debt crisis to join forces to ‘bulldoze’ over British interests, leaving the UK marooned in a permanent voting minority as they integrate further.

Alarm on the Conservative benches deepened last night as Treasury Chief Secretary Danny Alexander, a keen Europhile, confirmed that Britain’s contributions to the IMF could rise to £40billion and said he would have no problem with more money being loaned to Greece.

Rebel MPs will be emboldened by a report from a group of economic experts, which says the cost of the euro collapsing would be a contraction of at least two per cent of GDP across the eurozone – but that keeping it together will mean a decade of austerity.

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The Centre for Economics and Business Research predicts that Britain will suffer two-and-a-half years of pain if the single currency breaks up but after that will grow faster than if the eurozone survives.

Contraction: UK fell into recession in 2008. A report today suggests that if the eurozone was to collapse GDP would slide by two per cent in two -and-a-half-years of pain

Tory eurosceptics say that Britain will be powerless to resist a tide of new EU laws as the 17 countries in the single currency seek to keep the EU project alive by coming together as a ‘caucus’, a group that will override the views of the UK and other countries outside the euro.

Pressure: David Cameron has come under fire from Tory backbenchers

The Prime Minister is under increasing pressure to use talks on allowing the eurozone countries to integrate economically to try to contain the crisis as an opportunity to demand protections for Britain.

Mr Duncan Smith, who is the Cabinet’s leading eurosceptic, and Mr Paterson are expected to use a private meeting at Downing Street tonight to urge Mr Cameron to ‘stiffen his resolve’ on the EU to prevent further Tory rebellions.

Mr Cameron was rocked last month by the biggest revolt over Europe ever endured by a Conservative Prime Minister when 81 of his MPs defied him by voting in favour of a referendum on Britain’s future in the EU.

The Prime Minister will today use a Commons statement to tell the eurozone to get its act together after the failure of last week’s G20 summit to make progress on the debt crisis.

Mr Cameron is increasingly frustrated at the refusal of Germany to allow the European Bank to intervene and stand behind the stricken economies of Europe.

Graphic shows GDP from across the G20: A report says today that if the eurozone was to collapse it would lead to a 2 per cent slide in GDP

Danny Alexander: The Chief Secretary to the Treasury has suggested that Britain will commit more money to bailing out Greece

But the Prime Minister faces a further fight with his backbenches over separate plans to boost the firepower of the IMF, which acts as the world’s economic emergency service.

The UK’s IMF lending commitments are currently £29.4billion, but Mr Cameron has indicated willingness to increase it.

Mr Alexander said the Government could raise its contribution to £40billion without seeking MPs’ approval under a deal agreed by the last Labour government. Asked if he was happy for more IMF cash to go to Greece, the Lib Dem Minister said: ‘I am. In fact that’s already been agreed.’

But Labour Treasury spokesman Chris Leslie said: ‘David Cameron and Danny Alexander seem to think they have all the Parliamentary approval they need to increase Britain’s IMF contributions. But how can they be so sure?

‘Extra resources for the IMF must be subject to the normal parliamentary scrutiny, in order to ensure we safeguard the best interests of British taxpayers.’