David Cameron will hold a video conference call this afternoon with European leaders attending the G20 summit in Mexico next week in an attempt to forge a common position on the eurozone crisis.
Speculation is rising that central banks, including the Bank of England, Bank of Japan and US Federal Reserve, are preparing to launch emergency support measures to cushion the blow of an implosion in the eurozone.
The leaders are expected to discuss such emergency measures that may need to be taken when the markets open on Monday following election in Greece on Sunday.
There are fears that if the anti-austerity party Syriza becomes the largest party in a new Parliament that could precipitate an early exit of Greece from the single currency.
Latest official polls suggest that either Syriza or the pro-bail out party New Democracy could win on Sunday, although without enough seats to govern alone.
The conference call today is expected to focus on what central banks can do to stabilise financial markets by providing liquidity and preventing a credit squeeze.
Last night George Osborne announced a series of measures including a proposal to make £80 billion available from the Bank of England to high street banks to improve liquidity and sustain lending.
However banks will still be responsible for the risk of the loan and experts warn the measure will not be enough to shield the Britain from the worst effects of a eurozone break-up.
The call will be held between Mr Cameron, Angela Merkel, François Hollande, the Italian prime minister, Mario Monti, and the Spanish prime minister, Mariano Rajoy.
A Downing Street spokesman claimed the call was a routine discussion of the summit agenda.
However the timing suggests an attempt to agree a unified response to the Greek elections and what is likely to be a difficult summit.
Asked about the Greek elections, Mr Cameron's spokesman said: “It is a matter for the Greek people and clearly they have to go through their democratic processes.
“But we need to see an end to the uncertainty which is damaging the European economy and damaging our economy.”
The coordinated action by the Bank of England and Treasury will see an estimated £80 billion offered to banks on condition they pass it on to businesses and households in the form of cheaper loans and mortgages.
The scheme, which is due to start in the next few weeks, has received a cautious welcome while bank shares were up by as much as 7 per cent today.
However, there were warnings that the scheme will not address the core problem of companies' reluctance to borrow in the face of a eurozone debt storm.
Graeme Leach, chief economist at the Institute of Directors, said: “The funding for lending scheme helps the supply of money and the demand for it, by lowering the cost of borrowing.
“But the core problem remains. Companies alarmed by the euro crisis will not be eager to borrow, regardless of the cost.”
And economists cautioned that banks may simply not want to lend more, even with the carrot of cheaper funding.
Vicky Redwood of Capital Economics said: “High bank funding costs are just one challenge facing the UK economy. Indeed, these moves on their own will do little to reduce the effect of the eurozone crisis on UK exports or reduce the uncertainty facing UK companies.”
In his annual Mansion House speech, Bank governor Sir Mervyn King also activated facilities for an emergency scheme that offers six-month liquidity to banks in tranches of at least £5 billion a month.
The two measures are estimated to be worth around £100 billion in funding to banks.
The banking industry has been hit by higher funding costs as the eurozone troubles have escalated and have been hoarding money for fear of another worrying phase in the crisis.
The British Bankers' Association (BBA) said it was “ready and willing” to get behind the moves.
BBA chief executive Angela Knight said the industry welcomed the news that the Bank and Government were “ready to stand with the financial sector in making more money available to fuel the recovery”.
Experts also hailed signs that the Bank stood ready to further expand its quantitative easing programme, which currently stands at £325 billion.
The Bank's QE programme and efforts to keep interest rates at record lows of 0.5 per cent have failed so far to prevent credit from tightening amid the eurozone woes.
Shadow Chancellor Ed Balls was critical of the proposals last night, saying they “do not go far enough”.Reuse content