29/Jul/2014 - Last News Update: 19:03

Euro crisis: Why Whitehall dare not mention the C-word

Category: Politics

Published: 25th May 2012 03:13:43

Outside of the corridors of power, it is impolite to utter the "c-word" - contingency.

Plans have been drawn up in Whitehall not just to deal with the side effects of a potential Greek exit from the single currency but also to try to immunise the UK from the effects of contagion.

The official line is: "The government is undertaking extensive contingency planning to deal with all potential outcomes in the euro area". And that's it.

Downing Street believe it would "not be sensible nor prudent" to say more.

And, rather like the mention of Macbeth for thespians, government officials don't like to mention contingencies in case something bad happens as a result.

But away from the public gaze, the Cabinet Office is providing the secretariat for cross-departmental contingency planning in the event of a crisis.

A Whitehall source says this is much the same model that was used to keep abreast of the ash cloud crisis two years ago.

This is based on cross-departmental input but with one department - in that case, it was Transport, this time it is the Treasury - nominated as being in the lead.

Squeezing some blood from the stone of state, it has become clear that a range of different scenarios are being discussed.

A Greek exit, while not seen as desirable by officials or ministers, is not the most dramatic. It's a relatively small country and our banks - unlike some other EU countries - aren't hugely exposed to Greek debt.

But if a Hellenic departure from the euro led to less - rather than more - confidence in the economies of some of the remaining members of the single currency, then there is the risk of the crisis spreading. A run on Spanish banks would, for example, be seen as much more serious.

Hence the reluctance to talk up the potential for a crisis.

It is, to an extent, the role of senior civil servants to predict the future and advise ministers accordingly - but a self-fulfilling prophecy is something they want to avoid.

At the moment the government, publicly, is urging eurozone countries to follow our lead and to do more to recapitalise their own banks. Why? Well in part because of their private fears.

Weak eurozone banks could spell further trouble for British banks.

Under these circumstances, the UK may have to contemplate a further recapitalisation -a mini bailout -here to ensure lines of credit to business do not contract. But talk of this might spook the markets - and would not exactly bolster business confidence either.

One source said 'we would have to look at the level of capitalisation against a bank's ability to lend and see if there is an appropriate balance' but Downing Street's belief that it's imprudent to discuss such scenarios openly does seem to make sense.

If Greece were to leave the European single currency, then logically and prudently UK banks might want to lessen their exposure to debt in other 'weak' economies - and this could, of course, cause greater weakness as a result.

But, as the Labour opposition believe it's better if Greece stays in the Euro, it will not be pressing the government to speculate about what happens if it doesn't.

The prime minister himself shows no such reluctance when it comes to exhorting other EU countries to have contingency plans in place - for example, he has talked of a stronger firewall (built with German cash) for the remaining Eurozone countries, and a longer time frame for some to get their debts down.

That's because this is a key part of any contingency planning for the UK, as these measures would help guard against some of the scarier scenarios here such as a bank bailout mark two.

Of course there could be a political as well as an economic reason for keeping the details of our homespun contingency planning confidential. Our trade with other EU countries was down 3.3% over the past year and it was confirmed on Thursday that the UK economy is back in recession.

So there is a danger that any discussion of what would happen under the not exactly fanciful scenario that trading with the eurozone could further deteriorate might, in turn, bring more pressure to bear on the government to come up with a Plan B for the economy.

Currently the line is that there will be no further let-up in getting the deficit down.

But a Greek exit from the euro would not just have political and economic consequences - it could have highly personal implications for British tourists and expatriates.

The Foreign Office prides itself on contingency planning and officials have discussed a range of possibilities and probabilities.

Sources admit there could be serious issues if tourists cannot get money out of, say, Greek banks - or for retired expats who have their pensions paid through, say, troubled Spanish banks. While they say they have plans in place for extensive "consular challenges", again they are reluctant to say exactly what they are.

However, any talk of mass evacuations of Brits from the eurozone is regarded as over the top and their extensive planning doesn't extend to that.

