Treasury prepares for euro failure

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Planning for all eventualities, the Treasury is putting in plans to deal with the break-up of the eurozone, including limited capital controls. It's likely that the UK could see considerable capital flight land in the UK should the eurozone dissolve, which would push up sterling, making exports considerably more expensive, holing government plans to make the UK more competitive.



Break-up

The Telegraph is reporting that the Ministry of Defence has been consulted "about organising a mass evacuation if Britons are trapped in countries which close their borders, prevent bank withdrawals and ground flights."

A eurozone unravelling would affect the UK's top banks which have considerable exposure to the eurozone in loans. The Centre for Economic & Business Research estimates a eurozone break-up would also drag a full percentage point down off UK growth, probably causing the UK to experience a severe recession.

Reform

Last week the ECB lend banks a massive €490bn in super-cheap three-year loans, hopefully cutting the risk of further credit seizures. Meanwhile many investors remain unconvinced that the EU-bloc has a strategy to deal with the debt worries.

But it's not so much the increased liquidity that's needed; it's wholesale structural reform for many countries, and that can take decades to deliver. Just look at Greece, struggling to keep things more or less together, despite four years of bruising recession. How long will Greeks vote for more 'reform'?

Greece, if goes under, can still be managed due to its size. Italy though is a very different matter.

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