Greek crisis could deteriorate rapidly, says UK’s Osborne

No-one should be under any illusions. “And the situation today shows that these risks remain”. He added: “There is no easy way out”.

Mr Osborne expected the financial situation in Greece to “deteriorate rapidly” – as the banks run out of money – if there was no signal of new talks soon.

German chancellor Angela Merkel and French president Francois Hollande – the two biggest players in the eurozone – will meet in Paris for crisis talks ahead of a summit of leaders of the single currency bloc in Brussels tomorrow.

Prime minister Alexis Tsipras, who has promised to ease austerity after six years of recession, called the snap referendum on the proposals from the creditors – the EU, European Central Bank and International Monetary Fund – which would impose further potentially painful economic reforms.

“By saying no to the eurozone’s rules, as is reflected in the majority No vote, it’s hard to imagine negotiations over an aid package for billions”, he said.

“We have already got contingency plans in place and later this morning the Prime Minister will chair a further meeting to review those plans in light of yesterday’s result”, the statement added.

Staffing levels have been increased at the United Kingdom embassy in Athens, and more consular staff have been deployed on the islands of Crete, Corfu, Rhodes and Zakynthos to help British nationals.

Given the warnings from the Chancellor about how serious for Britain this is, it is about time the Government started engaging in some serious political and economic diplomacy before it is too late.

Britain’s ambassador to Greece, John Kittmer, joined the Whitehall meeting by video-link, reporting that banks remained closed but cash machines in the country were still dispensing notes and there did not seem to be queues developing of Greeks seeking to remove their savings.

Credit ratings agency Standard & Poor’s said it was now more likely than not that Greece would leave the euro, while economists at Societe Generale said there was now a 65 percent probability of a Grexit.

Although they would not admit it publicly, Conservative Eurosceptics would not mind a bout of turmoil in the eurozone, with contagion spreading to countries like Spain or Italy after a Greek exit from the euro. The anti-EU brigade hopes the crisis will boost the prospects of an Out vote in the referendum on European Union membership Britain will hold by 2017.

The economy will go back into recession, the fiscal targets will be even more out of reach, and banks are likely to need more capital.

British Finance Minister George Osborne warned of growing risks in Greece as a flurry of meetings took place Monday after Greece’s resounding rejection of fresh austerity measures in return for a new bailout in a Sunday referendum.