Greece

George Osborne Excerpts

Monday 6th July 2015 Commons Chamber

[The First Secretary of State and Chancellor of the Exchequer (Mr George Osborne)]

I last updated the House on the situation in Greece a week ago. Since then the Greek Government have failed to make the International Monetary Fund payment that was due, and the Greek people expressed a decisive view in yesterday’s referendum and rejected the creditors’ terms. Greece is a proud nation and a very long-standing ally of the United Kingdom, and we respect the decision of its people, but there is considerable uncertainty about what happens next. We need to be realistic: the prospects of a happy resolution of the crisis are, sadly, diminishing.

Over the past 24 hours the Prime Minister and I have spoken to some of our counterparts, I have spoken to the head of the IMF, and just a few minutes ago I spoke to the chair of the Eurogroup. We are urging all sides to have a final go at trying to reach an agreement that defuses the crisis. The next steps are the European Central Bank discussion taking place right now, tonight’s Franco-German summit and tomorrow’s gathering of eurozone leaders. If there is no signal from those meetings that Greece and the eurozone are ready to get around the table again, we can expect the financial situation in Greece to deteriorate rapidly. For now, the British Government’s position remains the same: we will do whatever is necessary to protect the UK’s economic security at this time.

This morning, the Prime Minister chaired a meeting attended by the Governor of the Bank of England, myself and other members of the Government to review our response to the ongoing crisis. So far the financial market reaction has been relatively contained, private sector exposures are far less than three years ago, and the eurozone authorities have said that they stand ready to do whatever is necessary to ensure the financial stability of the wider euro area. But the risks are growing, so it is right that we remain vigilant and monitor the situation carefully. I am in regular contact with the Governor to oversee developments as they unfold.

We are also acting to protect British residents and holidaymakers in Greece. Last week, I told the House that the Department for Work and Pensions and public service pension administrators had started contacting Greek residents who draw a British state pension or public sector pension from a Greek bank account. I can now confirm that the DWP has spoken to 2,000 people, advising them on how to switch payments to non-Greek bank accounts if they wish. It has now enabled people in Greece who receive a UK state pension to set up a UK bank account if they do not already have one. International payments into Greece are still exempt from the restrictions that the Greek authorities have placed on the banking system, so I can confirm today that UK Government payments, including state pension and public service pension payments, will continue to be made in the usual way.

We are doing more to keep holidaymakers and residents informed about the developing situation. We are in regular contact with the travel industry, to understand the impact on British nationals; we have increased the number of Foreign Office staff in our embassy in Athens, to be prepared for whatever happens; and on the islands of Crete, Corfu, Rhodes and Zakynthos, where many British tourists are and where we already have a vice-consular presence, we have deployed more consular staff to support the teams there. But it is unrealistic to think that we can provide a consular presence on all the Greek islands, which is why we urge everyone travelling to Greece to look at the travel advice before they go. It is clear that British holidaymakers should take sufficient euros in cash to cover the duration of their stay, emergencies, unforeseen circumstances and any unexpected delays. Travellers should be careful and take sensible precautions against theft.

As the economic crisis in Greece persists, there are greater risks of shortages. In recent days the media have reported a shortage of medical supplies in Greece, so I reiterate the Foreign Office’s advice on its website that UK travellers take sufficient supplies, including prescription medicines, for the duration of their trip. We will continue to ensure that the travel advice is regularly updated with the latest information, and our ambassador in Athens will provide regular updates on the UK response in Greece.

Finally, we have put in place measures to support British businesses. HMRC’s time to pay arrangements are now open to help businesses that are experiencing cash-flow problems as a result of banking controls in Greece. Under the leadership of my right hon. Friend which Business Secretary, the Department for Business, Innovation and Skills has published detailed guidance to help businesses; it can be found on the Government website. Businesses that are experiencing problems with Greek contracts can call the business support helpline which will direct them to commercial lawyers with experience in the Greek market, or they can contact their Member of Parliament and we will help provide direct advice. The Minister of State for Trade and Investment met major UK companies and business groups last week to discuss the situation, and he will have further meetings this week.

This is a critical moment in the economic crisis in Greece, and no one should be under any illusions. The situation risks going from bad to worse, and Britain will be affected the longer the Greek crisis lasts and the worse it gets. There is no easy way out, but even at the eleventh hour we urge the eurozone leaders and Greece to find a sustainable solution. Here in Britain we must redouble our efforts to put our house in order. In the Budget in two days’ time, I will set out exactly how we will do that.

--- Later in debate ---

[Mr Osborne]

I thank the hon. Gentleman for his remarks and his questions, which were sensibly put. I agree that what we want is an orderly way forward, and the risk is a disorderly financial situation in Greece. I have spoken to several of my counterparts, including, as I have just said, the head of the Eurogroup and the managing director of the IMF; the Prime Minister has spoken to the German Chancellor and others. The simple fact is that the eurozone is waiting for the Greek Government to make a new proposal. They have requested a new programme, and they are expecting to receive the details of that request at the eurozone meeting that will be held tomorrow, but we should not underestimate the importance of the Franco-German summit tonight to see what general approach the eurozone will take to this situation.

Greece is now in arrears, so the IMF cannot actually make any payments under the terms under which it has always operated. The IMF would in any case have to operate alongside the eurozone, as it has made very clear.

The UK is monitoring developments in the four branches of the Greek banks and the one subsidiary that we talked about. That subsidiary is regulated by the Prudential Regulation Authority, but the Bank of England is also keeping a close eye on those four branches.

