European financial markets, including the FTSE 100, have fallen sharply as Greece teeters on the brink of financial collapse and a messy exit from the euro.
Greek banks and the Athens stock market were ordered to remain closed, while holiday-makers and savers found cashpoint machines empty as they flocked to withdraw money in the hours after the announcement of a snap referendum on austerity measures put forward by creditors.
David Cameron said the public poll on July 5 was essentially an “in/out” vote on whether the deeply-indebted country should leave the single European currency. It was “hard to see” how the No vote recommended by prime minister Alexis Tsipras could be compatible with Greece remaining in the euro, said Mr Cameron.
The Prime Minister was chairing a meeting to put “final touches” to Government plans to protect British interests in the event of default, while the Foreign Office and travel agents advised UK nationals heading for Greece to take enough euros in cash to cover spending needs and possible emergencies, amid concerns that they may face problems using credit cards or withdrawing funds from cash machines.
Chancellor George Osborne was due to update MPs on the situation in a statement to the House of Commons.
The FTSE 100 Index plummeted almost 2% to 6626.3 in early trading, while France’s Cac40 and Germany’s Dax were both more than 3% down. The pound was one cent up against the euro at just under 1.42.
Meanwhile, the European Commission ruled that restrictions on withdrawals and transfers being imposed by the Greek government were “necessary and proportionate” in order to maintain financial stability, but said they should be lifted “as soon as possible”.
Finance Commissioner Lord Hill said: “In the current circumstances, the stability of the financial and banking system in Greece constitutes a matter of overriding public interest and public policy that would appear to justify the imposition of temporary restrictions on capital flows. Maintaining financial stability is the main and immediate challenge for the country.
“While the imposed restrictive measures appear necessary and proportionate at this time, the free movement of capital will however need to be reinstated as soon as possible in the interest of the Greek economy, the eurozone, and the European Union’s single market as a whole.”
Mr Cameron said Britain’s interest was in a stable and secure eurozone and a European Union with the flexibility to deal with the issues facing different countries – including the concerns which prompted him to call a referendum in the UK on the country’s EU membership.
Asked whether Sunday’s referendum amounted to an “in/out” vote on remaining in the eurozone, Mr Cameron told BBC Radio 4’s Today programme: “I think that’s what it will come down to.
“If the Greek people vote Yes, they are voting for the sort of deal that was put forward by the institutions and therefore voting to have that as an option.
“If they vote No, I find it hard to see how that is consistent with staying in the euro, because I think there would be a very significant default and a very significant problem. But it is for the Greek people to decide.”
Asked what outcome of the Greek crisis would be best for the UK, Mr Cameron said: “I think Britain’s interests would best be served – particularly now with all the instability in the world – by an agreement between the Greek Government and the eurozone that delivers the stability and security that we want. That’s what we would like to see happen.”
He added: “What we must do is make sure we are prepared for every eventuality. We have had a series of meetings – not just recently but many, many months ago – to make sure that in this eventuality, we help advise British tourists properly to take money with them when they go to Greece, we help the many British pensioners and people on benefits who are British citizens in Greece, we make sure we can help them.
“And also, we have to deal with the issue of Greek banks … We need to deal with those issues and I will be meeting with a team today to put the final touches on that.”
Greece risks being declared in default if it fails to meet a debt repayment of 1.6 billion euro (£1.1 billion) to the International Monetary Fund on Tuesday. The repayment is believed to be dependent on receipt of the latest tranche of a eurozone bailout fund, which is itself being made conditional on Athens accepting new austerity measures.
Mr Tsipras has condemned the bailout terms put forward by the IMF, European Central Bank and European Commission, as “not viable” as a long-term solution for his country. He accused the Eurogroup of finance ministers and the ECB of attempting to “stifle the will” of the people.
The Greek PM called for “patience and composure” from his countrymen, assuring them: “The bank deposits of the Greek people are fully secure. The same applies to the payment of wages and pensions – they are also guaranteed.
“In these critical hours, we must remember that the only thing to fear is fear itself.”
An MEP from Mr Tsipras’s Syriza party, Stelios Kouloglou, suggested the government could be brought down by a Yes vote.
“It will be a defeat of the government and also this government … cannot implement this (austerity) programme,” he told BBC Radio 4’s Today.
“This programme is a hell.”