Mobile Version
Free Internet Press
  Uncensored News For Real People

FIP Year In Review

FIP Month in Review

FIP Archive Search

Multiple Discoveries from NASA's New Horizons Pluto Mission

R.I.P. William 'Bill' Herbert Kelder - Intellpuke

Gamers Donate 37,500 Pounds Of Food To Needy

Statement From The Whitehouse Regarding The Government Shutdown

An Open Response To 'Organizing for Action'

Bayou Corne: The Biggest Ongoing Disaster In The U.S. You Have Not Heard Of

Boston Mayor Hopes Feds 'Throw the Book' at Marathon Bombing Suspect

Boston Police Closing In On Suspects

2 Explosions At Boston Marathon. 2 Dead, Many Injured.

The Press vs Citizens Rights and Privacy - Act 3

CBS News - Year In Review 2012 - 366 Days: 2012 In Review

The Guardian - 2012 In Review: An Interactive Guide To The Year That Was

TruTV - The Biggest Conspiracy Theories of 2012

Colbert Nation: 2012: A Look Back

FIP Year In Review(s?)

Happy Holidays

Welcome To A New Era!

An Open Letter To United Health Care, Medcom, And The Medical Insurance Industry In General

Whitehouse Petition To Remove "Under God" and "In God" From Currency And The Pledge.

December 21, 2012

If Hillary Clinton Ran For President, She Would Probably Be The Best-prepared Candidate In American History

CIA Director David Petraeus Resigns After FBI Investigation Uncovers Affair With High-Profile Journalist

FIP Format Update

Thank you for voting.

Live Election Results

FIP In Hiatus

U.S.-Afghan Military Operations Suspended After Attacks

Iran Nuclear Chief Says IAEA Might Be Infiltrated By 'Terrorists And Saboteurs'

Romney Stands By Gaffe

Cost of Greek Exit From Euro Put At $1 Trillion
2012-05-16 22:43:12 (223 weeks ago)
Posted By: Intellpuke

The British government is making urgent preparations to cope with the fallout of a possible Greek exit from the single currency, after the governor of the Bank of England, Sir Mervyn King, warned that Europe is "tearing itself apart".

Reports from Athens that massive sums of money were being spirited out of the country intensified concern in London about the impact of a splintering of the euro zone on a U.K. economy that is stuck in double-dip recession. One estimate put the cost to the euro zone of Greece making a disorderly exit from the currency at $1 trillion, 5% of output.

Officials in the United States are also nervously watching the growing crisis: President Barack Obama on Wednesday described it as a "headwind" that could threaten the fragile American recovery.

In a speech in Manchester before flying to the United States for a summit of G8 leaders, the British prime minister, David Cameron, will say the euro zone "either has to make up or it is looking at a potential break-up", adding that the choice for Europe's leaders cannot be long delayed.

"Either Europe has a committed, stable, successful euro zone with an effective firewall, well capitalized and regulated banks, a system of fiscal burden sharing, and supportive monetary policy across the euro zone, or we are in uncharted territory which carries huge risks for everybody.

"Whichever path is chosen, I am prepared to do whatever is necessary to protect this country and secure our economy and financial system."

(story continues below)

Officials from the Bank, the Treasury and the Financial Services Authority are drawing up plans in the expectation that a Greek departure from monetary union – increasingly seen as inevitable by financial markets – could be as damaging to the global economy as the collapse of Lehman Brothers in September 2008.

With a second election in Greece called for on June 17, King dropped a strong hint that the Bank would take fresh steps to stimulate growth if policymakers in Europe failed to deal with the sovereign debt crisis.

"We have been through a big global financial crisis, the biggest downturn in world output since the 1930s, the biggest banking crisis in this country's history, the biggest fiscal deficit in our peacetime history and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution," he said.

Doug McWilliams, of the Center for Economic and Business Research, said a planned break-up of the single currency would cost 2% of euro-zone GDP ($300 billion), but a disorderly collapse would result in a 5% drop in output, a $1 trillion loss. "The end of the euro in its current form is a certainty," he added.

Alistair Darling, who was Chancellor of the Exchequer under the former Labor administration, said: "This has the seeds of something disastrous. It is madness. If it spreads to bigger countries, this could be really disastrous for Europe. It could consign us to years of stagnation."