The hon. Gentleman asked about the bank deposit regulation and the insurance we offer. It is an EU directive that sets that rate in euros. The pound has strengthened and we actually achieved a bit of flexibility in the way the directive operates by delaying the change we need to make to the end of this year, to give plenty of time for people to become aware of the change and so that they know how much of their deposits will be protected.

We are in contact with the various tour operators, which are generally well organised to deal with various situations that might occur in holiday destinations. As I said, we have taken the precaution of increasing the consular staff—not just in Athens, but on the islands where we have a consular presence.

The blunt truth is that there are two timetables at the moment, and it is not clear how they will become aligned. The first timetable is political—the meetings that need to take place, the eurozone working together to find a common position and the proposal from the Greeks. All that looks like it will take some time. At the same time, the other timetable is the situation in the financial system in Greece—that, of course, is operating at a much faster pace. The challenge for the eurozone and for Greece is to bring those two timetables together and find an orderly solution.

[Mr Andrew Tyrie (Chichester) (Con)]

I realise that the Chancellor will want to be somewhat guarded in his reply, but how far can he go towards agreeing that Greece probably cannot recover at current euro exchange rates and almost certainly will not be able to repay all its debts, so the best course now—for Greece and the eurozone—would be to encourage Greece to recreate its own currency and for the eurozone to take all the necessary steps to prevent contagion?

[Mr Osborne]

Just as when people try to tell us what currency we should adopt we do not take too kindly to it, we should respect the decision of the Greek Government and people about the currency that they want to use. Clearly the Greek Government are saying that they want to remain in the euro. The tension, which has been there all along, is between that desire to remain in the euro and the conditions of membership that the other members of the eurozone are placing on them. That is the dilemma that has not yet been resolved.

[Stewart Hosie (Dundee East) (SNP)]

I thank the Chancellor for his statement and for early sight of it. The Scottish National party agrees with much of what he said.

Most people recognised last week that, irrespective of the outcome of the referendum, negotiations and difficult decisions would still have to be undertaken by both Greece and its creditors. The Chancellor observed last week that senior eurozone figures had said that had Greece voted yes, then negotiations would begin to try to find a satisfactory outcome. Given that Greece voted no to the troika conditions, but voted to remain part of the EU and the eurozone, will the Chancellor try to persuade his Finance Minister counterparts in the EU and colleagues in the ECB and IMF that they, too, should respect the outcome of the referendum, stay calm and return to the negotiating table to find a long-term sustainable solution to Greece’s problems? That is in all our best interests.

It is worth noting that, as the Chancellor said, the markets have barely moved since the referendum result. They, at least, clearly discounted the possibility of a no vote, even if others did not. Peripheral country 10-year bond yields, in particular in Spain and Italy, have barely moved and are at about 2.3%. The FTSE Eurofirst 300 index is off by about 1.2% as of earlier this afternoon, although bank stocks are down a little more. However, market sentiment may change and bond yields and European banking stocks in particular may yet come under further pressure. May I ask what are the contingency plans for that eventuality; not the detail—I understand the sensitivity—but perhaps the degree of liaison between the Greek central bank, the ECB and the Fed? What plans are there, in addition to what he has laid out, to support businesses that export to Greece, particularly in the light of capital controls, to ensure cash-flow problems do not damage perfectly viable businesses here?

The Greek people have voted against further austerity, which they argue—many would agree—has failed so far. The Greek Government have a clear mandate to negotiate on that basis. I very much welcome what the Chancellor said about respecting the decision of the Greek people. I hope he and his Government will continue to respect that decision. As he said, this situation risks going from bad to worse. Even if the immediate crisis passes, the risks that do exist may do so for some considerable time.

[Mr Osborne]

The hon. Gentleman is right in his assessment of the current state of the markets. There has been a muted reaction, although Greek bond spreads have increased. I think that is in part because eurozone leaders and Finance Ministers have acted with some restraint post the result. Some of the language we heard on all sides before the referendum has been toned down, which is very sensible. I think people are now looking at the crucial meetings that will take place tonight and tomorrow to see whether they will get around the table and try one final time to reach a way forward.

On the hon. Gentleman’s specific point about export businesses, we are in contact with the various business representative bodies. We have the helpline available and HMRC is able to help with cash-flow problems. I repeat the point I made earlier: if Members of Parliament have specific cases, they should bring them to us and we will make sure that the businesses in their constituencies get specific advice. The hon. Gentleman can have my assurance that we remain in regular contact with the European authorities. The Governor of the Bank of England remains in very close contact with the head of the European Central Bank. We are prepared for what happens. I note again that there is a very fast timetable happening in the financial system in Greece. We have to make sure that the political timetable keeps pace with it.

[Several hon. Members]

rose—

[Mr Kenneth Clarke (Rushcliffe) (Con)]

I am glad to say I was, Mr Speaker. I was not going to ask my right hon. Friend about my birthday, but thank you very much for your kind remarks.

Will my right hon. Friend continue to give support to those of our sensible European allies who insist that the Greek Government cannot just expect a third bailout and a second restructuring of their debts, so that Irish, Portuguese, Spanish and other taxpayers can continue to pay for untenable levels of public expenditure, including generous early retirement schemes, bloated public sector payrolls and so on? Does he also accept that if in the next week or two the Greek Government just print a new currency, called the new drachma, it will be a quite worthless means of exchange that will probably not be used by the Greek population or by foreign suppliers of commodities? There is therefore no alternative to the Greek Government eventually agreeing structural reform, to give them a competitive economy for the future and to rejoin the European community of nations.

