David Cameron today issued a stark warning to eurozone leaders that they must put in place proper contingency plans to protect their economies in case Greece drops out of the single currency.
He said Greek voters effectively faced an in-out choice when they go to the polls in next month’s re-run elections amid fears a disorderly exit from the euro could trigger a new global financial crash.
The Prime Minister also denied yesterday’s G8 summit at Camp David had been a failure after it did not deliver a plan for resolving the country’s debt crisis.
The message, delivered in Chicago, where he is now attending the back-to-back Nato summit, came as his Cabinet colleague Ken Clarke said the European banking system was already “in tatters”.
Mr Clarke said Britain was “heavily exposed” to potential problems and could be among the next targets for market speculation.
Mr Cameron insisted the meeting at the presidential retreat brought home to the eurozone leaders – including Germany’s Angela Merkel – the need to deal with the issue.
“I don’t think it was a failure because I think it helped to crystallise the world’s economic leaders and particularly crystallised the thinking of the eurozone leaders,” he said.
He said they had to prepare for the prospect that the Greeks would vote for parties which rejected the terms of the country’s international bail out - effectively consigning it to leaving the euro.
“We now have to send a very clear message to (the Greek) people – There is a choice, you can either vote to stay in the euro with all the commitments you have made, or, if you vote another way, you are effectively voting to leave,” he said.
“The crucial thing is that eurozone leaders have to put in place contingency plans for both of those eventualities – really clear plans to keep our economies safe and stable.
“Greece is going to vote and that is going to focus minds and focus decisions on is Greece going to stay in the eurozone and is the eurozone going to make itself more coherent, or is it going to vote another way in which case proper, decisive contingency action must be taken.
“I think the G8 helped to crystallise that thinking of the eurozone leadership and for that I think it was worthwhile.”
Justice Secretary Mr Clarke, a former chancellor, signalled that fresh elections due in Greece next month would be critical.
“The Greek voters have really got to face up to reality – it is very very difficult for them, they are having a terrible time,” he said.
“These are hardships inflicted on them by the irresponsibility of their former politicians.
“But they cannot just vote for saying, ’could people just carry on giving us some money so we do not have to change anything’.”
Mr Clarke said the consequences would be “serious” if the Greek people elected “cranky extremists” and defaulted on their debts as a result.
“Everyone says they will leave the euro,” he added. “Actually that is quite likely but doesn’t necessarily follow.”
He went on: “No-one knows exactly what will happen in the rest of Europe. But the banking system is in tatters, it is weak in very many places.
“We don’t know what the knock on effects would be, they could be very serious and of course people will start barking at the door of Portugal, Ireland, Italy and here in Britain.
“Our banks are heavily exposed to some of these countries, we have recapitalised them so far...
“I obviously hope the Greeks will vote responsibly and that we can avoid turmoil.”
Mr Clarke defended the coalition’s decision to increase the UK’s contribution to the International Monetary Fund (IMF) – despite the US refusing to follow suit.
“The IMF exists to enable the nations of the world to act together to avert economic consequences whether the problems are coming from the eurozone or wherever,” he said.
“On this occasion we must contribute along with other major powers.
“It is a pity that the Americans are so paralysed by their pre-election arguments that they are not able to contribute, but all the more reason for the British, the Brazilians, the Chinese and others to be persuaded to put in because it is quite essential.
“The idea we all watch each other go down is wrong.”
Shadow chancellor Ed Balls told Murnaghan that it would cause “huge damage” if Greece made a disorderly exit from the eurozone.
“Greece needs to stay in for at least as long as the eurozone needs to sort its act out,” he said. “And I am afraid that is taking a very, very long time.”
Mr Balls said Mr Cameron and other leaders had to persuade Germany to “pull its weight”.
“David Cameron has been saying, we are told, for the last nine months to Germany that the European central bank must do its job, put the firewall in place, stop the contagion.
“In that he has failed because they have not listened to him.”
“In the end... somebody has got to persuade Germany that this is a catastrophe for Britain, Europe and the world and that Germany has got to change course,” Mr Balls added.
“The problem is, the German people went into the eurozone 10 years ago on the clear promise that they weren’t going to bail out Italy and the central bank wasn’t going to play this role.
“Both things have got to change.”
Another former chancellor, Labour’s Alistair Darling, warned Europe was in a “very dangerous position”.
“It’s going to take a crisis, an absolute crisis, to make Europe’s leaders act. That’s what happened four years ago. I’m afraid that’s what’s going to be needed in the future,” he told the BBC’s Andrew Marr programme.
Referring back to the unfolding of the banking crisis of 2008, he said: “That is how dangerous this cocktail is. I am very worried about it, because it could happen without notice.
“I don’t think whilst Europe could deal with Greece, it would struggle to contain Spain and if it spread wider than that, I think it would be in real difficulties.”