Greek exit from the euro could set off a "chain reaction of uncertainty" which would result in a "grinding slowdown in economic activity" across Europe, including the UK, Deputy Prime Minister Nick Clegg has warned.
Clegg dismissed arguments that Greece's economic woes and the instability in the single currency could best be served by a swift return to the drachma, insisting that "no-one rational" could want such an outcome.
Although David Cameron has warned eurozone countries that they must "make-up or break-up", Clegg insisted that the Prime Minister shared his view of the undesirability of Greek exit.
His comments came after a speech in Berlin in which the DPM warned that Greek withdrawal would cause "unpredictable, irrevocable damage" to the single currency, adding: "No rational person interested in the wealth and wellbeing of Europe's citizens could advocate taking such a risk: not with Greece's future, or our own."
Speaking to BBC2's Newsnight, Clegg said: "I don't think the break-up of the eurozone or Greece coming out of the eurozone can in any way be described as a sort of recipe of success. Instead, I see it as a harbinger, if it were to happen, of even greater instability, even greater uncertainty, not just in Greece, not just in south-east Europe, but across Europe, in the United Kingdom and in the global economy as a whole.
"When our economies are as fragile as they are, I don't think anyone rational could advocate that degree of further instability as a route our of the problems - and that is what, by the way, the Prime Minister believes as well."
Asked what the consequences of Greek withdrawal would be, Clegg replied: "The potential risk is that what you get then is an immediate question mark about the ability of Portugal, Spain, Italy and other bigger countries to pay their way, sort out their public finances and rescue their sick banking systems.
"That has a knock-on effect on people's confidence in the British banking system, which is very exposed one way or another to those economies. That could in turn set off a chain reaction of uncertainty.
"The thing that is most pernicious to an emerging economic recovery is more instability, more uncertainty, more big question marks about the future. That is what we must avoid.
"I have no doubt in my own mind that Greece exiting the eurozone increases, rather than decreases those question marks.
"I have got no doubt in my mind that if you have a chain reaction in the eurozone, where you get this contagion effect from Greece to other bigger countries, that will undoubtedly lead to higher unemployment, higher interest rates, less foreign investment, companies sitting on their hands and not investing in new plant machinery in factories.
"In other words - a grinding slowdown in economic activity, which is already fairly fragile. It is something I think nobody rational could wish for."
Clegg said the current difficulties were "the most serious economic and potentially political crisis that the EU as a whole has faced since the early 1970s."
But he insisted: "I don't believe the eurozone will break up."
And he added: "I think it is really important that the eurozone now reconstitutes itself on a more balanced footing. That requires monetary activism from the central bank, reforms to improve long-term competitiveness, ways of making sure that the banks are properly capitalised, sharing some kind of fiscal arrangement so richer parts of the eurozone can help poorer parts.
"What is missing here is putting all those things together in a grand bargain at the same time."
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PA | Posted: 25/05/2012 08:16 Updated: 25/05/2012 08:40