What impact would Grexit have had on the UK?

 

From January to July 2015 the word Grexit – ‘the potential withdrawal of Greece from the group of countries using the common European currency’- [1] seemed to frighten the United Kingdom. This six-month period was characterised by a deadlock between Greece and the Eurozone. In late June, the Greek financial and economic status reached a critical point and this led to the proposal of a referendum on the ‘bailout’ terms and conditions – the latter was proposed by Europe. Together with the referendum, Greece announced a number of emergency measures to protect its finances as for example the creation of a bank holiday, the closure of the stock market, the imposition of capital controls and the limitation of ‘cash machines withdrawals using domestic bank cards to only €60 a day.’[2] Of course, a possible Greek exit could have spread the government debt-crisis to other members of the Eurozone, detonating financial chaos within it. Even though Britain is not a member of the European monetary area its government evaluated the possible risks of a Grexit, fearing its impact. British politicians decided to protect the UK by all means, choosing ‘competence over chaos’,[3] safeguarding Britain’s productive economy and its financial stability.[4] This essay will examine the impact a Grexit would have had on the UK, focusing on financial aspects as well as on trade, businesses, tourism, population and finally its membership of the EU.

 

To begin, it is important to understand that the United Kingdom had not a direct financial exposure to Greece. Notably, unlike Germany and France, Britain did not contribute to the ‘bailout’ plan that has been on since 2010 as it is not a member of the Eurozone. Nevertheless, due to its membership of the IMF (International Monetary Fund), the country indirectly supported the cause; according to Open Europe, a British research organization, ‘the UK (has) provided £1.72bn of the £37.8bn of assistance that the IMF (has) provided to Greece.’[5] However, it has been argued that a likely Grexit would not have affected the UK’s financial strength, because its chances of losing money were low as the IMF would have probably been the first in line for repayment;[6] also Dr. Matthew Partridge, writing for Money Week, believed that Britain’s financial exposure was ‘significant, but small compared to Germany and France’ – the two countries held respectively €56bn and €42bn of Greek debt.[7]

 

In particular, the banking sector was the field that was most worried about the exposure and the financial contagion from the Greek crisis. In 2015 the British banks’ exposure to Greece was around £2bn:[8] this data shows how the impact of a Grexit would have been very limited; as a matter of fact, according to the Bank of England the British banks had tended to cut their exposure to Greece since late 2009 – the beginning of the debt-crisis.[9] In detail, in March 2008 the UK’s financial exposure was around £12.4bn,[10] it decreased to £9bn in 2009,[11] it was around £8bn at the start of 2015 and it finally plunged to £2bn approximately in July 2015.[12] An illustration of this downward trend could be the research of Huw van Steenis, a banking analyst at Morgan Stanley, which shows that the UK has reduced its exposure to Greece ‘by over 80% since the 2011-12 crisis’.[13] Furthermore, economics experts stated that the reintroduction of the drachma would have not hurt the UK’s banks, which maintained a very small presence in Greece.[14] Of the British banks, HSBC was the most exposed as it had 22 Greek branches; it was defined by Bernstein’s analysts as ‘the only UK bank with “material exposure” to Greece’.[15] Another aspect to take into consideration is the impact that Alpha Bank, one of the small Greek banks operating in the UK, could have had on the British economy; being a UK subsidiary, its retail customers could have called upon the UK compensation scheme in case of failure. However, the impact of it would not have been huge as its retail customers are ‘in the low thousands.’[16]

Equally important to consider is the knock-on effect that British trade would have faced in the case of a Grexit. It must be remembered that the Eurozone is the UK’s main trading partner, and for this reason Britain was likely to be affected by a Greek exit. As Katie Allen pointed out, ‘a protracted period of instability could (have) hurt Britain’s exports’.[17] Moreover, as a Forbes author stated ‘any negative shock on the Continent would (have) inevitably harm(ed) the British economy.’[18] Above all exporters feared a Grexit’s impact on trade, because it would have left them ‘struggling to find new markets to sell their goods’[19] and dealing with cash flow problems;[20] additionally, during 2015 British manufacturers had already been facing ‘pressure on orders and sales’ and were increasingly alarmed about a future lack of demand from consumers.[21] On the other hand, Mark Carney, Bank of England governor, considered the Greek economy a minor issue for UK exporters – ‘Greece accounts for less that 1% of total UK exports’ to the Eurozone, which include pharmaceutical products, beverages and spirits, electrical machinery and equipment – and a major one for Eurozone economic confidence.[22]