[Mr Osborne]

First, let me join in congratulating my right hon. and learned Friend on his birthday. The points he makes are echoed by many eurozone Governments that we speak to. There are countries in the European Union with lower GDP per capita incomes and there are Governments in the eurozone who have undertaken incredibly difficult structural reforms—he names our close neighbours in Ireland—so these points are regularly made. It is clear that there needs to be major structural reform of the Greek economy and certain conditions set on eurozone membership, and that is why the eurozone is waiting for the latest proposal from the Greek Government. Equally, we urge all parties in this, including those other eurozone Governments, to be open to new offers and to be ready to sit round the table.

[Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)]

If reports are to be believed that some of the big banks are running out of euro notes and that the Greek Government are able to print only €10 notes—any larger ones have to be imported—has Her Majesty’s Treasury made any provision to fly out euro notes to our pensioners or tourists who may be stranded and simply cannot get hold of euros?

[Mr Osborne]

What I should say, without going into too much detail, is that we have a number of contingency plans. We just hope we do not have to put them into operation.

[Sir William Cash (Stone) (Con)]

Does my right hon. Friend agree that although Greece bears responsibility, there is also the intensely political German question? Statements by the Germans recently seem increasingly self-righteous about compliance with European rules, when they themselves have been in defiance of the stability and growth pact for many years and the surplus rules. There is also the question of their over-lending to Greece, against the background of their export policy and currency manoeuvres. Does my right hon. Friend recall that in 1953, under the London debt agreement, Germany received £86 billion of debt, and does he agree that they might well be rather more generous in their attitude towards debt relief in respect of the Greek people?

[Mr Osborne]

We should understand that of course the German Government, and therefore the German people, are one of the largest creditors and therefore take a close interest in developments in Greece. Under the terms of an application for a new programme from the European stability mechanism, that requires a vote in the Bundestag, so there are clearly some key German political issues here. Where I agree with my hon. Friend is on the observation he makes about the stability and growth pact. One can argue that many of the problems that the eurozone has encountered in recent years were because of the lax interpretation of the rules, not least by France and Germany, over a decade ago. To be fair to the German Government and others, they have tried to strengthen those rules in recent years.

[Jeremy Corbyn (Islington North) (Lab)]

Does not the Chancellor think that something quite remarkable happened yesterday in Greece? Half its young people are out of work, public services are collapsing and there is desperate poverty around the country, yet the Greek people rejected the European Union’s proposals for further austerity and further cuts, seeking instead to renegotiate with the EU? When even the International Monetary Fund says that the debt is unpayable and has to be restructured over a longer period, does he not think that that should concentrate the minds of the EU and the German Government to do something urgently so that the banks in Greece can reopen, people can get back to work and the Government—the elected Government—can continue a programme of developing and expanding the economy, which is the only real way forward? Further austerity will create only deeper misery and shorter lives for a very desperate people.

[Mr Osborne]

It may surprise the hon. Gentleman to find that I agree with him on a number of points. First, I agree that we should respect the result of the referendum and the democratic decision of the Greek people. I agree that we need to see the Greek economy grow, although I would say that that requires structural reforms, as my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), the former Chancellor, said. I hope we agree, too, that there are many members of the eurozone and that this cannot be just a unilateral decision by the Greek Government and the Greek people, because other peoples and other Governments are involved, including creditor nations. The final thing we agree on is that I think the hon. Gentleman would be an excellent leader of the Labour party.

[John Redwood (Wokingham) (Con)]

The Chancellor is quite right that there are two timetables here. In his discussions with the leading players in the eurozone, was there any sense of urgency? Do they understand that unless they find a way of getting money into the Greek banking system soon, huge extra damage will be caused to the Greek economy when people will be unable to settle transactions or trade with the Greeks, and that there could be further desperate consequences to the Greek banking system? Does he agree that if the banking system goes down and cannot reopen sensibly, everybody will be far worse off and it would be a major disaster for the eurozone as well as for Greece?

[Mr Osborne]

My right hon. Friend makes the correct observation about the speed of events. To be fair, in speaking to my counterparts, I have found that they do accept the sense of urgency, but trying to get the political systems and political meetings to deliver at the right pace is, of course, difficult. That is the big challenge in the coming days. Whatever the outcome for Greece’s future membership of the euro, we want it to take place in an orderly rather than a disorderly way. Bridging between where we are today and the eventual outcome is something that the authorities in the eurozone need to work on.

[Mr David Winnick (Walsall North) (Lab)]

Has it not been made clear by the Greek Government that the vote yesterday was not about leaving Europe or even the eurozone, but about the constant humiliation the country has suffered over the years and the economic pressures piled on it? Should it not be borne in mind that we are dealing with a country that said a very firm no to Mussolini, that bravely opposed the Nazi barbarians and that opposed the military gangsters who took over the country in 1967? Is this not a people and a country that should be treated with respect, not humiliated day by day?

[Mr Osborne]

The hon. Gentleman is right to refer to the heroic history of the Greek people and the many times at which they have fought for their freedom. I would make this observation, however. If they join the eurozone, they are joining an arrangement with other member states, other Governments and some central institutions, so they cannot take a unilateral course. That is why Britain did not want to join the euro, but Greece did join it, so that requires an agreement with the other Governments and the other peoples of the eurozone, as well. What the hon. Gentleman said about the people of Greece could be said equally about the people of Spain.

[Mr Steve Baker (Wycombe) (Con)]

“ConservativeHome” and others are reporting an analysis of IMF figures according to which funds that were thought to be for the Greek bail-out are apparently being used to bail out banks in other eurozone countries. Is that true, and, if it is true, does it not put a completely different complexion on the plight of the Greek people?

