It is part of the accepted wisdom that the collapse of the euro would be a disaster for the UK, but when was accepted wisdom a useful guide to anything? Half our exports go the EU but exports these days account for 26 per cent of GDP. So even if exports across the Channel collapsed entirely it would still put at risk only 13 per cent of GDP. That leaves 87 per cent carrying on much like before.
It is reasonable to expect some disruption of exports, but would it not also be likely that there would be a similar collapse in our imports from the eurozone? And given that we import more from those countries than we export, is not the trade effect likely to even out?
However, this is all a bit vague. It is more helpful to look in more detail at what we trade, where it comes from and where it goes. It matters for example that a lot of what we import from the most troubled southern European nations and Ireland is food.
If the euro were to disappear and these nations relaunched their old currencies then one would expect these to fall in value compared to the pound – which means that those food imports would be cheaper. Is that so bad? Admittedly, however, with the drachma likely to plunge most, the biggest price cut may well be on retsina so it is not all good news.
Our biggest export earners are financial services and pharmaceuticals. The main markets for these are the more affluent northern European countries, whose currencies one would expect to appreciate – making our sterling priced exports a little bit cheaper and a bit more competitive. So while there might be a loss of volume it is reasonable to ask how deep and how long lasting that is likely to be in reality.
Obviously no one knows. You can never model these things because there are just too many uncertainties, but I do take comfort from an article written the other day by Gabriel Stein and published on the Official Monetary and Financial Institutions Forum website.
He pointed out that more than 70 monetary unions had disappeared since the Second World War and most of us hadn't even noticed. This would suggest that while such disintegration was usually fraught, and sometimes very difficult, there is no evidence that it has to be cataclysmic.
The other bit of conventional wisdom which is past its sell by date is that the UK's poor performance is all the fault of the eurozone. It may suit George Osborne to blame the continentals but it does not wash. Germany is slap bang in the middle of the currency bloc and it is still managing to grow. So too are countries on the edge like Sweden and Norway, and most remarkable of all is the transformation of Iceland. It had a banking crisis like no other but the latest figures show its economy growing at 2.4 per cent.
It matters. If we could persuade Osborne to accept that our problems are home grown, then he might accept that they are going to have to be fixed at home as well – and start doing something about it.
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