Breakup of the Eurozone could boost British competitiveness, top economist says

Top city economist Roger Bootle was in the region to address business leaders at a Deloitte dinner

Roger Bootle
Roger Bootle

The break-up of the Eurozone could provide a major boost to European and British competitiveness, one of the country’s top economists has told North East business leaders.

Roger Bootle - one of the so called “wise men” panel of advisors under Kenneth Clarke in the 1990s - presented his take on the world economy to business guests of Deloitte.

Speaking to The Journal before the event, Mr Bootle said he was confident that current turmoil in the Eurozone did not pose a major immediate risk to Britain’s recovery, and that its break-up would be best for competitiveness.

On the Euro, he said: “It’s a basket case, and I’ve thought that all along. It can’t and shouldn’t last, but like a lot of things that can’t and shouldn’t last, it might take a long time for it to disappear. It looks very much like Greece will be out before too much longer, and that will raise new questions. I think there’s unlikely to be much financial contagion afterwards to the likes of Italy, Spain and Portugal partly because of the measures the European Central Bank has put in place.

“At the time it will be portrayed as a disaster and those countries will think ‘I don’t want to be like that’. The real question of contagion will come afterwards, when we begin to look at whether it works. If it looks like working, the Eurozone is finished. If Italy, Spain and Portugal see that Greece is working outside of it, they’ll soon follow. Of course, there’s a chance the Greeks might make a mess of it.

“The direct links between Greece and the UK are very small — trade links are minimal and our banks don’t have that much exposure to Greece. However, the Eurozone is our single biggest export market so we have invested a lot in its success. Whatever it takes to make the Eurozone strong — that’s where our interests are. It’s my view that to get strength we need a break-up of the Euro. That wouldn’t be the mood among markets and businesses though. Initially there would be panic.”

Paul Feechan, senior partner for Deloitte in the North East, said that many of his firm’s clients have interests across the world, and the Eurozone was just one destination of exports.

On the question of EU referendum, Mr Bootle said it could have the potential to disrupt the UK recovery, although it was unlikely.

He used business investment statistics from the period surrounding the Scottish referendum to show investment was curtailed as a result, and suggested an EU referendum could have a similar effect.

His comments follow a poll this week which found 45% of Britons would vote to keep Britain in the EU should a referendum occur.

Looking at businesses public statements on the EU position, Mr Bootle added: “I think it’s interesting when businesspeople make statements of the sort on the Euro and the EU. I consider those comments but I don’t tend to give them much weight. Sometimes such comments are more received wisdom, and haven’t been thought about very deeply.

“Talking about the importance to British business of being part of the EU, I think, often amounts to this ill-defined cri de coeur that ‘we do an awful lot of business with Europe’.”

On the current debate about devolution of power to the North East, Mr Bootle was reluctant to endorse plans outlined by the Shadow Chancellor, Ed Balls, on his recent visit to the region which included greater powers for the Local Enterprise Partnerships.

He added: “The North East may think it’s different from other regions, but I’m sorry, it’s not. You have a higher dependency on the public sector and manufacturing, and you have lower house prices. The most important thing affecting the interests of the North East is going to be how well the UK does — by far. The continued squeeze on the public sector in the next parliament could pose a risk to the region because it’s so heavily exposed.

“There are concerns out there — namely that the further you are away from Whitehall, the worse your decisions will be. However, the proliferation of local bureaucracy worries me — the layers and layers that use up quite a lot of money and achieve very little.”

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