[Mr Osborne]

I have not seen that analysis, but I will have a look at it and report back to my hon. Friend.

[Kate Hoey (Vauxhall) (Lab)]

I appreciate that the Chancellor of the Exchequer does not want to dictate to the Greek Government what kind of currency they should use, but will he have a word with the Prime Minister about the possibility of the two of them pointing out during their next conversation with the Greek Prime Minister that there is a bright future outside the eurozone, and suggesting that the Greeks look at the example of the United Kingdom and leave the eurozone—which, of course, we never joined?

[Mr Osborne]

My experience of the Greek Government is that they are very well versed in events here in the United Kingdom. They have certainly noticed our economic revival. I repeat, however, that it is not for us to say which currency they should use.

[Mr Peter Lilley (Hitchin and Harpenden) (Con)]

Does my right hon. Friend recall that when this country helped to persuade the rest of the world to forgive the debts of the heavily indebted poor countries, we argued first that lenders who lend too much share some of the responsibility with Governments who borrow too much, and should pay the cost, and secondly that the citizens of those countries are rarely to blame for the profligacy of their rulers, but have to suffer if they are forced to attempt to repay sums that cannot be repaid? Will he repeat those arguments to our colleagues in Europe?

[Mr Osborne]

My right hon. Friend has made a very good observation. The people who suffer when Governments get their economic policies wrong are often the poorest in the countries concerned. Sadly, we know that to our cost, given what happened in this country five or six years ago.

My right hon. Friend has also made a good point about the sustainability of debt repayments and the like. One of the big challenges that are looming is the repayment that is due to the European Central Bank. The discussion between Greece and its creditors has always been about ensuring that Greece pays what it owes but pays in a way that it can afford, and ensuring that it can grow its economy and undertake the structural reforms that are necessary to sustain its repayments. Indeed, that is an element of the discussion that is taking place now.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

In 1934, following the great depression, most of Europe’s Governments had a significant amount of their liabilities written off for good. In the case of the United Kingdom, that was about 25% of its debt. We have already heard about the London debt agreement of 1953 in relation to Germany. Is it not the case that, as The Daily Telegraph reported in February, debt write-offs are not unusual at times of crisis, and does that not indicate that crippling austerity is not the only way forward for Greece?

[Mr Osborne]

Debt sustainability is clearly one of the big issues for the Greek Government, but—and this, I believe, was also true of the discussions that took place in the 1950s—there must also be some agreement on the creditors’ part that economic reforms are in place that will allow the country to grow and thrive in the future. At present, the two sides cannot agree. The Greeks want the restructuring, while the eurozone wants more conditionality, and more evidence of the structural reforms that it believes will help the Greek economy to grow. What we are doing is urging the two sides to try to reach some kind of agreement.

[Crispin Blunt (Reigate) (Con)]

My right hon. Friend is urging a sustainable solution on our eurozone partners. Is he really saying that if he were a eurozone Finance Minister, he would fancy the task of going to his Parliament to seek authority to throw more good money after bad at the intransigent and unrealistic Government who so unhappily appear to represent the view of the Greek people?

[Mr Osborne]

I do not want to speculate on how this country would behave if it were a member of the eurozone. Thankfully, that is one of the pressures that our Government do not have to bear. However, this does remind everyone that a country that joins in a currency with other nation states and creates collective institutions will find itself bound by those rules, and will find that some of its unilateral, albeit democratically endorsed, decisions are not necessarily accepted by everyone else.

[Helen Goodman (Bishop Auckland) (Lab)]

Obviously the Chancellor is focused on the short term, but under any scenario one of the issues the Greek Government must get to grips with is improving their revenue-raising. Has any thought been given to technical assistance programmes along the lines of those run for the east European countries, to increase their capacity to raise taxes more effectively?

[Mr Osborne]

The hon. Lady draws attention to the very poor record on revenue collection in Greece. It is one of the things that most frustrates its creditors and it comes up regularly in the discussions with the other eurozone Governments. There is actually some history to this: there is a tradition of non-payment—if we can put it like that—going back through Greek history, partly because of the Governments it has had in the past. To be fair to the current Government, and indeed their immediate predecessors in Greece, they have talked about trying to improve revenue collection. The British Government have offered assistance; members of the British civil service have been out on secondment and the like over recent years to try to improve revenue collection. Unfortunately, however, at the moment revenue collection has almost dried up.

[Sir Roger Gale (North Thanet) (Con)]

My right hon. Friend has many aspects of this on his mind at the moment, but those of us who seek to protect the interests of ex-pat UK citizens know that they will be hugely appreciative of the fact that he is seeking to safeguard their pension rights and exportable benefit rights, but there are others, particularly those living in Cyprus, who are also dependent on the Greek banking system, so will my right hon. Friend have a word with the Minister for Europe, sitting to his right, and make sure consular assistance is made available to all ex-pat UK citizens who might be affected by the Greek banking crisis?

[Mr Osborne]

Of course, we do keep a close eye on the situation in Cyprus. A couple of years ago we provided a lot of support to British citizens or others receiving, for example, British pensions in Cyprus when its banking system collapsed.

One of the challenges with people in Greece who receive a British pension but have a Greek bank account is that if we simply stop the money going in, in order to try to protect the payment from whatever might happen, we do not know whether that might disrupt an agreement they have, for instance, with money coming out of their bank account to pay for rent, or for other things, and of course the Greek Government have not so far put restrictions on pensioners in Greece. We monitor this very carefully, and we have contacted a couple of thousand of the people affected to see if they want to switch bank account and offer them a British bank account facility if they want one. We keep this under daily review.

