The EU sovereign debt crisis is not primarily about the 17 countries that constitute the Eurozone, it’s about the intertwined European banks’ exposure to a mountain of speculative lending in high-risk countries that could never have survived German competitiveness within a single currency. The UK is equally at fault here even though not itself a member of the Eurozone. UK banks’ exposure to weaker countries in the Eurozone has been estimated at some £268bn, equal to one-sixth of UK GDP. Though UK direct exposure to sovereign debts is low (perhaps some £22bn), UK banks’ lending to households and businesses in Greece, Portugal, Ireland and Spain has been much higher. As a result, if there were to be a sovereign default, which now seems increasingly inevitable, UK banks would be liable for huge losses. Continue reading →