By Macer Hall
ALARM at the economic turmoil in Europe intensified last night after the Government admitted preparations for the chaotic collapse of the euro were being “stepped up”.
Downing Street is understood to be embroiled in intensive “contingency planning” for Greece and possibly Italy, Spain and Portugal quitting the eurozone.
British banks have been urged by the City’s watchdog to brace themselves for the collapse of the single currency.
The Financial Services Authority warned that the unravelling of the 17-nation eurozone could wreak havoc on the UK banking system.
City sources said Hector Sants, chief executive of the FSA, made the plea at a crisis meeting with senior bosses from high street banks.
It could be the explosion of the European Union itself.
Alain Juppe, France’s foreign minister
And, in a sign of growing panic, a senior French politician warned the crisis could trigger “the return to violent conflict” in Europe.
Alain Juppe, France’s foreign minister, added: “It could be the explosion of the European Union itself.”
The turmoil has fuelled speculation that the end of the euro in its current form may finally be in sight.
The alarm followed the soaring cost of borrowing in Italy and other debt-hit Southern eurozone nations as well as growing fears for the French banking system.
Following the FSA warning, the Prime Minister’s spokesman said: “We have been stepping up our contingency planning but I don’t want to get into detail on that.”
He said the Government, the Bank of England and the FSA were working together “ensuring they have the capacity to take action” in the event of Greece or other countries quitting the euro.
Last week Andrew Bailey, a senior executive at the FSA, said: “We must not ignore the prospect of the disorderly departure of some countries from the eurozone.”
But the decision of Mr Sants to intervene by ordering Britain’s high street giants to increase their preparations for a euro exit was seen as a significant escalation of the crisis.
Tory MP Douglas Carswell said a break-up of the euro would be “bumpy” in the short term but “good for Britain and good for Europe” in the long run. “It is good that the establishment in Whitehall finally seems to be preparing itself for the inevitable,” he added.
Nigel Farage, UK Independence Party leader, said: “Summit after summit produces no credible solution to the eurozone debt crisis, just a papering over the cracks. The euro-vanity project is in its dying days and everything must be done to ensure British banks do not go down with the sinking ship.”
He added: “Mr Sants is becoming quite the voice of honesty – recently he admitted the FSA was essentially a branch office of the new European Banking Regulatory Authorities. Now he is admitting that the euro is likely to break up.”