Ken Clarke delivered a stark warning about the consequences of Greece crashing out of the eurozone today, saying Europe's banking system was already "in tatters".
The Cabinet minister said Britain was "heavily exposed" to potential problems and could be among the next targets for market speculation.
He also hit out at the US for failing to contribute more to bailout funds, suggesting Barack Obama's administration was "paralysed" by looming elections.
The comments, in an interview with Sky News' Murnaghan programme, came after the Prime Minister used a meeting of G8 world leaders at Camp David to step up calls for action on the eurozone crisis.
Clarke, a former chancellor, signalled that fresh elections due in Greece next month would be critical.
"The Greek voters have really got to face up to reality - it is very very difficult for them, they are having a terrible time," he said. "These are hardships inflicted on them by the irresponsibility of their former politicians.
"But they cannot just vote for saying, 'could people just carry on giving us some money so we do not have to change anything'."
Clarke said the consequences would be "serious" if the Greek people elected "cranky extremists" and defaulted on their debts as a result.
"Everyone says they will leave the euro," he added. "Actually that is quite likely but doesn't necessarily follow."
He went on: "No-one knows exactly what will happen in the rest of Europe. But the banking system is in tatters, it is weak in very many places.
"We don't know what the knock on effects would be, they could be very serious and of course people will start barking at the door of Portugal, Ireland, Italy and here in Britain.
"Our banks are heavily exposed to some of these countries, we have recapitalised them so far...
"I obviously hope the Greeks will vote responsibly and that we can avoid turmoil."
Clarke defended the coalition's decision to increase the UK's contribution to the International Monetary Fund (IMF) - despite the US refusing to follow suit.
"The IMF exists to enable the nations of the world to act together to avert economic consequences whether the problems are coming from the eurozone or wherever," he said.
"On this occasion we must contribute along with other major powers.
"It is a pity that the Americans are so paralysed by their pre-election arguments that they are not able to contribute, but all the more reason for the British, the Brazilians, the Chinese and others to be persuaded to put in because it is quite essential.
"The idea we all watch each other go down is wrong."
Another former chancellor, Labour's Alistair Darling, warned Europe was in a "very dangerous position".
"It's going to take a crisis, an absolute crisis, to make Europe's leaders act. That's what happened four years ago. I'm afraid that's what's going to be needed in the future," he told the BBC's Andrew Marr programme.
Referring back to the unfolding of the banking crisis of 2008, he said: "That is how dangerous this cocktail is. I am very worried about it, because it could happen without notice.
"I don't think whilst Europe could deal with Greece, it would struggle to contain Spain and if it spread wider than that, I think it would be in real difficulties."