Greece denies bailout deal as Darling promises to 'provide whatever assistance' is appropriate

Greece and the European Union were last night scrambling to quash fears that the crisis-struck country will need a financial bailout.

Prime minister George Papandreou and EU officials denied reports that European governments were preparing a rescue operation, stressing Greece will take draconian steps needed to cut its budget deficit.

But privately, officials admitted informal talks have been held over a possible bailout.

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Yesterday the euro tumbled to a six-month low against the dollar amid fears that the currency union could be damaged by Greece’s deficit woes.

Adding fuel to the fire, Tory leader David Cameron said Britain could be in similarly grave trouble.

He said: ‘The people of Greece are already suffering the cost of a loss of confidence in their economy, with an extra three per cent on the interest rates they pay to borrow.

David Cameron says Britain could be following Greece in their financial problems

‘If Britain follows them, the interest bill on a £150,000 mortgage could go up by more than £200 a month. This is not some wild dystopian vision. The warnings are already being sounded.’

The market turmoil over Greece’s vast public debt has intensified over the course of the week, prompting suggestions that euro zone countries led by Germany and France will have to bail the country out.

Attending meetings in the Swiss resort of Davos yesterday, Chancellor Alistair Darling said it is in the interests of countries sharing the euro to 'provide whatever assistance' is appropriate.

He declined to say what this could entail, but said: 'We will of course keep the position under review, as you would expect.’

He added: 'Greece is in a completely different position to most other EU countries.

'They clearly have problems they need to resolve, and there’s a determination on the part of the Greek government to do that.’

The International Monetary Fund has also pledged its support.

Some analysts fear Greece's problems could begin to spill over into other euro zone member states if they are not sorted out. This would trigger a regional crisis and threaten the integrity of the currency union.

The states cited as looking most vulnerable are Portugal, Italy, Spain and Ireland.