By Nick Mann | 15 June 2012

The eurozone must have an ‘ambitious’ plan in place to ensure a Greek exit from the single currency does not damage the rest of Europe, UK Chancellor George Osborne said last night.

Speaking in London as Greece prepared for fresh parliamentary elections on Sunday, Osborne said the country’s departure from the euro could provide an impetus for the greater fiscal and monetary integration needed for the single currency to work.

But he said: ‘If exit is the chosen route then the eurozone must have a very good plan in place to prevent contagion. The worst case for everyone would be exit without a sufficiently ambitious response.’

He added: ‘Carrying on with the current uncertainty and instability is not much better.  A time for decisions has come.’

Without closer integration in the eurozone, the economic and political strains in the currency bloc’s peripheral countries might prove ‘unbearable’, he said. For the project to succeed, it needs more support from stronger economies to help weaker economies to adjust. More pooling of resources is also needed, as well as a shared ‘backstop’ for the banking system to strengthen banks.

Together, said Osborne, these steps would create ‘much closer collective insight of fiscal and financial policy’.

He added that, despite his misgivings over the eurozone, it was in the UK’s interests for it to continue. ‘Many people such as me had doubts about the original euro project but we should all be clear that it is strongly in Britain’s interests for our biggest trading partners to succeed; the risks for our economy of a disorderly collapse of the euro are huge,’ he said.

‘That means it’s not in our interests to stand in the way of the further integration amongst the eurozone countries that any successful solution will require.’

In particular, he backed plans for a banking union as a ‘natural consequence’ of a single currency.

The eurozone crisis is expected to be top of the agenda when leaders of the Group of 20 meet in Los Cabos, Mexico next week, with reports that the central banks of the leading nations are prepared to provide extra liquidity for the banking system.