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Euro-Zone Crisis: U.K. Prime Minister Cameron's Warning To Greek Voters
2012-05-20 20:46:11 (227 weeks ago)
Posted By: Intellpuke

A second Greek vote next month backing parties opposed to the European Union's bailout package would be a decisive vote to leave the euro for which contingency plans have to be made now, British Prime Minister David Cameron warned on Sunday in a dramatic raising of the stakes.

Speaking in Chicago after two days of talks with world leaders on the euro crisis, he said: "We now have to send a very clear message to people in Greece: there is a choice – you can either vote to stay in the euro, with all the commitments you've made, or if you vote another way you're effectively voting to leave."

His remarks are, in effect, an attempt to make next month's vote a referendum on continued membership of the euro.

Cameron indicated that he wanted to make the threat of ejection from the euro credible by showing the Greeks that preparations are being made for their departure, a change of tactics after weeks of mixed messages from the European commission on whether such plans are being laid.

It is a piece of high-stakes diplomacy since his threat may either anger Greek voters, driving them into the arms of the radical parties, or act as a sobering warning that the end game is truly imminent and renegotiation of the E.U.-imposed austerity package is not an option.

(story continues below)

Speaking in Chicago after a meeting of G-8 world leaders, he said of the Greeks: "They can vote to stay in the euro zone and meet their commitments or they can vote to give up on their commitments and in effect give up on the euro zone.

"I think the point that was very clear from the G-8 was that the euro zone has to put in place the most robust contingency plans for both eventualities."

The thinking of euro-zone leaders had been crystallized by the two days of talks, he said. "The world is suffering from the continued uncertainty in the euro zone. So this decision point, the Greek election, has got to become the moment where all of the right plans are put in place to secure the future of the euro-zone currency, the euro-zone economy, and therefore help stabilize the global economy.

"It's not for me to say what Greek parties should and shouldn't stand on and how the Greek elections should work. But it's very important that everyone is clear that the choice Greece faces is maintaining its commitments and maintaining itself in the euro zone, or deciding that is not the path it wants to take. What would be bad for Greece, bad for Europe and bad for the world is if we just allowed the can to be kicked further down the road with an inconclusive outcome. What's required is decisiveness, strong action by all governments. This is a moment of clarity.

"There needs to be a resolution because it's the lack of resolution that's leading to a lack of confidence."

Cameron said he did not want to go into details about the contingency plans already put in place, but the European monetary authorities had a big role. One idea proposed by the Italian prime minister, Mario Monti, is for a European system of guarantees for bank deposits, a move that would require a degree of Europe-wide bank co-ordination never before seen.

Greece has about €400 billion (£322 billion) in external debts, which its government, banks and companies would probably pay only in part or in drachmas. The fear is that a Greek ejection would lead to bank runs across Europe.

Germany also ratcheted up the pressure when the Bundesbank president, Jens Weidmann, warned Europe's central banks not to increase their exposure to Greece because of political uncertainty there before the elections.

The crisis has been exacerbated by the revelation that the Spanish deficit is larger than previously feared, putting extra pressure on its struggling banking sector. Angela Merkel demanded that her Spanish counterpart, Mariano Rajoy, meet her in Chicago on Sunday amid worries that financial markets will turn on Spain after its belated recognition on Friday night that regional governments had blown an extra €4 billion hole in last year's budget.

French President François Hollande became the first European leader to suggest the Spanish banks clearly needed fresh capital. "It would surely be necessary that this recapitalization be done with the European solidarity mechanisms," he said. Rajoy's conservative People's party (PP) government, however, is resisting what it sees as a humiliating move towards European intervention in Spanish banks.

"I can't believe that Mr. Hollande said that, because Mr. Hollande does not know what is the state of Spanish banks," Rajoy said before his meeting with Chancellor Merkel on a riverboat in Chicago, where they were attending a NATO leaders' conference. Doubts about Spanish banks, increased by the recent nationalization of Bankia, will see Rajoy's government name two independent auditors to value their assets on Monday.

E.U. leaders will meet at an informal dinner on Wednesday to discuss a growth agenda for Europe after President Barack Obama said over the weekend that the continent needed something more than a universal austerity package to survive, including a willingness by Germany to do more, either by reflating its demand or by accepting the mutualization of E.U. sovereign debt. President Obama's re-election hopes rest on the state of the U.S. economy, and the prospect of months more uncertainty in Europe will do little to boost jobs in the U.S..

Cameron said: "I have great respect for Angela Merkel. She wants to make sure countries in the euro zone who have signed up to commitments meet those commitments. She's absolutely right to say deficit reduction is an absolutely vital part of getting the European economy back to growth and health.

"I think she did show some flexibility on what more can be done on the growth agenda and what more can be done to handle the risks inside the euro zone. As I say, I think the fact that we got countries like Japan, Canada, America round the table as well as Britain who are outside the euro zone but are affected by what happens inside the euro zone was helpful in bringing that important pressure to bear."

Intellpuke: You can read this article by Guardian Political Edtior Patrick Wintour and Correspondent Giles Tremlett, reporting from Madrid, Spain, in context here:

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