As the financial crisis in Greece continues to wage on, many are left wondering whether it will affect the UK’s economy. Here we look at the possibilities…
Business confidence in the UK continues to grow as the economy strengthens, however, with Greece in crisis this could be in jeopardy. Many businesses and investors are already removing ties with Greece as their confidence in its financial stability falters. Following the Great Recession (2007) Greece has experienced little to no recovery and since they were bailed out, receiving £37.8 billion (€53 billion), in February this year, tensions have been running high.
On 30th June, Greece are required to pay £1.4 billion (€1.6 billion) to the International Monetary Fund (IMF), as part of an agreement that has financed the support they’ve received. If they do not pay and no deal is agreed, they could go bankrupt and be forced to leave abandon the Euro, whereby businesses are likely to feel some sort of repercussion.
The UK’s Situation
The UK has indirectly provided assistance through its membership and contributions to the IMF, amounting to £1.72 billion of the £37.8 billion bailout, whereas Germany has contributed £40 billion and France has provided £30 billion since 2010.
As the UK is not part of the Eurozone and does not share the same currency, we’re in a better position than other European countries, however, any effect felt by Europe could ricochet and hit the UK. Over half of the UK's exports go to Europe, making the Eurozone our biggest trading partner, and in recent months, manufacturers have reported pressure on orders and sales. Just as Andrew Critchlow explains in the Telegraph, “…the weakness of the euro has already made it harder for UK manufacturers to compete as the stronger pound has made the value of their goods and services more expensive.” The worry is, that Grexit could cause further issues, making UK goods too expensive.
The Bad News
If Greece should leave the Eurozone, it is likely that there would be a business confidence slump. Just as Bloomberg.com reported, stating that Business confidence has already begun to fall in Germany and there are concerns that this fall in confidence will spread throughout the Eurozone and in turn, the UK.
As Katie Allen wrote on theguardian.com, “An all-out crisis in the single currency bloc would depress business and consumer demand – not what the government wants, particularly when the economy is already losing momentum and plans to grow exports are way off target. A fresh crisis would also hurt demand beyond Europe, so UK exporters would struggle to find new markets to fill the gap.”
Added to the UK’s exports potentially suffering, some of the UK's biggest companies, including Marks and Spencer, Vodafone and Dixons Carphone, have substantial operations in Greece. The UK also has £7.7 billion tied up in loans to Greek banks, businesses and customers. If Greece were to leave the Eurozone there would be a huge struggle to get this money back, especially if they adopted a devalued currency (Drachma).
George Osborne has previously described the standoff between Greece and the Eurozone as the “greatest risk to the global economy”.
The Good News
As Mark Broad reported on the BBC, Raoul Ruparel, a co-director at Open Europe, thinks it is unlikely that even if Greece did leave the Eurozone, the UK would end up losing out on its IMF contribution, saying, "The IMF is the most senior creditor of all those who have lent to Greece, so would be the first to be paid back.” Due to the UK’s indirect contributions, it is in one of the strongest positions, and even though half of the UK's exports of goods and services go to Europe, Greece makes up a fairly small amount of that total. UK exports to Greece include:
- Pharmaceutical products 20%
- Beverages & Spirits 7.6%
- Electrical machinery and equipment 7.2%
Another piece of good news is that London’s real estate market may become more appealing if Greece cannot pay, increasing confidence in the UK and driving foreign investors to buy property here instead of across the Channel. As Craig Hughes of PwC said, “Europe’s loss would be London’s gain.”
Contingency plans have been drawn up, both abroad and at home, however, the fate of Greece hangs in the balance until the Athens government, EU and Central banks can organise a deal with the creditors.