[George Kerevan (East Lothian) (SNP)]

In the light of both the unprecedented and potentially disastrous public attacks by Christine Lagarde against the Greek Government and the referendum result, will the right hon. Gentleman now urge the International Monetary Fund to make available to Greece the some £1.6 billion in profits the fund has made from charging the Greek Government for their emergency loans?

[Mr Osborne]

I do not accept that characterisation of the managing director; I think she has played a very important and constructive role in this crisis. The IMF exists to lend to countries that are by definition in some distress, but it, too, has rules, which have been established for many decades. One of them is that countries in arrears to the IMF cannot receive payments, and unfortunately last week Greece went into arrears.

[Wendy Morton (Aldridge-Brownhills) (Con)]

Given this uncertainty and the popularity of Greece and the Greek islands as we approach the main holiday season of the year, what reassurances can the Chancellor give me that I can pass on to my constituents that we will continue to give updated advice and information?

[Mr Osborne]

All the reports we have back from our consular staff and the various travel companies is that people are enjoying their holidays in Greece, are not seeing the disruptions, and are able to use their credit cards and the like, so we have not changed our travel advice to say people should not travel to Greece. What we have said, however, is that people should anticipate unforeseen—or, indeed, potentially foreseen—circumstances and make sure they take more cash with them than they might otherwise have done, so they are covered for different eventualities. If they do that, they can enjoy their holiday, and make a contribution to the Greek economy, which is very important, but they should take cash with them.

[Peter Grant (Glenrothes) (SNP)]

Does the Chancellor see the irony in the fact that the people of Greece are being hounded by financial institutions that would not exist had they not been bailed out at taxpayer expense to a sum far, far greater than the one the Greek Government now owe? Will he not accept that that is perhaps a sign that the Governments of Europe have to balance up their act and understand that Europe’s first priority should be to meet the needs of Europe’s citizens, not satisfy the greed of Europe’s bankers?

[Mr Osborne]

In the end, it is impossible for any country to defy the financial markets. That is something this country has learned to its cost in the past. What we want to see in Greece is investment flowing into the country, the banks reopening and the economy growing. That is why we look forward to the proposals that the Greek Prime Minister says he will bring to the eurozone summit tomorrow.

[Mr Christopher Chope (Christchurch) (Con)]

Does my right hon. Friend agree that it would not be anything for the Greek people to be ashamed of if they decided that they were best off getting out of the straitjacket of the eurozone and were able to wrest away from the controls of the European vulture funds?

[Mr Osborne]

I will not exactly use the language that my hon. Friend uses, but I think he would absolutely agree that we need to respect the rights of the Greek people to make their own decisions on their future. They have clearly expressed their view in the referendum, but of course they are part of a currency where other populations care about the arrangements with Greece. Governments in Ireland, Spain and the like ask, “We have undertaken a lot of these reforms and measures, so why are the same things not demanded of the Greeks?” That is the challenge that the eurozone faces. Where my hon. Friend and I agree is that we are well out of it and are happy with our pound sterling.

[Keith Vaz (Leicester East) (Lab)]

Since 1 January, 66,000 people have illegally crossed the border between Greece and Turkey. That is 360 a day, many of whom travel through the island of Kos to get to the Greek mainland. Greece requires urgent help to police not only its border, but the border of the EU. If we do not help Greece on this particular issue, the migrants will fall into the hands of people traffickers and end up in Calais, where the issue will become a problem for Britain and France. What can we do to help the Greeks with this issue?

[Mr Osborne]

The right hon. Gentleman is right to draw our attention to the serious migrant issues in Greece. I think we all remember seeing the television images a few weeks ago of the boat crashing into the rocks off the beaches in Greece. I know that the Home Secretary and other European Interior Ministers have spoken to the Greek Government about the direct assistance we can provide to help them police their borders and deal with what is, of course, a common challenge.

[Christopher Pincher (Tamworth) (Con)]

I am grateful for the steps the Chancellor is taking to help British businesses and to advise holidaymakers, but he will know that many more British holidaymakers will shortly be making the journey to Greece. Has he any indication of any tour operator that is unduly exposed to the Greek market and therefore at heightened risk of failure? Will he, along with his colleagues on the Front Bench, continue to monitor the situation?

[Mr Osborne]

We keep in touch with all the tour operators. Most of them have very big operations in Greece, but they are satisfied with the arrangements and the support we are providing. As I say, these holidays are going ahead. People are not seeing any great disruption and are making a contribution to the Greek economy. We want to continue to provide good travel advice. We will change the travel advice if we feel we need to, but the travel advice at the moment is not, “Do not travel to Greece”; it is just, “Make sure you are prepared.”

[Richard Burgon (Leeds East) (Lab)]

Does the Chancellor agree with the Greek Prime Minister, who stated after the referendum result was announced last night that the IMF’s recent report on its sustainability confirms the Greek position that debt restructuring is necessary to reach a final sustainable solution to end the crisis both for Greece and for Europe? Does he not agree that a European conference on debt cancellation is a necessary part of that solution?

[Mr Osborne]

The sustainability of Greece’s debt payments is clearly a big issue. That is why it failed to meet the IMF payment last week and faces such a big challenge with the ECB repayment later this month. That is one of the challenges, but alongside it—and the IMF draws this to our attention as well—there must be some indication that the Greek Government can undertake the kind of reforms that will modernise the Greek economy, make sure it is a success and ensure a stream of tax revenues in the future. No one is pretending that it is easy, but that is the substance of the negotiation.

