14 May 2012

By James Chapman

PUBLISHED: 07:51, 14 May 2012 | UPDATED: 07:52, 14 May 2012

Vince Cable: The Business Secretary admits ‘we are exposed’ as a result of ongoing difficulties in Greece

Vince Cable warned yesterday of a ‘massive impact’ on Britain if Greece crashed out of the euro and debt contagion spread.

The Business Secretary admitted there was little the UK could do to influence an unfolding disaster in the eurozone.

It came after former chancellor Alistair Darling warned that foreign aid would have to be sent to starving Greeks if the country left the single currency and lost its bailout money.

Senior EU officials, who are losing patience after an inconclusive election cast doubt on debt-stricken Greece’s commitment to austerity, yesterday began to discuss publicly the prospect of the country’s exit from the single currency.

Last ditch talks were held in Athens last night to try to cobble together a coalition government and avoid a new election.

But the leader of radical left-wing, anti-bailout party Syriza, which finished second in the election earlier this month, refused to sign up to a grand coalition. 

Alexis Tsipras said it would be ‘criminal’ for Greece to stick to the terms of the bailout, adding: ‘Syriza won’t betray the Greek people.’

Support for parties who want to tear up the terms of an EU bailout is growing by the day.

No to bailout: Head of Greece’s Left Coalition party Alexis Tsipras (middle) leaves the presidential palace after a meeting in Athens yesterday

City analyst David Buik said: ‘If Greece leaves the euro, a drachma devalued by say 30 per cent in 18 months gives the economy half a chance. Holidays and exports will be cheap.’

But Labour’s former Chancellor Alistair Darling warned that a Greek exit from the euro could be catastrophic.

The country would run out of money in about six weeks if bailout cash was withdrawn, leaving it unable to pay pensions or public sector salaries.

‘Anyone who thinks that Greece leaving the euro is the easy fix is kidding themselves,’ Mr Darling said.

Warning: Former Chancellor of the Exchequer Alistair Darling has said that Greek exit from the eurozone could be catastrophic

‘Europe would almost certainly have to give it financial aid, simply to stop people going hungry. 

‘As for a planned exit, does anyone seriously think that over a weekend, say, you could print drachmas ready for issue on Monday morning – in the meantime preventing money draining out of the country and preventing panic as people realise that their savings had vanished?

‘What would be the effect on other countries, the ones people feared would be next in line?’

Mr Cable said Britain ‘must hope’ the eurozone’s firewalls were strong enough to prevent contagion, and warned there could be ‘a massive impact’ on trade if they were not.

‘Britain isn’t in the eurozone, so… my Government isn’t in the business of having to manage this crisis,’ the Business Secretary said.

But he added: ‘The problem would affect us if it spread, if you had these contagion effects in Italy and Spain.’

Mr Cable warned that if the the EU’s firewalls failed ‘then of course it has a massive impact on our trade – half of our exports go to the eurozone countries, our banks are quite substantially exposed to those countries’.

Asked what Britain could do, he admitted: ‘There isn’t a great deal.’

‘Our own position of course is much stronger. There was a real danger when we came into office that we could be sucked into this sovereign debt crisis,’ he added.

‘There was a worry that the crisis of confidence would spread to the UK, and that certainly hasn’t happened – we’re now perceived in much the same way that Germany is perceived.’

Luc Coene, a member of the governing council of the European Central Bank, which has spent around 40billion euros buying up Greek government bonds to try to support the country, said a Greek exit from the single currency ‘would be possible’.