Euro split may cost less than feared
THE cost of a break-up of the Eurozone could cost the UK far less than has been feared, according to new research by the Centre for Economics and Business Research (CEBR).
It estimates that an immediate exit by Greece would cause the Eurozone economy as a whole to contract by an additional two per cent, taking it to a two per cent contraction next year.
The CEBR estimates this would lead to a hit on UK exports of around 1.5 per cent, reducing total UK GDP by half a per cent. If this were to happen in the short-term it would cause the UK’s growth to grind to a standstill and a downturn in business investment would push the UK back into recession.
The UK has relatively little exposure to Greek sovereign debt, at just £2.1bn, compared to Germany’s £14.1bn, although it holds significantly more Italian and Portuguese debt.
However, the CEBR says the initial pain could give way to greater stability in the medium and long-term. It says preserving the Eurozone will lead to ten years of austerity whereas the UK would be on at least a level playing field after five years in the event of a break-up.
A spokesman said: “Our central expectation is that the Eurozone will not break up in the immediate future because, having seen some of the potential consequences, Greeks and others will not dare to be tarred with the responsibility of causing what, in the short term, will be considerable economic pain.”
However, he added: “It seems unlikely it will survive very long because of the political unpopularity of taking austerity measures seemingly to please foreign leaders and rescue foreign bankers.”