<<It all depends on what's in the aerodrome's Emergency Orders and thus in the tower's MATS Part 2. Ours states that an a/c suffering any hydraulic failure will be subject to a Full Emergency.>>
Thanks Gonzo - I was beginning to think my mind had gone completely.
For pilot info it works something like this.. A pilot advises ATC of a problem, not necessarily by a PAN or MAYDAY. ATC then decide, based on their local SOPs or other factors, what type of emergency to declare.
If the emergency is advised in advance by an arriving aircraft - engine problem, hydraulics, etc., the emergency is usually instigated by the ATC Supervisor at the airfield following advise from TC or other agency. However, if an emergency occurs on the ground the controller in contact with the aircraft will take initial emergency action (press the button and make a standard call to AFS). This is followed up with a more detailed call within a few minutes, usually by the Supervisor.
Once the emergency is declared the only agency which can change things is the Fire Service, but ATC is the agency which officially promulgates that change by making the necessary phone calls. What usually happens is the AFS rings ATC, or advises by radio, and says "Downgrade the Full Emergency to Local Standby". ATC then uses an emergency telephone line to make the official announcement. It's a bit more complex than that, but that's it in a nutshell.