Euro storm threatens British growth, says King

The possible breakup of the eurozone is the one of the main threats to the UK economy, according to Mervyn King, governor of the Bank of England.

King’s observation that the eurozone was “tearing itself apart,” was echoed in Parliament by PM David Cameron in the House of Commons.

“We are navigating through turbulent waters, with the risk of a storm heading our way from the continent,” King said. “We don’t know when the storm clouds will move away. But there are good reasons to believe that growth will recover and inflation will fall back.”

Analysts believe the Bank of England’s freeze on interest rates at 0.5% may stave off depression for a while, but higher energy bills and more expensive imports would likely not help a strong economic recovery.

“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,” said King.

“The idea that we could reasonably hope to sail serenely through this with growth close to the long-run average and inflation at 2% strikes me as wholly unrealistic. We’re bound to be buffeted by this and affected by it.”

The news comes as Greece set the new election date for 17^th June and Panaghiotis Pikrammenos was installed as temporary prime minister with no power to pass laws until then. Syriza – the anti-austerity socialist party which took second place at elections this month – has seen support rise significantly, with a recent survey showing they had a majority of 27% of the population behind them.

Although the Greeks are still keen on the euro which has caused so many problems for their economy, some people have said that returning to the drachma would not be such a bad idea.

Robin Hahnel, Professor of Economics at Portland University, thinks going it alone would be better for Greece: “Syriza only favours staying in the eurozone provided the EU reverses its pro-austerity policies. Not only is that not going to happen, a second default is virtually inevitable, which may well trigger a sequence of events including a massive bank run that will force Greece out of the eurozone even before a left government can come to power. If so, not only will the principle bone of contention on the left become a moot point, a left government would enjoy the advantage of a devaluation that would provide a huge boost to employment as Greek exports become cheaper and imports become more expensive. In such a clear ‘crisis’ a left government could also become a government of national salvation which Greek patriots rally around.”

The editorial unit