Concerns in the UK for a possible collapse of the Euro
Below you can find a full article published today in The Daily Telegraph (the original version is in the link below). This is the best-selling political newspaper in the UK and close to the ideas of the Conservative Party of Prime Minister David Cameron (who, let's not forget, in the government's program had included a commitment to not adopt the euro for the five-year term of his mandate).
I hope that what expressed in the article is closer to science fiction scenarios than to real prospects, because what is written foreshadows an apocalyptic future that no one certainly hopes.
But remains the fact that it is still increasing day by day, in the speeches of politicians and analysts, the possibility, until a few days ago unthinkable, of a possible collapse of the Euro.
It is inconceivable an eurozone that does not include countries like Italy and Spain without this sound like a condemnation of the euro-dream, which was to create a currency that can compete or exceed the U.S. dollar in trade (but ,with the proof of the facts, is paying the significant economic and social differences of the countries that created the EU).
It is inconceivable an eurozone that does not include countries like Italy and Spain without this sound like a condemnation of the euro-dream, which was to create a currency that can compete or exceed the U.S. dollar in trade (but ,with the proof of the facts, is paying the significant economic and social differences of the countries that created the EU).
Meanwhile, the consideration of the UK as possible safe-haven are going forward. Financial markets seem to be taking this road already.
But to what extent these scenarios are credible? In expectation that the countries less "virtuous" do their duty to clean up their debts, the recipe would be to put a stop to speculation that, as already mentioned in other posts, are doing "the beautiful and the bad weather". But this is a discourse that would lead us to the different powers in monetary policy of central banks of the Europe, Britain and the USA, and I will take up in other posts.
But to what extent these scenarios are credible? In expectation that the countries less "virtuous" do their duty to clean up their debts, the recipe would be to put a stop to speculation that, as already mentioned in other posts, are doing "the beautiful and the bad weather". But this is a discourse that would lead us to the different powers in monetary policy of central banks of the Europe, Britain and the USA, and I will take up in other posts.
Prepare for riots in euro collapse, Foreign Office warns
British embassies in the eurozone have been told to draw up plans to help British expats through the collapse of the single currency, amid new fears for Italy and Spain.
As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible.
Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis.
The Treasury confirmed earlier this month that contingency planning for a collapse is now under way.
A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.
“It’s in our interests that they keep playing for time because that gives us more time to prepare,” the minister told the Daily Telegraph.
Recent Foreign and Commonwealth Office instructions to embassies and consulates request contingency planning for extreme scenarios including rioting and social unrest.
Greece has seen several outbreaks of civil disorder as its government struggles with its huge debts. British officials think similar scenes cannot be ruled out in other nations if the euro collapses.
Diplomats have also been told to prepare to help tens of thousands of British citizens in eurozone countries with the consequences of a financial collapse that would leave them unable to access bank accounts or even withdraw cash.
Fuelling the fears of financial markets for the euro, reports in Madrid yesterday suggested that the new Popular Party government could seek a bail-out from either the European Union rescue fund or the International Monetary Fund.
There are also growing fears for Italy, whose new government was forced to pay record interest rates on new bonds issued yesterday.
The yield on new six-month loans was 6.5 per cent, nearly double last month’s rate. And the yield on outstanding two-year loans was 7.8 per cent, well above the level considered unsustainable.
Italy’s new government will have to sell more than EURO 30 billion of new bonds by the end of January to refinance its debts. Analysts say there is no guarantee that investors will buy all of those bonds, which could force Italy to default.
The Italian government yesterday said that in talks with German Chancellor Angela Merkel and French President Nicolas Sarkozy, Prime Minister Mario Monti had agreed that an Italian collapse “would inevitably be the end of the euro.”
The EU treaties that created the euro and set its membership rules contain no provision for members to leave, meaning any break-up would be disorderly and potentially chaotic.
If eurozone governments defaulted on their debts, the European banks that hold many of their bonds would risk collapse.
Some analysts say the shock waves of such an event would risk the collapse of the entire financial system, leaving banks unable to return money to retail depositors and destroying companies dependent on bank credit.
The Financial Services Authority this week issued a public warning to British banks to bolster their contingency plans for the break-up of the single currency.
Some economists believe that at worst, the outright collapse of the euro could reduce GDP in its member-states by up to half and trigger mass unemployment.
Analysts at UBS, an investment bank earlier this year warned that the most extreme consequences of a break-up include risks to basic property rights and the threat of civil disorder.
l“When the unemployment consequences are factored in, it is virtually impossible to consider a break-up scenario without some serious social consequences,” UBS said.
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