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What ‘Grexit’ Means for Britain – Strengthened Pound, Undermined Exports

Posted on the 18 May 2012 by Periscope @periscopepost

In the balance. Photo credit: mammal

The background

As the eurozone crisis depeens, and following Greece’s election indecision, the indebted nation’s possible exit from the monetary union seems more and more assured. Known as “Grexit” (Greece plus “exit”), the consequences seem to be largely unpredictable, and range from total economic meltdown to an orderly and necessary business.

Even so, the cost of Grexit is being put at £200 to 600 billion. Whilst commentators agree that southern European countries are likely to be hit hardest, with France taking quite a hit because of its closeness to Italy and Spain, what will be the effect on the United Kingdom? Commentators agree that it will make borrowing costs heavier, and also harm the export trade – but also say that the pound will strengthen as investors look for a safe haven.

Read more on the eurozone crisis on Periscope Post

Cameron says: Cut spending, keep Britain in control

Prime Minister David Cameron is taking a strong line: “I cannot pretend that Britain will be immune from the consequences, either. But this I can promise: that we know what needs to be done and we are doing it. Get the deficit under control, get the foundations for recovery in place, defend the long-term interests of our control and hold our course.” He plans to stick to spending cuts, which, according to This is Money, will “put Britain on a collision course with new French president François Hollande” – the socialist who has promised more spending. He has also suggest that the Eurozone countries need a more concerted, coordinated economic policy.

Banks have cut exposure to Greece, but collateral damage inevitable

Katie Evans-Jones on McSherry Brown said that UK banks had been “shrewdly slashing their direct exposure to Greece” over the last year. But it will be hard to avoid “collateral damage” from Spain and Italy. Lending would also be hit hard, forcing up rates; this would hit the export industry, and Europe still makes up 50 per cent of our exports. We “must put our faith in the Greek people to decide on a government on June 17th.”

Growth will be affected; stable eurozone needed

Lord Lamont was quoted on This is Money: he said that that Britain would be affected by a Greek exit, but “indirectly.” British banks that have lent to French will be affected; the most difficult thing will be the effect on growth. William Hague, the Foreign Secretary, was quoted on the same website: a resolution of the eurozone crisis was needed to give Britain a boost.

Shockwaves will be deep: British exports undermined

Athens may be 1,500 miles away, said Heather Stewart in The Guardian, but an exit would bring the “shockwaves” pretty quickly. If Greece rejects austerity and “dives out of the single currency”, the banking sector will be hard hit, as will Italy, Spain, Portugal and Ireland, which will be hard on the whole European financial sector. The pound will strengthen, which will undermine exports. Effectively, “if the euro implodes, the recession will be longer, deeper and more painful than anyone could have predicted.”

It’s time for a referendum in Britain

Greece’s “lengthy collapse,” said Frederick Forsyth in The Daily Express, will “expose the biggest confidence trick imposed on the British people since the South Sea Bubble.” The British are a trading nation, and have “nothing against the single market.” But we weren’t told that “there are two sides to the EU – the single market being the less important; the more important the creation of the state of Europe, which was created on a tissue of lies and fraud. And “we have poured billions into this cauldron.” As for Britain, it’s time for a referendum. “If David Cameron is to go down as a leader and not another beautifully educated appeaser he must give us our voice at last for the 40-year deception is exposed and can never be re-hidden.”

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