George Osborne on the latest developments in the financial crisis in Greece and how they might affect British citizens.
Mr Speaker, let me report to the House on the latest developments in the financial crisis in Greece, how they might affect British citizens, and how we protect our economic security at this uncertain time.
The developments over the weekend have been well reported.
Greece’s financial assistance programme is due to expire tomorrow.
After tense negotiations last week between the Greek government and their Eurozone partners, it looked likely that a deal to extend that programme would be agreed.
On Friday, however, the Greek PM suddenly announced that there will be a referendum on July 5th on the terms of that programme extension, and that he will be recommending that the Greek people vote “no”.
On Saturday, the Eurozone finance ministers confirmed that – as a result of this unexpected move – negotiations were at an end and the programme would expire.
Yesterday, the European Central Bank said that without a programme they could not extend the Emergency Liquidity Assistance that is the life support of the Greek banking system.
And last night, clearly under pressure, the Greek government announced that banks would not open today and capital controls would be introduced.
Mr Speaker, there is considerable uncertainty about what happens next. I have spoken over the last 48 hours to fellow finance ministers, the chair of the Eurogroup and the head of the IMF.
This lunchtime, as we just heard, the PM chaired a meeting, attended by the Governor of the Bank of England, myself, the Foreign Secretary and others to co-ordinate our response.
Britain’s attitude to the developing Greek crisis is clear: we hope for the best; but we prepare for the worst.
Let me address some immediate issues that will concern people.
First, our view on the overall state of the relationship between Greece and its fellow Eurozone members is this: whether or not Greece should ever have joined the euro, it is now part of that single currency, and an exit will be traumatic.
It was the Greek government’s decision to hold a referendum which was the immediate trigger for the events over the weekend and the bank closures today.
And we should plan on the assumption that this referendum will effectively be a choice for the Greek people about whether their country now leaves the euro.
This is a matter for the Greek people to decide – and we respect their democratic right to decide their country’s future. We also respect the right of the Eurozone to set conditions of membership.
That remorseless logic of integration is one of the reasons we didn’t join the euro and we don’t want to in the future.
Second, there is the impact of the current events on the stability of the financial system, in the UK and across Europe. Related to that is the position of the Greek banks here in the UK.
This Greek crisis has, in one form or another, been with us for 5 years. It has been one of the biggest external economic risks to the British economy.
And the situation today shows that these risks remain. I don’t think anyone should underestimate the impact that a Greek exit from the euro would have on the European economy – and the knock-on effects on us. That’s why I have consistently argued that the best way to protect ourselves from these risks is to get our own house in order.
Of course, markets anticipate some of these risks.
The private sector exposures to Greek banks and the Greek economy are far lower than they were, say, 3 years ago.
So the financial market reaction today has been relatively contained.
Stock prices on European exchanges have fallen by between 2 and 5 per cent and Greek bond yields have increased by around 400 basis points to over 14 per cent, but bond spreads in other Eurozone economies have stayed broadly steady.
The Eurozone authorities have made clear that they “stand ready to do whatever is necessary to ensure financial stability of the euro area” and we welcome that commitment to the currency.
Equally the British government and the Bank of England stand ready to ensure our financial stability in the UK.
The four largest Greek banks – Alpha Bank, Euro Bank, National Bank of Greece and Piraeus – all have branches here.
Their UK balance sheets are small – between them, their deposits total less than £225 million.
Resolution and supervision of these branches is the responsibility of the Greek and EU authorities.
Protection of depositors is solely the responsibility of the Greek authorities.
All four branches are open today.
There is one Greek bank with a subsidiary in the UK, Alpha bank. This is a separate, standalone entity from its parent bank.
It is small, with assets of slightly over half a billion pounds.
It is regulated by the Bank of England, and customers can be assured that their deposits are covered by the UK’s Financial Services Compensation Scheme.
Third, there are 40,000 British residents in Greece, including 6,000 receiving payments from the Department of Work and Pensions and around 300 receiving public sector pension payments.
The Greek government have announced a bank holiday in Greece, lasting at least until after the conclusion of the referendum on 5th July, and restrictions on withdrawals from ATMs.
Withdrawals will be limited to €60 per day per account for Greek accounts.
The Greek bank accounts of these British residents are subject to these restrictions. Their UK bank accounts are not affected.
International payments into Greece are exempt from the restrictions that the Greek authorities have placed on the banking system.
That means that UK government payments, including state pension and public service pension payments should be permitted and I can confirm that those payments will continue to be made in the usual way.
However the situation remains fast moving and uncertain, we will keep it under review and I recognise that people may be concerned.
I have asked the Department for Work and Pensions and public service pension administrators, to attempt to contact people that draw a British state or public sector pension from a Greek bank account.
These people will be helped to switch these payments to a non-Greek bank account if they wish.
Fourth, there are on average 150,000 British tourists per week in Greece in the month of July.
For the time being, the Greek Government have announced that as usual, tourists will be able to withdraw up to €600 on cards that have been issued outside of Greece.
However the Finance Ministry could impose limits in future, and the availability of ATMs which are stocked with cash may get increasingly patchy.
I remind people, credit and debit cards are of course accepted only at the discretion of the business you’re paying.
As a result of these limited and potentially unreliable banking services, I can confirm that the Foreign Office is as I speak updating its travel advice. We recommend that travellers should take sufficient Euros in cash to cover the duration of their stay, emergencies, unforeseen circumstances and any unexpected delays.
Obviously travellers should be careful and take sensible precautions against theft.
The full advice is available from gov.uk, and travellers should check this regularly.
Finally, we are taking steps to help firms doing business with Greece.
There are restrictions on the settlement of payments being transferred out of the Greek banking system.
The Department for Business is today publishing guidance for businesses who may be affected.
In addition, I can announce HMRC’s Time to Pay service will be available to help give breathing space to businesses who are experiencing cash-flow difficulties as a result of events in Greece.
So let me be clear: British pensioners are being paid as normal. British businesses trading with Greece will be supported. And British holiday makers will receive the advice and help they need.
In a rapidly changing situation, I want people to know: Britain is prepared.
To conclude, Mr Speaker, it is vital now that the government and people of Greece act to resolve the current uncertainty, and ensure economic and financial stability across Europe.
Five years ago, we came to office in the first flush of the Greek crisis.
At the time, Britain too was dangerously exposed, and on the brink.
Since then, with the British people, we have worked hard to repair our economy and ensure we can deal with risks like this from abroad.
If ever we needed a reminder of why we need to continue working through our plan to deliver economic security at home, we have it today.
And I will take further steps to secure our country’s future in the Budget next week.