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Debt Crisis: Greek Euro exit may cost UK £5bn

Published: June 5, 2012 | 7:13 am
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British taxpayers would be exposed to as much as £5 billion of a new international bail-out if Greece is forced from the euro, researchers have calculated.

The Open Europe think tank predicted that a new Greek government could eventually conclude that leaving the single currency was an attractive option.
The bail-out which would follow would be equivalent to a 1p rise in income tax, its experts believe.
Greece votes in a second general election later this month, with polls suggesting big gains for parties that reject the terms of the country’s current international support package. Other European Union governments have warned the Greeks that rejecting the current deal would mean leaving the single currency.
Raoul Ruparel, of Open Europe, said that any new government emerging from the June 17 elections was likely to reach a deal with Greece’s creditors allowing the country to stay in the euro for now.
Later, however, “as Greece approaches a balanced budget and a more stable banking sector, though still messy, an exit will look increasingly attractive – particularly if the only alternative for Athens is to permanently give up economic and political sovereignty”.

Leaving the euro would prompt a run on Greek banks and the collapse of its finance sector, the report predicted. That would mean another international bail-out. Support would probably come from the European Union and the International Monetary Fund, the report said.
Britain has said it will not participate in any new eurozone bail-out fund, but as an IMF member, it would still be exposed to the Greek rescue package.
The UK’s overall exposure to a post-euro bail-out – technically a loan which it would hope to get back – would be between €4 billion and €6 billion, Open Europe calculated.
Although Greece remains the country most likely to be forced out of the euro, financial markets are also worried about Spain, where a weak banking sector threatens to push the government into full-blown crisis. EU leaders remain split over a plan to create a European “banking union”, using existing funds to back troubled banks.
Spain, France and the European Commission are in favour, but the plan has been rejected by Germany, which does not want German taxpayers to have to support banks in poorer, southern economies.
Pierre Moscovici, France’s finance minister, and Olli Rehn, the EU economics commissioner, called on Germany’s Chancellor Angela Merkel yesterday to back “direct bank recapitalisation”.
George Soros, the currency speculator who made millions betting that Britain would leave the Exchange Rate Mechanism in 1992, has predicted that the crisis will come to a head in the next three months.


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