IMF chief: 'Contagion' will hit Europe without Greek bailout

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Dominique Strauss-Kahn told politicians that every day a resolution to Greece's problems was delayed, the risk grew of them spreading "far away".

Spain yesterday became the latest country to have its debt downgraded, following Portugal and Greece this week, and shadow Chancellor George Osborne warned that the crisis could yet affect Britain, with its £163 million mountain of public borrowing.

"If anyone doubts the dangers that face our country if we do not, they should look at what is happening today in Greece and in Portugal," he told the annual conference of the Institute of Directors.

Strauss-Kahn, in Berlin with European Central Bank chief Jean-Claude Trichet to press the urgency of the situation, urged German MPs to play their bit to restore the euro's credibility by approving Germany's stake in the bailout - between 8 billion to 9 billion.

"We also need to restore confidence... I'm confident that the problem will be fixed. But if we don't fix it in Greece, it may have a lot of consequences on the European Union," he said.

German Chancellor Angela Merkel was holding out for more economic reforms from Greece before agreeing to an unprecedented multi-billion-euro bailout.

Germany would be the biggest single contributor to the 30 billion of loans being prepared for the Greeks, and Mrs Merkel has one eye on crucial regional elections in Germany on May 9.

She is also sensitive to a hostile electorate deeply opposed to handing out German taxpayers' money, but the euro slumped to a one-year low against the dollar, to $1.3146.

Economist Jonathan Loynes of Capital Economics said Greece could be a "sovereign equivalent" of Lehman Brothers, which triggered a meltdown with its collapse in September 2008.

"The crisis in Greece crystallises the worries about the dire state of the public finances in many countries in the same way that the collapse of Lehmans raised fears of a domino effect throughout the financial system," he warned.