A Euro Breakup is Better for UK in the Long Run, Think Tank Says

A breakup of the single European currency would be economically better for the UK within five years, according to a leading research group.

The Centre for Economic Business Research assessed that although the immediate crisis would have an affect on competition and growth, the UK would make a full recovery within a relatively short time.

Economist Tim Ohlenburg said: "Many have argued that the breakup of the single currency and subsequent end to the European Union, would be a disaster, but this exaggeration is just an excuse for politicians and economists to hide their abysmal track records."

Although the UK is exposed to £2.1 billion of Greek debt, a number that in the scheme of things is not beyond losing, economists are more worried about "contagion" from Italian and Portuguese debt should those countries default as well.

But according to CEBR, this is not as dire a threat as everyone is making out: "There would be a lot of hit on the eurozone," says Ohlenburg. "The remaining countries, the fundamentals, would boost tier 1 capital into these other countries that would soften the blow."

An even more extreme idea is the formation of some kind of two-tier eurozone with the stronger northern economies forming their own currency against the weaker southern economies. "Perhaps the premium might drop as much as 70 per cent, but according to our model, it would stabilise within six months to something like 40 per cent."

Aside from cheaper holidays in Italy and Portugal, the UK could expect to buy cheaper imports against a rate much more realistic to the economy's size and level of debt.

In the short term, there would be a "eurozone-wide recession," but the alternative is 10 years of austerity measures to prop up the weaker economies. Managing director of CEBR, Douglas McWilliams, said: "If it breaks up, the immediate pain is much more intense, but then there is a much more stable basis and we would expect that within 30 months of growth will actually be faster than if the eurozone survives in its current form."