Doubtless, Deputy Prime Minister Nick Clegg has seen the various scenarios which Whitehall officials have been working up.

Perhaps that's one of the reasons why, in his speech in Berlin on Thursday, he said: "Let me challenge the fashionable assumption being whispered behind cupped hands - that for some countries, leaving the euro wouldn't be that bad. That actually, a Greek exit now would be in everyone's best interests.

"No rational person interested in the wealth and wellbeing of Europe's citizens could advocate taking such a risk: not with Greece's future, or our own."

Source:
BBC News External Link Show Citation

Latest News

Harvard Citation

BBC News, 2012. Euro crisis: Why Whitehall dare not mention the C-word [Online] (Updated 25th May 2012)
Available at: http://www.ukwirednews.com/news/1430815/Euro-crisis-Why-Whitehall-dare-not-mention-the-C-word [Accessed 29th Jul 2014]

News In Other Categories

  • Ebola outbreak: Asky bans flights in West Africa

    A major West African airline has stopped flying to Liberia and Sierra Leone amid growing concern about the spread of the deadly Ebola virus.
  • Jeremy Hunt ticked off over hospital waiting times data

    Health Secretary Jeremy Hunt has been ticked off by the UK's statistics watchdog over claims about A&E waiting times in England.
  • Bristol Academy extends reach overseas with first foreign students

    With the doors to its brand new £1million training centre officially open, one of the UK's leading apprentice training providers, Bristol based S&B Automotive Academy, is showcasing its world-class facilities by launching a series of foreign student exchanges for the first time in its 41-year history. To get a flavour of what life is like as an apprentice in the UK, the Academy hosted 16 apprentice engineers and bus drivers from the G9 Automotive College in Hamburg, Germany, as part of a Europe-wide vocational training initiative called the ‘Leonardo Programme’ with support from the European Social Fund. In a reciprocal arrangement, S&B will be sending nine apprentices to Germany during February 2012 so that they can get an appreciation of life in the automotive industry on the Continent. A further three German exchange groups are being planned for next year. Designed to assist the development of vocational skills and training across Europe, including work placements for trainees, the Leonardo Programme has a budget of €1.75bn, which is helping to encourage UK organisations to work with their counterparts abroad. In what is expected to be another challenging year for employers in the UK automotive sector, S&B’s Chief Executive, Jon Winter, claims that the exchange initiative will bring many benefits to the Academy and its apprentices: “In a world of global automotive brands, it’s important for our learners to understand the international context of the industry they have chosen to make their career. This new exchange programme will enable apprentices and Academy staff alike to achieve a better understanding of the challenges and opportunities within the automotive arena in Europe. With the Academy’s influence also extending to the USA and Asia, there’s every possibility that this initiative could move further afield in the future.” Continued Winter: “The need for skilled technicians across the world is on the increase and we actively encourage our apprentices to look at broader horizons during their training. Many of them have already learned the phrase ‘Vorsprung durch Gelehrtheit’, quite simply, ‘Advancement through learning.” In the 2010/11 academic year, S&B doubled the number of successful Apprenticeships over the previous year with some 350 apprentices graduating from the Academy. At the same time, achievement levels reached an all-time high with an overall success rate of 85%. For those learners on the Advanced Apprenticeship three-year programme, success rates were even higher, at over 98%. PHOTO CAPTION: As part of their exchange visit, S&B Automotive Academy arranged for the German apprentices to visit Hampshire bus operator, Bluestar, at its Barton Park depot. The students are pictured with S&B’s Andy West (3rd right) and Steve Prewett, Bluestar’s Area Engineering Manager (2nd right). Ends http://www.sandbaa.com
  • Nightmare days in summer

    While many people hanker for some proper summer weather with long dry and sunny days, for others those warm days can turn into a nightmare - those who suffer from hayfever.
  • Government ends ban on steel-string guitars in prison cells

    A ban on steel-string guitars in prison cells in England and Wales has been reversed after a campaign by rock stars including Billy Bragg and Johnny Marr.
  • Man dies after Haywards Heath arrest, Sussex Police say

    A man has died after being arrested by Sussex Police.