[Jeremy Quin (Horsham) (Con)]

I am thinking of what has been going on recently in China, in particular, and know that my right hon. Friend will be well aware that there are always dangers to the global economy. He has always been very alert to the deficiencies of governance within the eurozone. Does he believe that that governance has reformed sufficiently to prevent another similar crisis in the future in another eurozone state?

[Mr Osborne]

My hon. Friend is right to draw the House’s attention to some of the economic issues in China, but if we can stay in the western hemisphere for the purposes of this statement, the eurozone is a much better place than it was in 2012 to deal with any contagion from the Greek crisis. That is reflected in the fact that the bond spreads for the peripheral countries have not gone out today, because the ECB is prepared to do, in its words, “whatever it takes” in its outright monetary transactions policy. We have the European stability mechanism, which is, in other words, a sort of central bail-out fund. We have more of the machinery in place than we did in 2012, which is why we are not seeing quite as much contagion. I would make a general observation I have made before, however. I do not think people should underestimate the medium to long-term impact of a country leaving the euro and showing that it is possible to exit that currency.

[Derek Twigg (Halton) (Lab)]

The Chancellor said in his statement last week and has said since that we must hope for the best and prepare for the worst. I asked him last week what the worst was. May I ask again what the worst will be for the UK?

[Mr Osborne]

The worst for the UK and the whole of Europe will be a completely disorderly situation over the next few weeks that has an impact on Europe’s financial system. As Britain is one of the most open economies in the world, that will impact on us. We saw the impact of the problems in the eurozone in 2012 and how they spilled over into the UK. That is the challenge of any financial crisis and it is a challenge for the UK as an open economy. That is why we are urging those on all sides to try to resolve the situation.

[Sir Edward Garnier (Harborough) (Con)]

The United Kingdom Exchequer will be exposed whether Greece stays in or leaves the euro. Will my right hon. Friend publish, if he can, the assumptions on which his assessment of those contingencies can be made?

[Mr Osborne]

Of course, we have a very small direct exposure as our banking system has greatly reduced its Greek liabilities. We have four pretty small Greek branches and one subsidiary. We are not directly exposed to loss and although we are a member of the IMF, no country has ever lost money supporting the IMF. Of course, people ask what might happen to Greece should it leave the euro, but I think we can leave that for another day.

[Barry Gardiner (Brent North) (Lab)]

Will the Chancellor remind the House of the amount of money that this country made available to the IMF as part of its assistance package to Greece? He has reasserted today that no country has ever lost money by lending it to the IMF, but of course the IMF has said that it believes that a serious restructuring is required for Greece to get through its current difficulties. That implies that the moneys owed to the IMF will not be repaid.

[Mr Osborne]

The IMF has existed since it was created out of the Bretton Woods conference and, by definition, it exists to support countries that are in very real financial distress. That is its business: lending to countries that are having real problems managing their debts. It is important to say again, however, that Britain and other members of the world community that support the IMF have never lost money in this way, because the IMF holds contingency reserves. It is also the preferred creditor. Frankly, I do not think that the prospect of us losing money through the IMF is that strong.

[Suella Fernandes (Fareham) (Con)]

Thankfully, the global stock markets proved resilient despite yesterday’s result. However, bank shares were among some of the biggest fallers, with Barclays down by 1.7%. What is my right hon. Friend’s advice to banks that fear that the crisis could increase losses from bad loans and drive up borrowing costs for Governments?

--- Later in debate ---

[Mr Osborne]

All British banks have greatly reduced their exposure to Greece over the past few years. Continental banks have also reduced that exposure, so British banks are less indirectly exposed. Collectively, less than 1% of the core tier capital of the British banking system is exposed to Greece. We are therefore much better prepared than we might have been a few years ago. Also, our own economy is stronger and we are not in such a vulnerable position in regard to our public finances as a result of the difficult decisions we have taken. We are in a much stronger position to deal with whatever comes, but we are an open economy, and a financial crisis in Europe is not something that will just pass Britain by.

[Mr Clive Betts (Sheffield South East) (Lab)]

The Chancellor has rightly said that a number of difficult issues need to be resolved if agreement is to be reached between Greece and its creditors. Last week, the IMF said that even if all the other issues were resolved, any agreement would be unsustainable unless debt relief formed part of the package. Do the Government agree with the IMF on that key point?

[Mr Osborne]

We agree that a key issue is Greece’s ability to make its debt repayments. That is self-evidently the case because it failed to make a debt repayment to the IMF last week, and it also has to make a big debt repayment to the European Central Bank. I do not think it is right simply to pick out one piece of the IMF’s advice. It has also stated strongly that the Greek economy needs major structural reform, for example. We have to look at the IMF’s advice in the round, which is why it is such a valuable institution.

[Craig Mackinlay (South Thanet) (Con)]

I cannot help wondering whether the resignation of the Greek Finance Minister, Mr Varoufakis, might result in an opening for the former Chief Secretary to the Treasury, the right hon. Member for Birmingham, Hodge Hill (Liam Byrne). Does my right hon. Friend acknowledge the importance of a strong economy and a plan to eliminate the deficit? Put in simple terms, does he agree that we need to live within our means?

[Mr Osborne]

My hon. Friend is right to say that countries need to live within their means. As a Government, we have addressed that matter over the past five years, and I shall address it again in a couple of days’ time in the Budget. Mr Varoufakis has now resigned, and I shall be moving on to yet another Greek Finance Minister, but I doubt that the next one will have quite the dress style of the one we have just lost.

