Justice secretary says Greece has to ‘face up to reality’ while Ed Balls warns of catastrophe if Germany doesn’t ‘change course’
Greece will face a disastrous future in which it will default on its debts and may be forced to leave the euro if it votes for “cranky extremists” in next month’s general election, Ken Clarke has warned.
In one of the starkest warnings by a British cabinet minister of the dangers posed by the Greek crisis, the justice secretary also said Britain was “heavily exposed” to banks in the eurozone.
Earlier Ed Balls warned of a “catastrophe” for Britain and the eurozone unless Germany allowed a relaxation of the tough austerity programme.
“Somebody has got to persuade Germany that this is a catastrophe for Britain, Europe and the world and that Germany has got to change course,” the shadow chancellor said on Sky News’s Murnaghan programme.
On the same programme, Clarke dismissed as “ludicrous” any suggestions – which he attributed to Balls – that growth measures should be funded by more borrowing. Greece would have to abide by the terms of its bailout programme agreed with other eurozone leaders, Clarke said.
“The Greek voters have really got to face up to reality. It is very, very difficult for them, they are having a terrible time, these are hardships inflicted on them by the irresponsibility of their old politicians. But they cannot just vote for saying: ‘Could people just carry on giving us some money so we do not have to change anything.’”
Clarke warned: “If they get a hopeless lot of cranky extremists elected at the next election then they will default on their debt and everybody says they will leave the euro – actually that’s quite likely but it doesn’t necessarily follow, but they’ll default on their debt.”
The justice secretary did not define what he meant by “cranky extremists”. Alexis Tsipras, leader of the radical left Syriza party, is demanding a renegotiation of Greece’s bailout package but remains committed to Greek membership of the euro.
Clarke said a Greek default would have serious consequences, including in Britain. “The problem then is for the Greeks that will be disastrous, they will encounter real poverty I think. No one knows exactly what will happen in the rest of Europe but the banking system is in tatters, it’s weak in very many places. We don’t know what the knock-on effects could be, they could be very serious and of course people will start barking at the door of Portugal, Ireland, Italy, Spain; and here in Britain our banks are heavily exposed to some of these countries.
“It is the unknown that everybody fears and once the markets fear the unknown you get into terrible turmoil.”
Clarke, who is the most pro-European Tory in the cabinet, dismissed the views of eurosceptic Conservatives who say Britain should not be supporting the eurozone bailout through the IMF. He said: “Britain has got to be part of the international effort and we’ve also supported the IMF. It is utterly ludicrous that the British do not take part, and the Japanese and Chinese and these other major economic powers, in actually using the IMF for what we’ve always said it’s for, which is supporting these things.”
Balls said a disorderly Greek exit from the euro would cause huge damage to the world economy. But he said the eurozone bailout for Greece and the wider deficit reduction measures across Europe, including in Britain, were choking off growth and turning recession into depression in Greece.
“It ended up with Merkel, Sarkozy and Cameron – this Camerkozy economics – all agreeing austerity would work,” Balls said. “They tried to persuade Germany, they failed and thought, well, for a quiet life we’ll go along with it.
“I think David Cameron was always a believer … Somebody has got to persuade Germany that this is a catastrophe for Britain, Europe and the world and that Germany has got to change course. The problem is, the German people went into the eurozone 10 years ago on the clear promise that they weren’t going to bail out Italy and the central bank wasn’t going to play this role. Both things have got to change.”