Capital flight from Greece has increased since it became clear that a coalition government could not be formed after the election earlier this month. The Greek president, Karolos Papoulias, said citizens were withdrawing their money amid "great fear that could develop into panic" at the risk of a debt default and exit from the euro area, according to minutes of their meetings posted on the presidency's website. In little more than a week following the election on May 6, €3 billion was withdrawn from bank accounts. The central bank reported that €800 million was taken out in a single day earlier this week.

The head of the International Institute of Finance banking lobby, Charles Dallara, said money was leaving Greece at a growing pace due to political uncertainty. "There has been a pickup of deposit flight from Greece, but I think that is stabilizable once you get a new government in place, if that government reaffirms its intention to remain in the euro zone." The damage to the rest of Europe if Greece were to leave the euro would be "somewhere between catastrophic and Armageddon", he said.

The Spanish prime minister, Mariano Rajoy, told parliament that his country faced trouble financing itself as borrowing costs shoot up to "astronomic" levels. The Irish finance minister, Michael Noonan, said Dublin's plan to return to capital markets in late 2013 might not be achievable because of the uncertainty.

The first meeting between French president François Hollande and German chancellor Angela Merkel helped to calm nerves in the markets at one stage, with suggestions that Berlin might be amenable to initiatives to boost growth in Greece and the other austerity-stricken nations of the euro zone.

The jittery mood was underlined by a fall in European shares and the single currency late in the day amid reports that the European Central Bank was cutting off its funding lifeline to Greek banks that had failed to amass enough capital to protect them from future losses.

The ECB later said it expected the Greek central bank to use part of the €130 billion bailout from the E.U. and IMF to ensure that the country's banks were safeguarded from collapse, and that they would receive additional help from Frankfurt only once this had happened. Already delayed by the political uncertainty in Greece, €18 billion is now expected to be released to recapitalize the banks.

Sony Kapoor, of the Brussels-based Re-Define thinktank, said: "The high-stakes game of chicken between Greek and other E.U. politicians must end now. Those saying that a Greek exit from the euro zone will not be a big deal either don't know what they are talking about, or have some ulterior motives. The social, political and economic damage to the E.U. from a Greek exit is potentially incalculable."

At the G8 summit, which starts on Friday, President Obama will press Merkel to lean more towards a growth package for Europe, instead of pressing so hard for the austerity measures that were rejected by Greek voters.

Foreign affairs analysts said that Obama's leverage with the European leaders is minimal. Although the U.S. has the economic muscle to help Europe out of its mess, the Obama administration has taken the strategic decision not to become involved directly.

Instead, President Obama is to use the Camp David summit for some quiet diplomacy, hoping to sway Merkel to endorse some immediate actions to help growth.

King, speaking at the publication of the Bank of England's quarterly inflation report, said growth in Britain was weaker and inflation higher than Threadneedle Street had expected three months ago. It would take until 2014 for output to return to where it was in 2008, when Britain's deepest post-war recession began.

"What is so depressing about it is that this is a rerun of the debates in 2007/08 – these are not liquidity problems, they are solvency problems," King said. "Imbalances between countries in the euro area have created creditors and debtors and at some point the credit losses will need to be recognized and absorbed and shared around," he said.

"Until that is done, there will not be a resolution. That is why just kicking the can down the road is not an answer. The European Central Bank has performed heroically in trying to buy time but that time hasn't been used to put in place fundamental underlying solutions."

Intellpuke: You can read this article by Guardian Economics Editor Larry Elliott, City Editor Jill Treanor and Political Editor Patrick Wintour in context here:

Note: In the U.K., "City" refers to London's financial district.

Email To A Friend
Email this story to a friend:
Your Name:
Their Email:
Readers Comments
Add your own comment.
(Anonymous commenting now enabled.)

Creative Commons License
Free Internet Press is licensed under a Creative Commons Attribution 3.0 United States License. You may reuse or distribute original works on this site, with attribution per the above license.

Any mirrored or quoted materials may be copyright their respective authors, publications, or outlets, as shown on their publication, indicated by the link in the news story. Such works are used under the fair use doctrine of United States copyright law. Should any materials be found overused or objectionable to the copyright holder, notification should be sent to, and the work will be removed and replaced with such notification.

Please email with any questions.

Our Privacy Policy can be viewed at

XML/RSS/RDF Newsfeed Syndication XML/RSS/RDF Newsfeed Syndication:

XML/RSS/RDF Newsfeed Syndication XML News Sitemap