Would it be such a bad thing if the single European currency disappeared as a result of the Eurozone crisis?
As a child, one of the most exciting things about heading abroad on holiday was that I’d get to see some new ‘funny’ money, whether that be francs, pesetas or lira. As a geeky child (and adult, truth be told) I used to have great fun trying to work out what something ‘really’ cost in good old pounds and pence.
That’s all in the past now, with the Euro becoming the currency of choice for many European nations. However, should the current Eurozone crisis lead to the fall of the single European currency, it may actually be to our benefit as a nation.
Eurocrash
That’s the conclusion of a report by the Centre for Economics and Business Research (CEBR), anyway.
The think tank reckons that that a break-up of the Euro would see the UK’s gross domestic product (GDP) fall by 0.5%, and possibly push us into a second recession.
And while that sounds pretty dreadful to me, the CEBR argues that’s not the “disaster” that a Euro break-up is painted as in the press.
Onwards and upwards
In the post-Euro future envisaged by the CEBR, the stronger economies within Europe – apparently there still are some – would see their newly relaunched domestic currencies gain in price compared to Sterling, which would in turn help our exports.
Furthermore, with all of the countries going their separate ways, those in a decent position would be able to escape some of the austerity measures they would otherwise have to endure. This would free them to pursue growth, and presumably buy more bits and bobs from us in the UK.
Here’s the explanation from Douglas McWilliams, chief executive of the CEBR: “If it breaks up, the immediate pain is much more intense but then there is a more stable basis and we would expect that within about 30 months growth will actually be faster than if the Eurozone survives in its current form.
“After five years we would expect the UK to be at least as well off if the Euro breaks up as it would be under the alternative scenario of holding it together.”
Feeling the chill
Of course, the lovely thing about making predictions like this is that nobody can ever say for sure whether you’re wrong. Even if the Euro were to collapse, and our economy not end up in the relatively rosy position suggested by the CEBR, who is to say it would not have been even worse had the Euro survived?
What we can say with certainty is that the difficulties on the continent are being felt here.
Yesterday, the Prime Minister gave a speech to the Confederation of British Industry in which he said that the Eurozone crisis was having a “chilling effect” in the UK, due to the panic it has sparked in the markets.
Of course the real issue with our economy is our seeming inability to establish any growth. Last week the Bank of England cut its forecast for growth this year from 1.7% to just 1%, for 2012 from 2% to 1% and for 2013 from 3% to 2.5%.
However, even Sir Mervyn King, the governor of the Bank of England, admitted this was essentially guesswork as there was no way to quantify the effects of “the most extreme outcomes associated with developments in the euro area”.
The fact is that, whether the Euro collapses or not, there’s still a very real threat of a second recession. Perhaps that’s why the government has suddenly discovered some money to throw at the problem, by giving the property market a £400 million boost and promising a “massive credit-easing scheme” to help small- and medium-sized business to borrow money.
Goodbye Sterling, hello Euro?
Of course, not everyone agrees with the CEBR that this is, potentially, the death knell for the Euro. In fact, talk has sprung up once again of when – rather than if – Britain will join the single European currency.
Last week Wolfgang Schäuble, the German finance minister, said that in spite of the current issues on the continent, the survival and stabilisation of the Euro will convince others to join, Britain included. Indeed, he suggested it would happen “more quickly than people in the British Isles currently believe”.
It’s one thing for a European finance minister with an interest in the Euro’s survival to make such a claim, it’s quite another for a grand old figure of British politics to do so.
But that’s exactly what has happened, with Lord Heseltine, the Tory peer, arguing that Britain will eventually sign up. Heseltine reckons that Germany and France have too much to lose, and so will ensure the Euro survives. And, in time, they will be joined in the single currency by the Brits.
What do you think? Will the Euro collapse? Would that be a disaster for the UK? Or will we eventually join our European cousins in adopting the Euro? Let us know what you think via the comment box below.