Barclays has lent £94billion to governments, businesses and households in Portugal, Ireland, Italy, Greece and Spain. HSBC has £23.5billion of exposure while Lloyds claimed it has only £86million of loans to Spain and Italy.

British banks have more than £200billion tied up in some of the Eurozone’s weakest economies, a major report revealed last night.

Lenders including Barclays and taxpayer-controlled Royal Bank of Scotland have ploughed billions into the so-called PIIGS – Portugal, Ireland, Italy, Greece and Spain.

The study showed how much British banks stand to lose if European countries cannot repay their debts. Eurozone leaders will meet in Brussels on July 21 to discuss a second bailout package for Greece, European Council President Herman Van Rompuy said yesterday.


Big lenders: A report has revealed that British banks have more than £200 billion tied up in some of the Eurozone's weakest economies

Eight banks failed the stress tests by the European Banking Authority. A ninth refused to take part to avoid public humiliation and a further 16 scraped through but remain in the danger zone.

 
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The eight banks that failed – five in Spain, two in Greece and one in Austria – must now raise an extra £2.2billion to protect themselves from future losses. All four British banks tested – HSBC, Barclays, Royal Bank of Scotland and Lloyds Banking Group – were given the all clear.

But the report revealed they have a total of £214billion tied up in Europe’s five weakest economies.

The high pass rate in the stress tests stoked fears that they were not robust enough and that the European banking system is still in grave danger.

BRUSSELS THREATENS VAT GRAB
British households could be crippled with yet another VAT rise thanks to a tax grab being plotted by EU chiefs.

Brussels wants to raise the amount which goes from the tax towards EU funding from 0.3 per cent to 1.3 per cent – arguing the cash is needed to balance the EU’s Budget.

Such a move could force up VAT from 20 per cent to 21 per cent. The rise could either be levied directly or be absorbed by the Treasury. A Commission spokesman said: ‘Our proposal is solid, responsible and is designed to make a difference for Europeans in the years to come after the crisis.’

The Treasury said the move would amount to an extra £1.4 billion a year on Britain’s net contribution. A spokesman called the plan ‘unrealistic’ and ‘unacceptable’ and signalled the UK would use its right to veto any hikes.

Stephen Booth, of the Open Europe think-tank, said: ‘There is no justification for an increase, especially when so much of Brussels’ budget is poorly and wastefully spent.’

Critics said the health checks were not credible because they did not take into account what would happen in the event of a country such as Greece defaulting on its debts. Jason Karaian, of The Economic Intelligence Unit, said: ‘It was not politically palatable for the tests to consider an inevitable Greek default

‘After so much dithering to date, there is no elegant solution to the euro area’s debt crisis. The pressure brought to bear by the markets next week should sharpen the minds of policy-makers. Harsh medicine is needed. The sooner that officials swallow hard and take decisive, painful measures to draw a line under the crisis, the quicker that Europe’s sickly financial system can begin to nurse itself back to health.’

RBS, which is 84 per cent owned by the taxpayer, has lent £96billion to the PIIGS.

That includes £1billion to the Greek government and £6billion to the Italian government – which is desperately fighting to stop the crisis reaching Rome. RBS has also lent £55billion in Ireland – with billions tied up in the fragile property market.

Barclays has lent £94billion to governments, businesses and households in Portugal, Ireland, Italy, Greece and Spain. HSBC has £23.5billion of exposure while Lloyds claimed it has only £86million of loans to Spain and Italy.

A previous round of stress tests last year passed all but seven of Europe’s banks. Ireland’s banking system was given a clean bill of health – but collapsed just months later.