A possible Grexit would have also produced repercussions on British companies such as Marks & Spencer, Vodafone, Dixons Carphone and Unilever which run a considerable number of businesses in Greece. During a July interview for the BBC, the director general of the British Chambers of Commerce, John Longworth, seemed to be concerned about the future of these businesses: he stressed that these companies could have been hit by a Greek exit and its consequent ‘market upheaval, changes in trade flows, and payment issues.’[23] Nevertheless, all the companies and above all Vodafone decided to create ‘detailed plans’ in order to keep the trade with Greece and to ‘protect the staff in the event of any civil unrest.’[24]

Another key point to analyse are the consequences on tourism in the event of a Greek withdrawal from the Eurozone. It must be remembered that as Greece is a popular holiday destination for the UK’s citizens the likely reintroduction of a devalued currency, the drachma, would have made this country an even cheaper attraction for them. However, in June 2015 George Osborne feared about holidaymakers being stranded in Greece with ‘cash machines running dry’ and ‘disrupted ferry services’: according to the government, this would have been the result of a Grexit.[25] Furthermore, the Association of British Travel Agents warned British tourists about the emergencies and accidents this event would have provoked.[26]

A point often overlooked is that a Grexit would have hit not only the UK’s economic fields but also some aspects concerning the population. As Andrew Sentance and John Hawksworth pointed out, approximately 35,000 British nationals live in Greece and, of course, a Greek withdrawal from the Eurozone would have left them dealing with ‘financial disruption’ and economic crisis.[27] In the light of this plausible problem the UK’s government continued helping its 6,000 pensioners in Greece by switching their public pensions ‘to UK bank accounts’, and therefore avoiding any kind of issues with Greek banks.[28] Not to mention the likely emergency the government was trying to prevent: in June, Theresa May announced that in case of a Grexit the resulting ‘financial collapse’ in Greece would have led to a huge migratory movement of people.[29]

All things considered, the exit of Greece from the Eurozone would have certainly produced some negative shocks for the UK. Indeed, all these effects put together could have been the detonator of a ticking-time bomb: Brexit. To clarify this probable outcome Noah Daponte-Smith wrote that Britain’s future membership of the EU could have been dependent on Grexit and its effects: this loss would have pushed the EU through an ‘institutional identity crisis’, making it a weak union in British eyes; he then specified that this event would have affected British views on European membership, ‘making a vote for Brexit more likely.’[30] On the other hand, David Cameron firmly believed that a Grexit would have had a positive impact on the ‘negotiations over Britain’, especially on its integration with Europe: in fact, a Greek default would have demonstrated that Britain could not have been taken for granted, ‘forcing the EU to make additional concessions’.[31]

With this in mind, it can be argued that a likely Grexit would have produced a series of effects and that part of these would have surely touched the United Kingdom. As can be seen, a Greek withdrawal from the Eurozone would have first hit the Eurozone and then created a domino effect on both the British economy and society; nonetheless, the possible impacts on some fields such as banking, trade and businesses have not been considered sizeable,  and hence risky issues. In the final analysis, even if a Greek default would have slightly hurt Britain a more important point is to understand the doubts it would have aroused in terms of Brexit.

 

1486 words

Mirianna la Grasta

 

 

[1] Collins English Dictionary, http://www.collinsdictionary.com/dictionary/english/grexit, accessed on 11 November 2015.

[2]Matthew Partridge, ‘How would a Grexit affect Britain?’, http://moneyweek.com/how-would-a-grexit-affect-britain/, accessed on 13 November 2015.

