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Greek Apocalypse Now? Not quite

Robert Chote, the OBR chair, is normally a serious and measured man, but to say, as he did, that the UK would suffer ‘irreparable damage’ from a Greek default or that the UK ‘may never recover’ is grossly overdoing it – more reminiscent of the saloon bar than the forum of the Government’s leading economic advisers. His remarks are also seriously misleading. It’s not the ‘Grexit’ (as it’s now being called) which is the root of the problem for the UK, it’s the excessive and irresponsible lending to Greek banks and enterprises by UK banks which is now so threatening. But this time round there must be no question of bailing them out to rescue them from their own foolishness and bad investments.

The unwise exposure of British banks to Greece is on a huge scale, exceeded only by France. That is a fact of the banks’ own making and they must take the hit for it, not the British taxpayer. The OBR suggests Britain would beplunged into recession for 2 years. But Britain’s been in recession for the last 4 years already, not because of Greece, but because of Tory-imposed austerity. The OBR says there’ll be deflation; there already is, but nothing to do with Greece – to do with the UK government’s tightening squeeze on incomes which has already taken £250bn out of the UK economy. The OBR says debt will reach 90%; but it’s already rising, not because of Greece, but because prolonged austerity in the UK is reducing tax receipts faster than the expenditure cuts are closing the deficit. Don’t blame Greece for what are home-grown problems.

The UK banks must not be protected from their own folly when Greece finally decides, as Argentina did in 2002, that the costs of sticking to an untenable currency peg are simply unsupportable and that, for all the pain of transition, exiting the euro is the only way to recovery. Argentina tried, like Greece, a mixture of austerity, IMFA bailouts, and debt rescheduling, but after defaulting which the doomsters said would lead to Armageddon, the Argentinian growth rate averaged 9% over the next 4 years from 2003-7.

Last time round the costs of the bankers’ ramp that nearly crashed the world economy were offloaded on to taxpayers. Since then nothing has been done to remove the implicit taxpayer guarantee, and in the last 8 months we have seenks making crassly irresponsible bets (for that’s what they are) on the markets and in each case suffering a $2bn wipe-out, first at UBS and now at JP Morgan. The demand for radical bank reform is deafening, yet all Osborne is offering is a watered-down version of Vickers by 2019. The banks must think the government are mugs.

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