Watch out for Greece

The governor of the Bank of England, Sir Mervyn King, has warned that bailing out Greece will only buy the Eurozone time, until the country finds a way of dealing with its huge debt problems.

At a news conference for the Bank's Financial Policy committee, set up to oversee the UK's financial stability, he said the troubled Eurozone countries posed the most serious and immediate risk to the UK.

Sir Mervyn said that although UK banks have limited direct exposure to the debts of Greece, Ireland and Portugal, they could have lent to other international banks which were exposed.

And he added that the bigger risk was a crisis of confidence in which banks stop dealing with each other because of fears that one of them might be heavily exposed.

The governor warned that simply lending a bit more to Greece would never be the answer to a problem which was about the country's solvency -- at best it would provide a useful breathing space for a more fundamental solution to be put in place.

Asked whether the crisis was like the collapse of Lehman Brothers which helped cause the credit crunch, he said only in that this situation was also a mess.