[3] George Osborne in Katie Allen, ‘Grexit: what are the risks to the UK?’, http://www.theguardian.com/business/2015/feb/09/grexit-what-are-the-risks-to-the-uk, accessed on 14 November 2015.

[4] Nicholas Watt, Rowena Mason and Graeme Wearden, ‘UK starts planning for “serious economic risks” of Greek exit from euro’, http://www.theguardian.com/world/2015/jun/17/uk-starts-planning-for-serious-economic-risks-of-greek-exit-from-euro, accessed on 13 November 2015.

[5] Mark Broad, ‘What impact would Grexit have on the UK?’, http://www.bbc.co.uk/news/business-33165580, accessed on 11 November 2015.

[6] Raoul Ruparel in Mark Broad, ‘What impact would Grexit have on the UK?’, http://www.bbc.co.uk/news/business-33165580, accessed on 11 November 2015.

[7] Matthew Partridge, ‘How would a Grexit affect Britain?’, http://moneyweek.com/how-would-a-grexit-affect-britain/, accessed on 13 November 2015.

[8] George Parker, Caroline Binham and Harriet Agnew, ‘Chancellor George Osborne steps up UK Grexit planning’, http://www.ft.com/cms/s/0/8a50fc88-1422-11e5-abda-00144feabdc0.html#axzz3sgk232R2, accessed on 14 November 2015.

[9] Mark Broad, ‘What impact would Grexit have on the UK?’, http://www.bbc.co.uk/news/business-33165580, accessed on 11 November 2015.

[10] Matthew Partridge, ‘How would a Grexit affect Britain?’, http://moneyweek.com/how-would-a-grexit-affect-britain/, accessed on 13 November 2015.

[11] Mark Broad, ‘What impact would Grexit have on the UK?’, http://www.bbc.co.uk/news/business-33165580, accessed on 11 November 2015.

[12] Matthew Partridge, ‘How would a Grexit affect Britain?’, http://moneyweek.com/how-would-a-grexit-affect-britain/, accessed on 13 November 2015.

[13] Mark Broad, ‘What impact would Grexit have on the UK?’, http://www.bbc.co.uk/news/business-33165580, accessed on 11 November 2015.

[14] Andrew Critchlow, ‘Nervous UK companies begin to assess impact of Greece exit’, http://www.telegraph.co.uk/finance/economics/11679881/Nervous-UK-companies-begin-to-assess-impact-of-Greece-exit.html, accessed on 14 November 2015.

[15] George Parker and Emma Dunkley, ‘Osborne warns not to understimate impact of Grexit’,  http://www.ft.com/cms/s/0/8e851a4c-1e62-11e5-ab0f-6bb9974f25d0.html#axzz3sgk232R2, accessed on 13 November 2015.

[16] George Parker and Emma Dunkley, ‘Osborne warns not to understimate impact of Grexit’,  http://www.ft.com/cms/s/0/8e851a4c-1e62-11e5-ab0f-6bb9974f25d0.html#axzz3sgk232R2, accessed on 13 November 2015.

[17] Katie Allen, ‘Grexit: what are the risks to the UK?’, http://www.theguardian.com/business/2015/feb/09/grexit-what-are-the-risks-to-the-uk, accessed on 14 November 2015.

[18] Noah Daponte-Smith, ‘Grexit and Brexit: Greek Default Would Affect Britain, Too’, http://www.forbes.com/sites/noahdapontesmith/2015/06/17/grexit-and-brexit-greek-default-would-affect-britain-too/, accessed on 13 November 2015.

[19] Nicholas Watt, Rowena Mason and Graeme Wearden, ‘UK starts planning for “serious economic risks” of Greek exit from euro’, http://www.theguardian.com/world/2015/jun/17/uk-starts-planning-for-serious-economic-risks-of-greek-exit-from-euro, accessed on 13 November 2015.

[20] George Parker and Emma Dunkley, ‘Osborne warns not to understimate impact of Grexit’,  http://www.ft.com/cms/s/0/8e851a4c-1e62-11e5-ab0f-6bb9974f25d0.html#axzz3sgk232R2, accessed on 13 November 2015.

