Emergency banking funds show Chancellor's fear for the future

Chancellor George Osborne, Lord Mayor of the City of London, and Governor of England Mervyn King Photo: PA

The Chancellor and the Governor of the Bank of England are tomorrow pressing the button on a plan that was designed to be used at times of economic 'stress of an exceptional nature'.

The hope is the snappily titled 'Extended Collateral Term Repo Facility' and it could pump up to £5 billion pounds a month to the banks to buttress their lending on to the rest of us, as the eurozone crisis reaches perhaps its riskiest phase.

Within weeks the Bank and the government plan to add to that with 'funding for lending' a system where the high street banks would use the guarantee of the central bank to cut their costs, so lend more cheaply to the rest of us.

That could stay in place for years. Neither of the schemes appear to have a limit placed on them.

Precise details of the first idea will be given to the financial markets tomorrow. The finer points of the second are still being worked out.

But with the Greek election just days away, Spain moving towards the brink and our own economy already in recession, it is crystal clear that the Chancellor and the Governor are extremely worried about what happens next.

In contrast to his normally cautious tones Mervyn King confesses tonight that 'everything bar the kitchen sink' has already been thrown at dealing with this crisis yet still 'black clouds' hang over the economy.

He talks not just of business feeling a bit nervous but 'extreme private sector aversion'. He even promises to give the banks 'whatever liquidity they require given the prospect of turbulence ahead.'

Using slightly less dramatic language the Chancellor talks of deploying 'new firepower to defend our economy from the crisis on our doorstep,' insisting that Britain is 'not powerless in the face of the eurozone debt storm'.

The government will fight with tooth and claw to insist this is not a 'plan B'. It is not the kind of change to tax and spending that the opposition have been calling for.

Yet a Treasury source describes it as 'Plan A pulling out all the stops'. By unleashing these contingency measures the government and the Bank are essentially admitting that their efforts to get the banks lending have not gone far enough.

And clearly their tone betrays a deep anxiety about the kind of pressure the next few weeks of the eurosaga will put on our own financial system. Liberal Democrat peer Lord Oakeshott, close to Vince Cable, has described these actions as the 'panic button'.

But government sources argue these measures are only viable because of their commitment to dealing with the country's deficit.

Without having safeguarded our credit rating the argument goes, these kinds of financial schemes would not be credible at all. And expect more schemes like it in housing and infrastructure in the coming weeks.

No more taxpayer's money is spent, but the government underwrites spending from other sources. These are a result of discussion at the 'quad', Cameron, Clegg, Osborne and Alexander, who asked the Treasury to come up with such ideas a couple of months ago.

Politically, it is what some may consider an overdue attempt to get growth going here.

One senior business figure said it won't address the fundamental problem, giving business the confidence to want to borrow, to want to expand, to want to even ask their banks for more money.

But this is not just about the problems of our domestic growth, or lack of it. More than anything else, with just seventy two hours to go before the Greek election, it appears to be an attempt to provide a significant layer of protection to the UK economy in case the euro saga tips from crisis to catastrophe.