Tags: ING | Euro | Demise | Cripple | UK

ING: Euro's Demise Would Cripple UK Economy

Thursday, 08 Dec 2011 08:12 AM

A breakup of the eurozone and ensuing abandonments of the currency would cripple the U.K. economy by making its exports extremely expensive on the neighboring continent, Dutch financial institution ING writes in a report.

More than 47 percent of U.K. exports shipped out to the eurozone last year, while 33 percent of its imports came from there, making the single currency area Britain's most important trade partner, ING reports, according to CNBC.

Should one country succumb to the debt crisis and default, sparking a string of similar moves in its wake, the pound sterling would surge in value against the newly weaker currencies that would pop up across Europe.
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That would make the U.K.'s products and services more expensive to purchase, which would lead to bank failures and spikes in unemployment.

"Our FX strategy team estimate that sterling would appreciate by 25 percent against the euro (relative to our base case forecast) under the Greek exit scenario," James Knightley, senior economist at ING, writes in a report, according to CNBC.

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(Getty Images photo)
While a Greek default wouldn't rattle the U.K. economy too much, decisions to ditch the euro in bigger countries like Italy and Spain and could.

"There is the potential for greater sterling appreciation against European currencies under the complete breakup scenario, given the prospect of a more intense overshoot caused by the scaled-up financial dislocation that such an event would cause," Knightley says, adding a breakup of the eurozone is not part of the bank's baseline view but rather, a possibility.

European leaders remain committed to preventing any of that from happening, with French and German leaders working on ways to strengthen fiscal discipline across the continent.

U.S. officials remain convinced the crisis will end.

"I have a lot of confidence in what the president of France and the minister are doing, working with Germany to build a stronger Europe," U.S. Treasury Secretary Tim Geithner told reporters, Reuters reports.

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Abreakup of the eurozone and ensuing abandonments of the currency would cripple the U.K. economy by making its exports extremely expensive on the neighboring continent, Dutch financial institution ING writes in a report. More than 47 percent of U.K. exports shipped out to...
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2011-12-08
Thursday, 08 Dec 2011 08:12 AM
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