[21] Katie Allen, ‘Grexit: what are the risks to the UK?’, http://www.theguardian.com/business/2015/feb/09/grexit-what-are-the-risks-to-the-uk, accessed on 14 November 2015.

[22] George Parker, Caroline Binham and Harriet Agnew, ‘Chancellor George Osborne steps up UK Grexit planning’, http://www.ft.com/cms/s/0/8a50fc88-1422-11e5-abda-00144feabdc0.html#axzz3sgk232R2, accessed on 14 November 2015.

[23] Mark Broad, ‘What impact would Grexit have on the UK?’, http://www.bbc.co.uk/news/business-33165580, accessed on 11 November 2015.

[24] Mark Broad, ‘What impact would Grexit have on the UK?’, http://www.bbc.co.uk/news/business-33165580, accessed on 11 November 2015.

[25] George Parker, Caroline Binham and Harriet Agnew, ‘Chancellor George Osborne steps up UK Grexit planning’, http://www.ft.com/cms/s/0/8a50fc88-1422-11e5-abda-00144feabdc0.html#axzz3sgk232R2, accessed on 14 November 2015.

[26] Mark Broad, ‘What impact would Grexit have on the UK?’, http://www.bbc.co.uk/news/business-33165580, accessed on 11 November 2015.

[27] Andrew Sentance and John Hawksworth, ‘What would Grexit mean for the Eurozone and UK economies?’, http://pwc.blogs.com/economics_in_business/2015/07/what-would-grexit-mean-for-the-eurozone-and-uk-economies.html, accessed on 14 November 2015.

 

 

 Bibliography

Websites

Andrew Critchlow, ‘Nervous UK companies begin to assess impact of Greece exit’, http://www.telegraph.co.uk/finance/economics/11679881/Nervous-UK-companies-begin-to-assess-impact-of-Greece-exit.html, accessed on 14 November 2015.

Andrew Sentance and John Hawksworth, ‘What would Grexit mean for the Eurozone and UK economies?’, http://pwc.blogs.com/economics_in_business/2015/07/what-would-grexit-mean-for-the-eurozone-and-uk-economies.html, accessed on 14 November 2015.

Collins English Dictionary, http://www.collinsdictionary.com/dictionary/english/grexit, accessed on 11 November 2015.

George Parker, Caroline Binham and Harriet Agnew, ‘Chancellor George Osborne steps up UK Grexit planning’, http://www.ft.com/cms/s/0/8a50fc88-1422-11e5-abda-00144feabdc0.html#axzz3sgk232R2, accessed on 14 November 2015.

George Parker and Emma Dunkley, ‘Osborne warns not to understimate impact of Grexit’,  http://www.ft.com/cms/s/0/8e851a4c-1e62-11e5-ab0f-6bb9974f25d0.html#axzz3sgk232R2, accessed on 13 November 2015.

Katie Allen, ‘Grexit: what are the risks to the UK?’, http://www.theguardian.com/business/2015/feb/09/grexit-what-are-the-risks-to-the-uk, accessed on 14 November 2015.

Mark Broad, ‘What impact would Grexit have on the UK?’, http://www.bbc.co.uk/news/business-33165580, accessed on 11 November 2015.

Matthew Partridge, ‘How would a Grexit affect Britain?’, http://moneyweek.com/how-would-a-grexit-affect-britain/, accessed on 13 November 2015.

Nicholas Watt, Rowena Mason and Graeme Wearden, ‘UK starts planning for “serious economic risks” of Greek exit from euro’, http://www.theguardian.com/world/2015/jun/17/uk-starts-planning-for-serious-economic-risks-of-greek-exit-from-euro, accessed on 13 November 2015.
Noah Daponte-Smith, ‘Grexit and Brexit: Greek Default Would Affect Britain, Too’, http://www.forbes.com/sites/noahdapontesmith/2015/06/17/grexit-and-brexit-greek-default-would-affect-britain-too/, accessed on 13 November 2015.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Blog at WordPress.com.

Up ↑

%d bloggers like this: