British economy may 'never quite recover' from a severe Euro collapse

Samstag, 19. Mai 2012

British economy may 'never quite recover' from a severe Euro collapse

Britain's economy may suffer “permanent” damage and “never quite get back up” if the euro collapses in a chaotic way, the Government’s chief economic forecaster has said.

Robert Chote said it could "permanently hamper the economy" in the worst case scenario

Robert Chote, the head of the Office of Budget Responsibility, issued the warning amid fears of financial shockwaves across Europe if Greece crashes out of the single currency.

The senior Government economist, who has access to the most up-to-date Treasury data, said this could cause a recession as bad as the last one and “lingering, long-lasting effects” for Britain’s public finances.

He said it could “permanently hamper the economy” in the worst case scenario, raising the prospect that Britain may never again see the same high growth it has had in recent decades.

Mr Chote’s comments come as:

* A row broke out over whether Angela Merkel, the German leader, has suggested Greece should hold a referendum on leaving the euro.

Greek officials said she raised the idea in a phone call with their President, but a spokesman for the German Chancellor strongly dismissed the reports.

* European Union officials finally admitted they were drafting plans for how Greece could exit the single currency.

* George Osborne, the Chancellor, warned that the “storms” of a eurozone crisis are gathering again. He said there is a risk that Europe’s “good work in building a stable financial sector and creating jobs and prosperity might unwind”.

* Santander reassured its 25 million British customers that their money is safe, amid worries that its Spanish parent company is exposed to the eurozone crisis. The bank told worried savers calling its telephone helplines that it is an entirely separate entity and said only a small number of customers with very large deposits have started withdrawing cash.

* Francois Hollande, the French leader, said Greece must stay in the eurozone, as world leaders gathered for the G8 summit at US President’s official residence Camp David. President Barack Obama said resolving the crisis is of “extraordinary importance” to the world.

* Shares on Britain’s FTSE 100 index fell by 1.3 per cent to their lowest level in six months as concerns about the Greek and Spanish economies hit stock markets around the world. Five more Greek banks had their creditworthiness downgraded by the Fitch rating agency.

Worries that Greece is finding it too painful to stick to its public spending plans have caused fresh warnings about the future of the eurozone over the last week.

The Chancellor has described the possibility of Greece leaving the euro as a “genie out of the bottle”, with people now talking openly about the prospect.

Nigel Farage, the MEP and leader of the UK Independence Party, yesterday claimed the “game is up” for the euro.”

However, world leaders are insisting that the euro in its current form can still be saved. David Cameron has issued an unprecedented three-point plan to save the single currency, arguing that Europe's debt problems are “the biggest risk to recovery in the UK”.

Last night, Mr Chote gave an even stronger warning about the potential impact of "disorderly" a European financial collapse.

“If you have a permanent impact on the productive potential of the economy, then it will have a permanent impact on the ability to raise tax revenue and a permanent impact on public finances,” he told the Daily Telegraph.

In a separate interview, he said there is a risk that Britain’s economy could go down and “never quite get back up to where you started”.

“The concern is that you end up with an outcome in the eurozone that creates the same sort of structural difficulties in the financial system and in the economy that we saw in the past recession,” he said.

He also said there is not enough "evidence” that George Osborne’s 50p tax rate will promote growth.

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Samstag, 19. Mai 2012