Clarke in euro bank crisis warning

The Cabinet Minister said Britain was “heavily exposed” to potential problems and could be among the next targets for market speculation.

He hit out at the United States for failing to contribute more to bailout funds, suggesting Barack Obama’s administration was “paralysed” by looming elections.

The comments came after the Prime Minister used a meeting of G8 world leaders at Camp David to step up calls for action on the eurozone crisis.

Mr Clarke said 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.

“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. 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 do so.

“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.”

At the weekend Eurozone leaders attending the G8 summit at Camp David came under pressure to resolve the financial crisis.

David Cameron said that the presence of leaders from outside Europe underlined the message that urgent action was needed to strengthen the banks and to put in place an effective “firewall” to prevent the crisis spreading to other vulnerable states.

“Britain cannot cut itself off from what happens elsewhere in the world,” he said. “As our biggest trading partner, the problems in the eurozone are affecting Britain too. That is why it has been important to discuss with others how we can work together to bring stability, confidence and growth to our economies.”

Shadow Chancellor Ed Balls said that Greece must not be allowed to fall out of the eurozone.

“In these circumstances if Greece do try to leave the eurozone in a disorderly way it would cause huge damage to the world economy, to the British economy, to the eurozone economy, as the eurozone has not sorted out how to stop this crisis spreading to Spain and Italy and those are much larger countries,” he said. “Greece needs to stay in for at least as long as the eurozone needs to sort its act out. And I am afraid that is taking a very, very long time.”