Grexit consequences for the north: June 22nd had people around Europe waiting nervously, as the last day for the Greek government to reach a deal with Brussels that would secure more money for the country on the edge of bankruptcy. A great deal of discussion and analysis has gone into whether or not the EU should allow Greece to leave the eurozone and indeed the EU. Whatever the result of the tense negotiations, the ultimate results will be far reaching. In that vein it seems worthwhile to think how people and businesses in the north of England might be affected by the economic repercussions of a “Grexit”.
In the event of a “Grexit”, the Greek government will be placed in the position of rapidly having no money with which to fund the operations of the state and Greek banks will find themselves with a serious lack of liquidity. There would be a whole set of complex consequences, but perhaps of most interest might be the effect on trade relations between the UK and Greece, which in turn might affect importers and exporters and consumers in the north of England. In order to keep the state running, taxes would need to be higher than they already are, and the possibility of loans for businesses and individuals would be diminished dramatically. Even if there is a feeding frenzy of privatisation for previously government-run services, Greek consumers and producers are going to be put under even more intense strain.
The UK is not as important a trade partner for Greece as it was 15 years or so ago, with figures from 2012 suggesting that it has slipped down the rankings. According to these figures in a House of Commons report of UK-Greece trade statistics, “medicaments” are the largest proportion of UK exports by value to Greece, whereas the same position in Greek imports to the UK is occupied by “insulated wire, cable”. As to where these goods interact with the UK economy, it is rather difficult to say. The north-west of England is well known as a hub of biotechnology companies, with AstraZeneca’s second largest manufacturing and supply site based in Macclesfield; large numbers of biological manufacturing of vaccines and antibiotics based in Speke, Liverpool; and in Ulverston, Cumbria GSK which makes antibiotics which are often exported. For the smaller manufacturers the reduction in the purchasing power of the Greek market will make things tougher, but it may be the ripple effect of a Greek exit on other weaker economies within Europe that might shrink other markets for these companies.
Clearly there could be some specific effects on businesses relying on the exchange of goods and services with Greece. But the ripples we might experience are only a small part of the broad implications of negotiations heading south. It has been argued that Greece leaving the eurozone will weaken German and French banks, leaving all of Europe — but particularly Germany — with a very hefty bill that some have estimated to be around €250bn. Though the European Financial Stability Facility has enough money to cover this cost, it could well cripple the European economy and delay the recovery. This has political implications as well as purely financial ones. Some of the less strong swimmers of the group such as Spain and Italy have been in a less-than-ideal position for some time, and with a precedent set that members can be left to tread water on their own, the cost of borrowing for these countries may increase further. This could play into the rhetoric of various anti-EU parties that have sprung up across Europe and the UK.
It is easy to imagine UKIP using these events as a supposed demonstration of the failure of the European project and why we need to extricate ourselves further from it. The backbench caucus that Cameron is trying to wrangle now will probably make similar calls. At a time when the Prime Minister is pressing the advantage of his election honeymoon by going round Europe to seek support for his attempts to reform the EU, a Grexit might change the receptiveness for change. This all points to the fact we should be very intent on the results of these terminal negotiations because their consequences will be felt far and wide, at a political and financial level.
When not in Cambridge I live in Macclesfield, East Cheshire, where I have lived for the past ten years or so.