The risk is growing of “a miscalculation or a misstep” leading to a very damaging outcome to the Greek debt crisis which would impact on the UK economy, George Osborne has warned.
The Chancellor was speaking after Prime Minister David Cameron met officials from the Treasury and Bank of England for a meeting at Downing Street to discuss measures to protect Britain from the consequences of a possible Greek debt default or exit from the euro.
Speaking at a meeting of G20 finance ministers in Istanbul which has been dominated by the situation in Greece, Mr Osborne acknowledged that a crisis in the eurozone would spill over to affect the UK and warned of the dangers of a “chaotic and disorderly exit”.
“There’s no doubt that the UK economy would be affected by a crisis in the eurozone. We know that from recent experience,” he told Bloomberg Business TV.
“That’s why we need to take steps to protect ourselves at home. And that why it’s right that we step up our contingency planning. It’s why I see it is vital that we go on working through our economic plan so that we are taking steps to secure and strengthen our economy.
“But the idea that Britain or indeed the rest of the world is entirely insulated from what happens in the eurozone is sadly not true.”
Greece’s new prime minister, Alexis Tsipras - elected last month on an anti-austerity platform - insisted last night that he was confident of reaching a deal on the £240 billion national debts which his Syriza party blames for six years of deep recession.
Following talks with Austrian Chancellor Werner Faymann in Vienna as part of his whirlwind tour of eurozone capitals, Mr Tsipras said that only “political reasons” could block a deal with Greece’s creditors, adding: “I think that would be a decision to torpedo our common European future. And I think nobody harbours such intentions.”
But Greece has suffered a ratings downgrade, tumbling share prices and hikes in bond interest since Syriza came to power, while the European Central Bank has said it will no longer accept its bonds as collateral for credit.
It remains unclear whether compromise can be reached at an emergency meeting of eurozone finance ministers in Brussels tomorrow. German Chancellor Angela Merkel has said she is waiting to see whether Athens puts “a sustainable proposal” on the table.
Mr Osborne said: “It’s clear to the world economy that this stand-off with the eurozone and Greece is growing each day and I think the risks of a miscalculation or a misstep leading to a very bad outcome is growing as well.
“And so, here at the G20, we are urging all parties to this dispute to try and find some common solutions and we are also at home stepping up our preparations for whatever the outcome may be.
“We have to make sure that the British people are best protected from whatever develops in this crisis, because I am clear that the Greek exit from the euro would be very difficult for the world economy and potentially very damaging for the European economy.
“We have to be prepared for that outcome. So we have to make sure that we choose a path of competence and stability over potentially a chaotic and disorderly exit.”