The general wisdom is that when or if the single currency goes out of existence, there will be the financial equivalent of the biblical ten plagues of Egypt.
A sane and level article in The Independent on Saturday 14th July, by Anthony Hilton presented a picture calibrated on practical facts.
His basic thesis goes thus.
50% of the UK’s exports go the EU. Exports account today for around 26% of GDP (gross domestic product). Therefore, even if the UK were to lose all of its EU markets, this wold affect only 13% of our GDP which Hilton points out, leaves 87% of our economy in normal operation.
He then suggest that, since we import more from the EU than we export to it, with disruption also to be expected in imports, the decrease in both exports and imports might balance each other.
Having laid down this sketchy outline of his proposition, Hilton moves to a more detailed appraisal. He looks at what and where we trade, in export and import.
Much of what we import from the debt-crisis ridden parts of the EU – the southern states and Ireland – is food. If the euro collapsed,these countries would revert to their individual former currencies, which would be low in value against the GBP, making their food exports more attractive in being cheaper. How would that be a bad thing for them or for us?
On the export front, our heavy hitters are financial services (and of course this is ironic) and pharmaceuticals – the principal markets for which are the wealthier and more stable northern European economies. In this case their reintroduced individual currencies should appreciate in comparison with the euro’s current and falling value. This would make our exports to them a little cheaper and more attractive.
Hilton’s conclusions are that this overall picture suggests that, rationally, while there would be a loss of volume in trade, its depth and duration are both questionable.
No one can be sure of anything, of course, As the article says, any economic modelling of the situation has many variables to contend with.
The major prompt in the article in terms of action comes form pointing to the economies of Germany, Norway and Sweden and Iceland.
Germany is at the heart of the eurozone, Sweden and Norway are on its periphery and Iceland was so very recently a fiscal basket case. Yet the economies of each of these states, regardless of the financial crises in the context in which they operate, are strong.
Iceland is growing at 2.4% where, because of our double-dip recession, the UK last night (16th July) had its growth forecast lowered by the International Monetary Fund – from 0.8% to 0.2% for 2012, warning that the risks from the eurozone debt crisis ‘continue to loom large’.
Moreover, the IMF has reduced the UK growth forecast for 2013 from 2% to 1.4%,.
Hilton’s point is that with these northern economies doing well, despite the eurozone problems and despite some of their fairly recent disasters, the problem with the UK economy cannot be shown to be affected in any serious degree by the eurozone,
He sees, as do many, that the stasis here is home made and that the solution similarly must be home made.