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

Could the Chancellor be more specific about the risks to the UK’s economic security and, in particular, about the measures that he is going to introduce to mitigate those risks?

[Mr Osborne]

The risks stem from the fact that we are the world’s largest financial centre. We are also the global centre for the trading of the euro. We are a very open economy; on most measures, we are the most open and interconnected of all the world’s advanced economies. We are therefore affected by financial conditions in Europe. We saw that a few years ago, but we are in a much stronger place than we have been in the past because we have been paying down our very large deficit, because we have been strengthening our economy, because we have been recapitalising our banking system and making sure our banks are stronger, and because we have a much better system of regulation, in which the Bank of England is in charge of regulating the banks. Those are all steps that we have taken. I do not think anyone will be particularly surprised to hear that when we assemble in a couple of days to hear the Budget, we will hear the further measures needed to reduce that budget deficit and ensure that we fix the roof while the sun is shining.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

Such external shocks do focus the mind. May I bring the Chancellor back closer to home? He has tough decisions to make on Wednesday. Has he had any representations from the Opposition Benches about where those cost savings should come, and support for the long-term economic plan?

[Graham Stringer (Blackley and Broughton) (Lab)]

The Chancellor, in a moderate and balanced statement, said that he respects the Greek decision. That is in sharp contrast to some of the eurocrats and Ministers from other eurozone countries, who have made bullying and intemperate statements to the Greek Government. Will the Chancellor tell the House what steps he and the Prime Minister have taken to stop the same people trying to interfere in our referendum about our future in the European Union?

[Mr Osborne]

As I think we saw in the past week, some of those intemperate statements might have had the exact opposite effect to the one that they were intended to have, which reminds us not to interfere in other people’s democracies.

[Stephen Hammond (Wimbledon) (Con)]

Although the bond yields in Spain, Italy and Portugal rose only 12 basis points this morning, and despite what the eurozone said about whatever measures are necessary, the spread over German bonds suggests that there is still a real risk of contagion. Can the Chancellor confirm that thanks to his action, any measures taken by the eurozone will have a very limited impact on the UK financial system and limited cost for the UK taxpayer?

[Mr Osborne]

My hon. Friend is right. We have reduced our exposure, as I said, to the Greek economy and, absolutely crucially, the Prime Minister made sure we were out of the bail-out funds for Greece that existed when we came to office. With hindsight, that looks like one of the most important decisions we took.

[Andrew Gwynne (Denton and Reddish) (Lab)]

The form of any contagion is not yet known, but surely one of the dangers is capital flight from the poorer southern eurozone economies to the richer northern economies. That would not just be a disaster for Greece, Italy, Portugal and Spain, but it would have ramifications for the wider European Union, which are political, as the Chancellor has intimated. Given that, what discussions are he and his officials having with European Finance Ministers to make sure that the European single market is not undermined?

[Mr Osborne]

The hon. Gentleman is right that capital flies from countries in distress. That is why the Greek Government have had to impose capital controls. We see German bund spreads coming down today. That is a consequence of an open and free market and, as I said in reply to an earlier question, it is difficult to defy that market, as Greece is seeing. More broadly, we want to make sure that the eurozone finds some sustainable way forward so that we avoid these tensions, which spill out into the political system.

[Several hon. Members]

rose—

[Philip Davies (Shipley) (Con)]

Is not the genesis of the problem that the EU allowed Greece to fiddle the figures in order to join the euro in the first place? Is not this blinkered pursuit of a political project of ever-closer union, rather than thinking through the economic consequences, the reason why we need to leave the European Union?

[Mr Osborne]

I know my hon. Friend has consistently held that view since he put it in his maiden speech, as I remember from listening to him many years ago. He identifies two challenges. One, fiddling the figures, we have addressed in this country by creating the Office for Budget Responsibility. When it comes to ever-closer union, that is precisely one of the issues that we are seeking to address in the renegotiation that we are conducting with the European Union.

[Bill Esterson (Sefton Central) (Lab)]

The Chancellor has been asked a number of times about the worst-case scenario for this country as a result of the crisis. Can he spell out what that would look like for the people of this country?

[Mr Osborne]

As I have said, Britain is not immune to the problems in the European economy. Some 50% of our exports go to the European Union, even if only a very small proportion of that goes to Greece, and we are a very large financial centre, so there would be an impact on our economy if the Greek crisis continued to deteriorate. That is why it is absolutely in our interests that there is a solution.

[Julian Knight (Solihull) (Con)]

On a humanitarian point, considering that some international drug companies are currently holding off shipping to Greece as a result of the crisis, are there any early contingency plans in place, or discussions in the UK and the EU, for moving in medical aid should our friends suffer a social and economic collapse, the likes of which were seen when Argentina defaulted in 2000?

[Mr Osborne]

My hon. Friend is right to remind us that, although we are talking about a financial crisis, there is real human suffering in Greece, because the banking system has effectively shut down for many Greek citizens and businesses. There are reports of a shortage of medicines, which is why I drew attention in my statement to the Foreign Office’s advice—I was reiterating advice that has been in place—to take adequate supplies of prescription medicines, in particular. On his specific point, we have been talking with the British pharmaceutical companies, which have continued to supply the Greek market, and of course we stay in touch with them regularly.

[Rachael Maskell (York Central) (Lab/Co-op)]

Infant mortality has doubled and there has been a sharp rise in HIV, TB, suicide and other physical and mental health conditions in Greece. Therefore, I want to see that we ensure that we make provision for emergency medical and humanitarian support in these vital discussions this week.

