David Cameron, UK prime minister, has called together senior officials to prepare British contingency plans for Greece leaving the eurozone, amid concern about the increasingly hard line being taken by the new Syriza government.
The Downing Street talks looked at the knock-on effects of a Grexit for the British economy, including implications for the City of London and the possibility of UK tourists being stranded abroad if cashpoints ran dry.
The meeting on Monday also served a political purpose for Mr Cameron, who wants to give the impression that he is a strong leader capable of steering the British economy through dangerous waters.
Sir Nicholas Macpherson, the Treasury’s most senior civil servant, was among those who briefed Mr Cameron on contingency plans, along with a mid-ranking official from the Bank of England and civil servants from the Foreign Office and the business department.
The direct exposure of British banks to Greece is limited, although it has been increasing since 2012. Last year the total exposure stood at $13.5bn, only slightly behind the exposure of German banks, according to figures from the Bank of International Settlements.
Last month, Mark Carney, Bank of England governor, told MPs that British banks had a “very small direct exposure to Greece”. But the discussion focused primarily on the indirect risk posed by a Grexit to economic stability in the eurozone, the UK’s biggest trading partner.
Mr Cameron’s spokesman said the talks built on “quite an extensive degree of contingency planning during 2012 when there were pressures in the eurozone involving Greece in particular”.
“Given the fact that we have a new Greek government and discussions later this week between European leaders, now is the right time to be going over those contingency plans again.”
The BoE has been contemplating the question for some time. It noted in its most recent financial stability review that weakness in the eurozone would soon hit the UK economy and that “any deterioration in market confidence could also lead to sharp declines in the prices of risky assets and lead to losses on banks’ trading books”.
The planning session followed a week of meetings between Yanis Varoufakis and his counterparts across Europe, during which the new Greek finance minister failed to secure support for a restructuring of Greek debts.
Asked what the risk of a Greek eurozone exit was to the City of London, a Number 10 spokesman said: “It is something we need to be vigilant about. There are global economic interdependencies and London is obviously a major global financial centre.”
The spokesman also stressed, however, that the situation was less worrying than in 2012. He said the risk of contagion was more limited, pointing to reformed financial regulations, bank recapitalisations and the stronger financial positions of states such as Ireland and Spain.
The Downing Street meeting came three days before Mr Cameron was to travel to Brussels for a European summit with fellow heads of government, at which he will meet Mr Tsipras for the first time.
If the Greek government were to refuse to honour all of its international debts, including the £18bn it owes to the International Monetary Fund, the British taxpayer would potentially be liable for less than £1bn, given the UK’s 4.5 per cent shareholding at the IMF. Loans from the fund are senior to other borrowing and there is very little history of default to the IMF.
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