Davos: Cameron suggests immediate Tory spending cuts would be modest

David Cameron gave a clear sign today that Conservative spending cuts designed to prevent Britain facing a Greek-style debt crisis would begin with only modest savings in public spending this summer.

Speaking in Davos, the Conservative leader said that his party would want to take early action if it won spring's election but that it did not need to be particularly "extensive".

His remarks came as the International Monetary Fund pledged to support Greece, which is in the midst of an economic crisis, if it was asked to do so.

John Lipsky, the IMF's deputy managing director, said:" We stand ready to the support the Greek authorities in any way we can."

George Papandreou, the Greek prime minister, met Dominique Strauss-Kahn in Davos but made no immediate plea for support from the Washington-based institution.

Lipsky said that the IMF would only act if asked to do so by Athens and in full collaboration with the government and the European Union. "We are here to help if we are wanted".

Fears that Greece could default on its debts or be forced out of the eurozone continued to dominate the annual meeting of the World Economic Forum.

Brussels will pass judgment next week on the credibility of Papandreou's plan to shave four percentage points off Greece's 13% budget deficit this year and to bring borrowing below the 3% limit set by the eurozone's stability and growth pact by 2012.

European Union monetary affairs commissioner Joaquín Almunia dismissed the possibility of an EU bailout for Greece. "Solidarity is possible, will exist. A bailout is not possible and will not exist," he told Reuters.

Spain announced it was cutting spending by €50bn (£43bn) by 2013 in order to bring borrowing below 3% of GDP. Greece's problems have focused attention on Europe's other high-deficit countries – Spain, Portugal and Ireland.

Cameron, speaking at a British business lunch, said the mood towards deficit reduction was changing, with the arguments moving in favour of the Conservative approach. He warned that home owners would face soaring mortgage costs if markets lost confidence and pushed up interest rates by as much as they had risen in Greece.

"The people of Greece are already suffering the cost of a loss of confidence in their economy, with an extra3% on the interest rates they pay to borrow." 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. Last week the head of sovereign risk at Fitch characterised the risk of a downgrade of Britain's credit rating as 'a bit less than 50%, but not very much less'."

Cameron said the governor of the Bank of England, Mervyn King, and the Organisation for Economic Cooperation and Development backed Conservative plans for early action to cut Britain's deficit, which is on course to be almost £180bn – 12% of GDP – this year.

"This emerging consensus isn't built on conjecture – it's based on experience. Historically, fiscal consolidation – particularly when markets are losing confidence – leads to higher, not lower economic growth."

Conservative sources denied that Cameron was rowing back on his pledge to tackle Britain's budget deficit in response to this week's weaker than expected growth figures, but Labour said it was an indication that the Opposition leader was being forced to temper his approach.

The chancellor, Alistair Darling, warned today: "The risk is that if you start taking money out of the economy this summer you will set back the progress we have made and derail the economy. I think that would be very damaging."

The business secretary, Lord Mandelson said he detected some softening of the Tory line on deficit reduction. "There is less conviction and swagger than there was before. They have gone a little bit wobbly. They appreciate the risks a bit. It has pushed them into some confusion."