Top-level talks at No 10 as UK braces for euro crash

Downing Street confirmed Financial Services Authority (FSA) chairman Lord Turner and Bank of England governor Sir Mervyn King joined Chancellor George Osborne, Deputy Prime Minister Nick Clegg and Chief Secretary Danny Alexander for the discussion yesterday

A spokesman declined to discuss the meeting but it is known that both the Treasury and the Bank of England are preparing contingency plans to protect the UK against any fallout from the possibility of Greek exit from the eurozone and the danger that this might trigger crises in other vulnerable states like Spain, Portugal and Italy.

A Downing Street spokesman said: “The FSA chairman Lord Turner and Bank of England governor Sir Mervyn King came in this afternoon for a long planned meeting, as part of a series of meetings throughout government to ensure the UK is properly placed to deal with the eurozone situation and the issues arising from it.”

European markets remained in a fragile mood yesterday with the euro dropping to near 11-month lows on concerns about Spain’s ailing banking sector following the announcement of bailout plans for its troubled lender Bankia.

Spain’s main stock index closed at an almost nine-year low and interest rates on the government’s 10-year bonds rose on concerns about the government’s ability to sort out the banking industry.

The country’s prime minister, Mariano Rajoy, said the government had no choice but to bail out Bankia, which has been crippled by Spain’s real estate crisis.

“We took the bull by the horns because the alternative was collapse,” said Rajoy, stressing that Bankia clients’ savings were now safer than ever.

Other European stocks indexes also mostly fell. France’s CAC-40 closed 0.2 per cent lower at 3,042.97 and Germany’s DAX dropped 0.3 per cent to 6,323.19 after modest gains in the morning. Britain’s FTSE 100 rose 0.1 per cent to 5,356.34.

But Greek stock markets rebounded strongly from a 22-year low on hopes a pro-bailout party would win crucial national elections next month, which would avoid a catastrophic rift with international creditors and keep the struggling country within the eurozone.

The main stock index in Athens soared to close up 6.9 per cent, with the battered bank sector chalking up solid gains.

Mr Cameron has been increasingly vocal about the need for the 17-nation eurozone bloc to “stand behind” the single currency or face its potential break-up.

And Mr Clegg said last week that “nobody rational” could desire Greek exit from the single currency, which he warned could spark a chain reaction leading to “grinding slowdown in economic activity” across Europe, including in the UK.