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
peoplePaper attempts to defend itself
voicesWe desperately need men to be feminists too
Life and Style
food + drink
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Mike Tyson has led an appalling and sad life, but are we not a country that gives second chances?
peopleFormer boxer 'watched over' crash victim until ambulance arrived
Arts and Entertainment
Geena Davis, founder and chair of the Geena Davis Institute on Gender in Media
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
John Terry, Frank Lampard
footballChelsea captain sends signed shirt to fan whose mum had died
Arts and Entertainment
Rita Ora will replace Kylie Minogue as a judge on The Voice 2015
Life and Style
Life and Style
Alan Turing, who was convicted of gross indecency in 1952, was granted a royal pardon last year
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs General

Account Executive/Sales Consultant – Permanent – Hertfordshire - £16-£20k

£16500 - £20000 Per Annum: Clearwater People Solutions Ltd: We are currently r...

KS2 PPA Teacher needed (Mat Cover)- Worthing!

£100 - £125 per day: Randstad Education Crawley: KS2 PPA Teacher currently nee...

IT Systems Manager

£40000 - £45000 per annum + pension, healthcare,25 days: Ashdown Group: An est...

IT Application Support Engineer - Immediate Start

£28000 per annum: Ashdown Group: IT Software Application Support Analyst - Imm...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits