Russian billionaire yacht affair shakes UK politics

LONDON (Reuters) - A Russian billionaire, a yacht on the Mediterranean, allegations of secret donations and betrayal -- all the ingredients the British media needs to start a feeding frenzy.

After being exposed by an old friend, a senior British opposition politician has admitted he met Russia's wealthiest man on his $150 million yacht in the Mediterranean.

The Conservative party's chief spokesman on finance, George Osborne, says he has done nothing illegal.

But the admission he met Oleg Deripaska several times last August, including once on his yacht, has revived an image of the Conservatives as elitist that they have long sought to shed.

The meetings were revealed by an old friend of Osborne's from his days at Oxford University, when they were both members of the Bullingdon Club, an elite dining society.

Nathaniel Rothschild, a fund manager who is heir to a $1.5 billion banking fortune and helped set up the meetings on the island of Corfu, says Osborne used them to try to solicit a large donation to the Conservative party from Deripaska.

Osborne denies seeking any such donation, which would have been illegal as it would have come from a foreign citizen, but has confirmed almost everything else Rothschild says occurred.

Rothschild revealed the meetings in a letter to the Times newspaper, apparently irritated that Osborne had given details to the press of conversations he had on the yacht with another guest, Peter Mandelson, a senior Labor politician.

Rothschild, who is also friends with Mandelson, felt Osborne violated an unwritten code by revealing what was said in private, and decided to point that out in the papers, aggravated that Mandelson was being tarnished for meeting Deripaska.

"Perhaps in future it would be better if all involved accepted the age-old adage that private parties are just that," Rothschild said in a letter from his home in Switzerland.

"It ill behoves all political parties to try and make capital at the expense of another in such circumstances."

REVENGE?

But in exposing Osborne's presence on the yacht last summer, Rothschild also made allegations about what Osborne had been doing there, raising the issue of political donations.

"I am surprised that you focus on the fact that one of my guests, Peter Mandelson, is a friend of another, Oleg Deripaska. Not once in the acres of coverage did you mention that George Osborne, who also accepted my hospitality, found the opportunity ... to solicit a donation," he wrote.

Rothschild's revelations sparked a storm of tabloid and broadsheet headlines Wednesday asking what happened really happened on the Mediterranean yacht between the Conservative party politician and the Russian oligarch.

The Financial Times, which carried a two-page spread on the 'Deripaska affair' Wednesday, said Osborne's real mistake was to breach a Mafia-style code of silence on private meetings.

"Mr Osborne committed the cardinal sin of revealing details of his agreeable weekend spent in northern Corfu," the newspaper wrote. "Yesterday, Mr Rothschild got his revenge."

The political repercussions of the scandal are hard to gauge. But it comes at a time when the Conservative party, whose leader David Cameron went to Eton and was also a member of Oxford's Bullingdon Club, is trying to appear less elitist and make itself appealing to ordinary working-class voters.

As the Financial Times pointed out: "At a time when Britain is tipping into recession, Mr Osborne's free holidays in the villas of millionaire financiers and evenings spent with a Russian oligarch ... may not help the Tories connect with 'hard-working' families struggling with their daily bills."

(Editing by Myra MacDonald)