Eurozone 'must act on Greece now'

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Indy Politics

Eurozone countries were today urged to end speculation about Greece's economy with George Osborne urging leaders: "Come to a decision and stick to it."

He said the ongoing fiasco around Greece's austerity measures to tackle its debt was "causing great instability for the whole world".

The Chancellor told MPs: "Our advice to European neighbours about what needs to happen is provided in private, but our overall intent is very public.

"The speculation about Greece's future needs to end.

"The eurozone needs to come to a clear decision now and stick to it."

But shadow chancellor Ed Balls told Mr Osborne: "We warned a year ago there was a global hurricane brewing in the eurozone...the global hurricane is now swirling around us."

The Chancellor also pressed eurozone nations to "follow the remorseless logic of monetary union" and form tighter fiscal links.

Mr Osborne said a solution to the Greek crisis was needed before G20 world leaders meet in Cannes in four weeks.

He said: "That decision needs to be based on a realistic assessment of what is really happening in Greece and the debt dynamic of that country's economy."

He wanted the International Monetary Fund (IMF) to carry out the assessment, with the body having enough money to support world economies which need help.

He said the key to solving the turmoil on world markets lay in three Rs: ring-fencing, resolution and recapitalisation.

The Chancellor believed British banks, 12 of which were downgraded by credit rating agency Moody's last weekend, had enough cash to operate.

"They said explicitly 'The downgrades do not reflect a deterioration in the financial strength of the banking system or that of the Government'," said Mr Osborne.

"UK banks are much better capitalised and more liquid than many of their European counterparts."

He said the eurozone crisis was at the "epicentre" of this summer's turmoil on global stock markets - and, in a Commons statement updating MPs on the saga, said Prime Minister David Cameron discussed the financial crisis with US president Barack Obama earlier today.

Mr Osborne added: "We need a comprehensive solution which ring-fences vulnerable eurozone countries, recapitalises Europe's banks and resolves the uncertainty about Greece."

He defended the Bank of England's decision to release another £75 billion into financial markets through quantitative easing, hailing it as "the right response to the deterioration in the international situation", which threatened the UK's economic recovery.

The Chancellor vowed to implement a "credit easing programme" to help businesses receive loans.

He said: "The purpose will be not just to lower the risk of another credit crunch, it will also aim to bring about a structural improvement in access to finance for mid-sized and small businesses so a loan from their local bank is not the only source of finance."

Mr Balls pointed to Mr Cameron's claim a year ago that the British economy was "out of the danger zone".

The shadow chancellor told MPs: "We warned that to rip out the foundations of the house here in Britain with a reckless approach to deficit reduction was the wrong approach."