The British government has embarked on contingency planning to prepare for the “serious economic risks” posed by a Greek default and a possible exit from the euro, the chancellor, George Osborne, has confirmed.
As David Cameron prepares to discuss the Greek crisis with the prime ministers of Italy and Luxembourg on Wednesday, the chancellor said the UK government was taking “all steps” to protect Britain.
Whitehall officials, who held contingency planning meetings on the implications of a possible Greek exit from the euro in February, have stepped up their preparations in recent weeks amid fears that Greece could be on the verge of a debt default.
Eurozone finance ministers are due to discuss the crisis on Thursday, but there is little sign of a breakthrough after the Greek prime minister, Alexis Tsipras, denounced its creditors’ demands on Tuesday. He accused the International Monetary Fund of having “criminal responsibility” for the damage caused to Greece, and insisted the country needs debt relief to help it recover.
Greece has just a few days to reach an agreement before its current bailout expires on 30 June. Without a deal, Athens cannot access about €7.2bn of loans, which have been frozen while negotiations over pension reforms and tax rates have ground on.
Later on Wednesday, the European Central Bank must decide whether to keep providing the emergency liquidity that allows Greek banks to keep operating. The ECB has already pumped around €82bn into the system. Worried savers have been withdrawing hundreds of millions of euros each week, sending deposits levels down to their lowest level in over a decade.
Austria’s chancellor, Werner Faymann, expressed support for the Greek people on Wednesday morning before travelling to Athens to meet Tsipras. He criticised some of the measure demanded by Greece’s lenders, declaring: “I stand on the side of the Greek people, who in this difficult position are being proposed more things detrimental to society.”
The Whitehall contingency planning meetings have focused on the immediate impact of capital controls in Greece – limits on bank withdrawals – that could be introduced to avoid a bank run if Greece appears to be moving towards a default on its debts. There is a particular focus on the tens of thousands of British holidaymakers who travel to Greece during the summer.
The Whitehall officials, from the Treasury, the Foreign Office and other government departments, have also examined the longer-term impact on the British financial system on the instability that would be triggered across the eurozone by a Greek default.
This could be followed by a Greek exit from the euro, which would plunge the single currency into its greatest crisis, threatening a financial crisis in Britain’s main trading partner.
A Greek exit from the euro would have an immediate impact on companies and banks owed money in Greece. A convulsion in the eurozone – the UK’s largest trading partner – would have a detrimental impact on the UK economy. Exporters would fear that the shock would spread way beyond Greece at a delicate time for the world economy, meaning they might struggle to find new markets to sell their goods.
Osborne told MPs: “Out in the real world there are some serious economic risks, not least the risk that we see growing in Greece of a potential default and exit from the euro. People should not underestimate the damage that that would do to financial confidence.
“Of course, in the UK we take all steps to prepare for and protect ourselves from such eventualities, but the best thing that a government can do is to ensure that it is living within its means, that it has a productive economy and that its public finances are in good order. That is what we are going to deliver in this parliament.”
Cameron will discuss the Greek crisis when he meets his Italian and Luxembourg counterparts in separate meetings. Italy and Luxembourg are founding members of the euro. The prime minister will meet Matteo Renzi in Milan before flying to Luxembourg for dinner with Xavier Bettel, who takes over the EU’s rotating presidency on 1 July.
The meetings are the latest phase of the prime minister’s talks with fellow EU leaders on his desire to restructure the union before a European summit on Thursday and Friday next week. But the talks risk being overshadowed by the looming Greek crisis.
Downing Street confirmed that the Greek crisis would be discussed. “It will be an opportunity to hear from Renzi about how he views the Greek situation and the prospects for resolving that before the end of June deadline,” the prime minister’s spokeswoman said.
European leaders are making plans for an emergency summit on Sunday if eurozone finance ministers fail to reach a deal at a meeting in Luxembourg on Thursday over a €1.6bn (£1.15bn) debt repayment Greece is due to make to the IMF by the end of June.
Jean-Claude Juncker, the president of the European commission, reflected the anger in Brussels at the way Tsipras has been approaching the deadlocked negotiations by saying he had “sympathy for the Greek people but not the Greek government”. Juncker was until recently rated as one of Tsipras’s only allies.