The Telegraph, 01-05-2012
The head of one of Britain’s “Big Five” banks warned that any break-up of the single currency would have dire consequences for the global economy because it would be difficult to judge how the contagion would unravel.
“Obviously we close 2011 with a huge amount of focus on the trials and tribulations of the eurozone,” Mr Sands said.
“I actually think the big news of last month’s summit was that unfortunately once again the eurozone political leadership didn’t really produce something that was that compelling or credible as a plan to deal with the problems and to re-engergise growth in the eurozone.
“We enter 2012 with a very difficult outlook for the eurozone [and] with an increasing possibility of countries actually leaving the eurozone.
“Nobody should underestimate what a big deal that would be, because it would be very difficult to manage the contagion risk, even if it was only Greece. The disruption from that would really be quite significant.
“That will have ramifications all over the world . . . because the simple maths is that the eurozone is a very large part of the global economy and if it is going slower, then economic trade will be slower around the world. Also just from a confidence perspective.”
After the political failures of 2011, Mr Sands said his position had hardened on the possibility of one nation pulling out.
“I think the probability of countries leaving the eurozone has increased because we have had several successive plans announced to solve the problem of the eurozone which simply haven’t convinced the market – and ultimately, the current structure and shape and scope of the eurozone only works if the market believes it’s worth supporting,” he said.
“We are in a path-dependent problem, where the solutions available at any one time are not necessarily available at the next step and so I think the solutions base has narrowed because we have missed opportunities.”
Mr Sands’ warning of a possible euro break-up comes as the head of Greece’s central bank admitted that it would be a “real nightmare” if the country went back to the drachma.
“Any possible return to the drachma will be a real nightmare at least for the first few years,” George Provopoulos told the Kathimerini newspaper this weekend.
He denied speculation that there were any preparations for such a move, saying it would take years to organise a withdrawal from the single currency.
“Progress achieved over decades will be wiped out,” he warned. “I am convinced that Greeks will mobilise in the national effort to return as soon as possible to the path of social and economic progress within the eurozone.”
Mr Sands said that politicians and business would have to work hard to ensure that the social consequences of any slowdown were mitigated.
“I think there is a real risk because these economic problems bring real social consequences, cuts in social provisions, higher rates of unemployment, very high rates of youth unemployment, there is a real risk of all this translating into greater calls for protectionism, more populist policies,” he said.
He argued that the UK, and specifically the City, should take advantage of their positions as global financial centres and develop relations with the emerging markets.