[Mr Osborne]

The hon. Lady is perfectly right to draw to the House’s attention the very difficult situation that Greek families can find themselves in at the moment. That is all the more reason why we need to find a resolution. As I have said, the British pharmaceutical companies, which are important suppliers to the Greek medical system, are continuing to make those supplies, despite the imposition of capital controls. The whole question of what should happen if Greece falls out of the eurozone is something that I think we should return to if that eventually arises. Greece is one of this country’s oldest allies and of course we will always stand by it.

[Robert Jenrick (Newark) (Con)]

The Chancellor has said that we must not underestimate the impact of these events on the UK economy. Whatever happens, the weak and stagnating economies of southern Europe, in particular, will continue to deteriorate. Looking towards the Budget and the months ahead, will my right hon. Friend use all his offices to pivot the UK economy towards growing and emerging economies elsewhere in the world, particularly as he did decisively with the UK’s leading role in the Asian Infrastructure Investment Bank?

[Mr Osborne]

My hon. Friend makes a good point. British exports are too dependent on European markets and have been badly hit by weaknesses in the European economy over the past five years. That is why we have put a huge effort into trying to expand our trade and investment in fast-growing parts of the world, such as Asia. We want to be part of the new institutions there, such as the Asian Infrastructure Investment Bank. However, some southern European economies, such as Spain’s, have shown a remarkable turnaround, because they have taken difficult decisions, reformed their economies and are now reaping the benefits.

[Gareth Johnson (Dartford) (Con)]

Britain is quite rightly a good friend of Greece, but does the Chancellor agree that the situation there reminds us that in the end economic logic must prevail? Countries must live within their means, and failure to tackle debt, for example, can lead only to economic and financial disaster.

[Mr Osborne]

My hon. Friend makes a very good observation. Countries that fail to live within their means are exposed to the forces of the international bond markets and the flight of investor confidence. Five years ago, Britain had a budget deficit of over 10% of its national income. We have reduced that budget deficit, and this week we are going to take further steps to finish the job.

[Mr Peter Bone (Wellingborough) (Con)]

The Chancellor will be aware of the detailed contingency plan that the eurozone has for a Greek exit from the euro. With the markets calm, would not this be the time to implement that plan?

[Mr Osborne]

As I say, it is not for us to dictate to the Greek people or to the eurozone whether Greece should leave. I repeat: the elected Government of Greece say that they want to remain in the eurozone, so we should at least respect that intention, and we will see whether they can work with their partners to deliver it.

[David Rutley (Macclesfield) (Con)]

I welcome the steps that my right hon. Friend is taking to secure UK economic interests in the current difficult circumstances. Given that one of the challenges of the situation is the lack of a clear and orderly exit mechanism from the eurozone, are there any plans within the eurozone to address this issue after the short-term challenges facing Greece have been solved?

[Mr Osborne]

My hon. Friend makes a good observation. There is no straightforward mechanism for a country to exit the eurozone; it is not provided for in the treaties. Of course, if the eurozone wanted to propose a change to the treaties, then we would be very willing to sit down and discuss it.

[Stephen Phillips (Sleaford and North Hykeham) (Con)]

My right hon. Friend will know that 90% of the world’s physical trade travels by sea. He may also know that Greek individuals and companies are the largest owners by tonnage in all sectors of the market. Any reduction in tonnage across the world is not only damaging to international trade but potentially highly inflationary. Has he given any consideration to this, and what discussions has he had with partners to ensure that sufficient shipping tonnage remains available for all international trade?

[Mr Osborne]

We have stayed in touch with all interested parties. Of course, the shipping industry is an incredibly important part of the Greek economy and the global economy, but we do not currently see a particular disruption to the shipping industry that we should be alarmed about.

[Tom Pursglove (Corby) (Con)]

What support are the travel operators giving the Chancellor in his efforts to disseminate information to travellers going to Greece from this country?

[Mr Osborne]

It is fair to say that the travel companies have been behaving very well and co-operating with us very closely. At any one point in the month of July, there are 150,000 British citizens on holiday in Greece. The companies are therefore used to communicating on a large scale, and they are one of our main points of contact with holidaymakers. I say again that people travelling to Greece should check out the Foreign Office travel advice.

[Alan Mak (Havant) (Con)]

While the Greek people gave a clear answer in Sunday’s referendum, there is still a huge amount of concern across Europe that is worrying to working families in this country. Can my right hon. Friend assure me and my constituents that he is taking all necessary steps to protect their economic security?

[Mr Osborne]

I can assure my hon. Friend that we will go on delivering economic security for the working people of Britain. I will come back to the House on Wednesday to deliver a Budget that does just that.

[Mr Philip Hollobone (Kettering) (Con)]

I support the comments by the right hon. Member for Leicester East (Keith Vaz), the Chair of the Home Affairs Committee. The Greek-Turkish border is already the leakiest part of the EU’s external frontier, and one of the biggest threats to this country from a complete social and financial collapse in Greece is thousands more migrants making their way through to Calais and trying to get into this country. Will we use our good offices within the EU, and outside the eurozone, to ensure that the EU provides all the necessary support to plug the gaps in the Greece-Turkey part of the EU external border?

[Mr Osborne]

My right hon. Friend the Home Secretary is working very actively on precisely this issue. My hon. Friend reminds us, at the end of this statement, that although this is of course a big issue for the eurozone, it is also an issue for the whole of Europe, including the United Kingdom. We want to see a resolution of this Greek crisis. Even at this eleventh hour, we want the eurozone and Greece to sit down and try to find a sustainable way forward.