Could this be it? Greek financial crisis could hit Britain, warn economists
I was more interested in the last few passages...
- .... Delegates to the Institute of Directors' annual convention in London today said that they were concerned about the problems afflicting Greece spreading to the UK.
John McKenna, a director bakery ingredients business AB Mauri, said: “Hedge funds and currency speculators will just pick them off. When they have broken Greece they will move on to others, like they did with the banks.”
"The investors will go from Greece, to Portugal, Ireland, Spain and then will move to the UK. They will move to where they perceive the weakness to be.
“It is very similar to what has been happening to the banks. It is the first real test for the eurozone. If we let Greece go, then what is next?"
Paul Clark, director of the Potential Organisation, said: “The worry is what is following close behind [Greece]. It might be Portugal, that is just next door, and then Ireland. It all feels like it is coming much closer more quickly.
“It would be great to have some clarity on Europe about how much they want to do. Saying ‘thank God we are not in the euro’ does not quite cut it.”
Clare Richards, managing director for React Europe, said: “We are watching the situation very carefully. Of course it could spread and I am concerned.”
Martin Sorrell, the chief executive of WPP, one of the world’s biggest advertisers, told the conference: “We need the next Government to be on a war footing. A lot of people are thinking that is the economic challenge we face.”
George Osborne, the shadow Chancellor, also told the conference: "We should be concerned about what is happening in Greece and what is threatening to happen in Portugal. This is an illustration of the challenge we face.
“Thank God we are not in the euro. If we had been our boom would have been bigger and our bust would have been deeper and we would have been bailing out Greece."
Earlier a senior economist had warned of the risk of the spread of the problems from Greece to the UK.
Neil Mackinnon, from VTB Capital, told BBC Radio Four’s Today programme: “There are other countries that are fiscally challenged, if you want to use that phrase, very high budget deficit, very high debt GDP levels I’m thinking about Spain, Ireland, Italy and of course ourselves.
"We have a budget deficit as a per cent of our economy that is not to different from Greece, so the situation is spreading.”
He added that it was a “mystery” to him “why Britain has a triple A credit rating: "We have got a budget deficit that’s 12 per centof GDP our debt is doubling.
“It is escalating and I think the financial markets have already taken things into their own hands they are actually pricing in a downgrading of our credit rating anyway. ”
And Uk Media is already addressing this issue: Debt crisis: UK banks sitting on £100bn exposure to Greece, Spain and Portugal
- As analysts estimated that Britain's banks have a combined exposure of £100bn to Greece, Portugal and Spain – the three countries causing most concern on the financial markets – the Financial Services Authority was closely watching the markets and assessing exposures to the vulnerable countries.
After the ratings agency Standard & Poor's had downgraded Greek debt to "junk" yesterday, bank shares were knocked today but spared further falls as the downgrade of Spain's crucial credit rating came just as the stock market was closing. With UK banks standing to lose more in Spain than in Greece and Portugal, analysts said there might have been a more severe reaction if London had remained open longer today.
Analysts at Credit Suisse calculated that UK banks had £25bn of exposure to Greece and Portugal but £75bn to Spain, where the collapse in the property market has already forced banks such as Barclays to admit to bad debt problems and left Royal Bank of Scotland facing questions about its exposure.
"Lloyds' exposure to the three regions is likely to be negligible, we estimate that Barclays has £40bn exposure (predominantly loans in Spain and Portugal, excluding daily positions in Barclays Capital), and RBS has around £30bn–£35bn (again predominantly Spain, although we estimate £3bn to £4bn in Portugal and Greece as well)," the Credit Suisse analysts said.
Money markets, in which major banks lend to each other, also reflected the tension caused by the Greek downgrade with eurozone interbank lending rates enduring their biggest rise in nearly a year.
Much of the anxiety was targeted at French, German and Swiss banks. Howard Wheeldon, of BGC Partners, said: "If Greece defaults that means the pressure will then be felt and exerted on national banks that hold the Greek debt. That includes very many German, French and Swiss banks and it just may be that with so many banks involved one of these might just go down."
At today's annual meeting, RBS's chairman, Sir Philip Hampton, played down any exposure to Greece, while Lloyds' finance director, Tim Tookey, said on Tuesday that the bank had no "material [significant] exposure". Barclays publishes a trading update on Friday and will face questions about its exposure to the countries being downgraded.
In early trading today banks were the biggest fallers, with RBS tumbling 7%, Lloyds down by 6.5% and Barclays off 4%, though they recovered much of their losses by the time market closed.
Among continental European banks, analysts at Evolution calculated that Fortis, Dexia, CASA and Société Générale were most affected because of the value of their Greek debt holdings relative to their size.
According to Barclays Capital, UK banks account for only 3% of the exposure to Greek bonds, while data from the Bank for International Settlements shows that, at the end of 2009, Greece owed about $240bn (£160bn) overseas. Of this, France and Germany have the biggest exposures of $75bn and $45bn respectively.
Analysts expressed concern about the problems spreading. Daragh Quinn, banks analyst at Nomura, said: "Given the scale of the debt problem facing Greece, the prospect of some kind of debt rescheduling or even default are being considered as possibilities by the market. Sovereign risk concerns are also spreading to Portugal and Spain."
Only last week the International Monetary Fund, which has been called in to help fund the Greece deficit, warned about the impact of a sovereign risk crisis. "Concerns about sovereign risks could undermine stability gains and take the credit crisis into a new phase, as nations begin to reach the limits of public-sector support for the financial system and the real economy," the IMF said.
Credit Suisse analysts pointed out that not all the problems facing the markets were negative for the banking sector. "The increase in volatility should assist revenues at the investment banks, particularly for primary dealers like Barclays," the Credit Suisse analysts said.
"But there are clearly a number of important potential negatives. These include the potential for increased capital and liquidity trapping in affected sovereigns, or increased micro prudential requirements for local subsidiaries. Our bigger concern, however, is increased nervousness towards the UK," they added.
Greek debt crisis reaction: 'This could be bigger than anyone thought'
- "The mood in here is not quite as bad as it was after Lehman Brothers went under, but that's hardly a reason to celebrate," said one City bond trader. "But there's the same sense of not knowing how bad the contagion might get: sterling's taking a battering, bond spreads are widening dramatically, gold's flying again as investors flock to safe havens and bank lending across the EU is constricting, raising fears of another credit crunch."
.....I would say this is organised chaos," said Michael Hewson, a market analyst at CMC Markets. "The problem the eurozone has at the moment is the market does not believe anyone has any concrete plan in place to deal with the problem of Greece. What that is causing is some rather shredded nerves among bond holders."
According to David Jones, chief market strategist at IG Index, it feels like the early days of the credit crunch when Northern Rock went bust: "[It's] like when the run on the British banks started. Initially when the Greek crisis came to the fore, the thinking was 'maybe it's an isolated problem', but with the downgrade on Tuesday and now concerns about Italy, Ireland and Portugal, the worry is that it is going to be much bigger than anybody thought."
On BBC News: Could the UK face the same problems as Greece?
- So why, when both economies clearly have severe financial difficulties - has the UK managed to hang on to its much-coveted Triple A credit rating?
Here's the chart posted on that BBC News article:
The BBC article continues...
- "Clearly on the face of it we have a very similar deficit," says BBC economics editor, Stephanie Flanders. "However there are many things that are very different."
Market need
An obvious point is that Greece is still in recession with little sign of immediate improvements (its GDP is forecast to shrink by 3.5% in 2010).
The UK economy saw a return to growth in last three months of 2009 with initial figures showing this continued between January and March. The economy is forecast to continue to grow, albeit slowly.
Also, the UK's debt level, while high at more than 60% of GDP, is much lower than Greece's, which sits at about 115%.
And the type of debt is seen as significant too - with much of the UK debt not due for repayment for several years, unlike some other countries. It is predominantly made up of recently racked-up loans.
This means that it does not have to keep coming to the money markets to roll over the debt - in other words to refinance it.
"That's Greece's problem and other countries' too," our economics editor says. "They have to keep going to the markets. We're actually in a very strong position on that."
The UK's proven track record of increasing taxes and raising the money it says it is going to raise has also played in its favour, says Jeremy Batstone-Carr, research analyst at Charles Stanley.
"There are reasons to be concerned about Britain's need to tackle its deficit but we have not yet reached a critical point," he says.
"Credit rating agencies so far have given Britain the benefit of the doubt that we will enact the measures needed to bring down the deficit, however painful that will be."
'Line in sand'
Another advantage the UK has is that it controls its own currency - and so has a floating exchange rate.
Continue reading the main story Greece crisis: Is there an exit? Q&A: Greece's economic woes "It could, if it wanted to, devalue its currency, and that would relieve some of the pressure," says Mr Batstone-Carr. While such an action can have negative consequences as well as benefits - it is at least an option.
Greece, which entered the eurozone in 2001, does not have the luxury to act independently
On The Daily Mail Hung vote 'could tilt Britain into Greek financial turmoil'
- A hung parliament could lead to a Greek-style financial crisis, business leaders and economists said yesterday.
They warned of a run on the pound and loss of faith in Britain’s ability to tackle its deficit, which is on a par with that of Greece.
..... Miles Templeman, the institute’s director-general, said: ‘While political parties agree the deficit is a problem, there is little agreement on how it should be tackled.
'So it doesn’t surprise me that so many business leaders are worried about a hung parliament.
How?
The GBP vs the USD the last five days.
Would you be nervous about Britain becoming United King Down?
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