World braces for worst case scenario as Greeks cast their votes

Europe offers banks a blank cheque should election trigger withdrawal from the euro

European and global policymakers were preparing for a potential financial cataclysm last night, ahead of Greek elections tomorrow, which could determine the future of the single currency.

The head of the European Central Bank, Mario Draghi, signalled that he is ready to enact emergency lending to stabilise the financial system if the election result pushes the country decisively towards the exit door, something that could prompt widespread financial panic. "The eurosystem will continue to supply liquidity to solvent banks where needed," said Mr Draghi.

The Governor of the Bank of Japan, Masaaki Shirakawa, said that central banks around the world will be "carefully watching" the financial markets after the vote. In the event of meltdown, central banks would be expected to allow all major financial institutions under their jurisdictions to borrow unlimited amounts of cash in order to avoid a cascade of bank failures.

The Bank of England yesterday unveiled the details of an emergency lending facility that British banks will be able to access from next Wednesday. Eurozone nations have also been told by the European Commission to draw up contingency plans to cope with the potential chaos that could result from a Greek exit. Limits on euro withdrawals from cash machines and a reintroduction of intra-European border controls have been discussed.

The German Chancellor, Angela Merkel, will hold talks with other eurozone leaders tomorrow evening in the wake of the Greek vote, before flying to Los Cabos, Mexico, for a G20 meeting. In Los Cabos, Ms Merkel is expected to come under renewed pressure from her G20 peers to commit to further German guarantees for the finances of weaker eurozone nations. The French President, François Hollande, has signalled his intention to increase pressure on Germany to approve eurobonds – jointly guaranteed European debt – both in Mexico and at a Brussels summit on 28-29 June. But such suggestions have been met with stiff resistance from Berlin and there were signs yesterday of rising German irritation at Mr Hollande's pressure.

Ms Merkel suggested that the French economy has grown uncompetitive over the past decade. "If you look at the development of unit labour costs between Germany and France, then you see that at the start of the millennium Germany looked rather worse ... while the differences have now been growing a lot more strongly," she said.

Ms Merkel's sentiments about the potential fragility of the French economy were echoed by the former Prime Minister Gordon Brown, who warned that the rapid deterioration in the eurozone's growth prospects could ultimately force Paris to require a bailout too. In a blog for Reuters, Mr Brown wrote: "Portugal and Ireland will soon have to ask for their second IMF programmes. Sadly Italy – and potentially even France – may soon follow Spain in needing finance as the European recession deepens."

Europe's leaders held a conference call ahead of the Mexico G20 meeting yesterday. A Downing Street spokesperson said: "European leaders agreed the need for countries to continue to take the necessary action to secure global economic stability and to support growth"

The eurozone economy registered no growth at all in the first quarter of 2012, and has weakened in recent weeks. Even the German economy is now slowing.

There were indications last night that Europeans might be prepared to offer some concessions over the terms of the Greek bailout if the winning parties accept the broad existing settlement prevail in tomorrow's election.

Sunday's elections: Possible scenarios

What happens if the pro-bailout parties win the election?

Europe will breathe a deep sigh of relief, and will pledge to continue to provide the Athens government with the funds it needs.

Does that mean the crisis will be over?

Not necessarily. Greece's partners will only keep providing the bailout cash provided the new administration enacts the required structural economic reforms.

What if anti-bailout parties win?

Europe and the International Monetary Fund can agree to haggle, or they can refuse to deliver the next tranche of funds for Greece.

What if Greece does not get its bailout funds?

It would not be able to redeem its bonds and will default. The country's banks will be in big trouble. If the ECB cuts Greek banks off from the European financial system, the country will have no reason to remain in the single currency.

Ben Chu

Suggested Topics
News
people Emma Watson addresses celebrity nude photo leak
News
Katie Hopkins appearing on 'This Morning' after she purposefully put on 4 stone.
peopleKatie Hopkins breaks down in tears over weight gain challenge
News
Boris Johnson may be manoeuvring to succeed David Cameron
i100
News
peopleHis band Survivor was due to resume touring this month
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
News
people'It can last and it's terrifying'
News
In this photo illustration a school student eats a hamburger as part of his lunch which was brought from a fast food shop near his school, on October 5, 2005 in London, England. The British government has announced plans to remove junk food from school lunches. From September 2006, food that is high in fat, sugar or salt will be banned from meals and removed from vending machines in schools across England. The move comes in response to a campaign by celebrity TV chef Jamie Oliver to improve school meals.
science
Arts and Entertainment
tv
Life and Style
fashionModel of the moment shoots for first time with catwalk veteran
Life and Style
fashionPart of 'best-selling' Demeter scent range
News
i100
Sport
Tom Cleverley
footballLoan move comes 17 hours after close of transfer window
Sport
Alexis Sanchez, Radamel Falcao, Diego Costa and Mario Balotelli
footballRadamel Falcao and Diego Costa head record £835m influx
Life and Style
fashionAngelina Jolie's wedding dressed revealed
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Science Teacher Urgently required for October start

£6720 - £33600 per annum: Randstad Education Nottingham: We are currently recr...

ICT Teacher

£120 - £130 per day: Randstad Education Group: We are looking for an outstandi...

Art & Design Teacher

£120 - £130 per day: Randstad Education Group: We are looking for an outstandi...

Assistant Management Accountant -S/West London - £30k - £35k

£30000 - £35000 per annum: Ashdown Group: We are working with an exciting orga...

Day In a Page

'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering