Wake up! Greek debt is NOT a bore
As a reporter, over time, you become aware of the stories that bore. They rarely bore me, but they are seen by some to bore the reader or viewer. Northern Ireland during the interminable Troubles was one such. The Middle East generally fights not to be so too. Today it is Greek debt. What’s it got to do with us? Ostensibly little – perhaps £4 billion of direct exposure. Thus Greek debt is a bore.
But Lehman Brothers’ crash has taught us that consequence, in financial matters, is rarely about what you can see, but much more about what you cannot see. And so it is with Greek debt. As the former City Minister Paul Myners pointed out on Channel 4 News on Tuesday, the UK’s “indirect” exposure to the Greek financial crisis is potentially massive – £100s of billions. UK banks, insurance companies, and finance companies have underwritten, insured, and reinsured vast amounts of French, German, and Italian lending to Greece and its banks.
The Government likes to portray what’s happening to Greece as essentially a Eurozone problem. As the UK is not a member of the “Euro club”, Messrs Cameron and Osborne like to take a seat, if anything, beyond the back seat, or even no seat at all. Hence at last Sunday’s meeting of Eurozone finance ministers to discuss the Greek crisis, there was no UK official or Minister present.
Yet what happens to Greece may well impact the UK more than any other European country. No one actually knows the exact figure of Britain’s indirect exposure to the crisis. The FT today reports that the UK itself is exposed to the tune of £12.5 billion in government underwriting of Greek government borrowing. The only figure I can find detailing the UK banking system’s exposure to Greece is an overall exposure to the eurozone of £700 billion (FT), of which £300 billion is described as vested in “weaker Eurozone economies” – Greece, Portugal and Ireland. Our Business Correspondent Siobhan Kennedy tackled this issue a couple of nights ago and was told by one economist advising the IMF that default was “inevitable”.
French and German banks are the most directly exposed to Greek debt. British banks have underwritten or insured as much. So that there is a coalition of interest inside and outside the Eurozone not to see Greece fail. But find me an economist who does not forecast that Greece will default – their only dispute is when.
Fourteen Tory MPs from the 2010 Commons intake have today broken cover to urge David Cameron to get involved. He is at least today en route to Brussels for the regular European Summit. But a Downing Street source tells me the Prime Minister’s briefcase is filled with almost nothing on the debt crisis – “it’s their problem”, my source tells me. Instead, his brief concentrates on cutting red tape.
Most City analysts reckon that when Greece finally sneezes it will be Ireland and Portugal who will catch pneumonia. The UK’s exposure to their debt dwarfs our Greek woes. An Irish and/or Portuguese default would, my city source assures me, collapse the UK banking system and our economy with it – one of the minor downsides of being at the hub of global insurance, reinsurance, and underwriting.
Hey! You at the back, stop yawning! Greek debt is not a bore. It has the potential to affect every man, woman and child in the UK. Don’t worry though – Nick Clegg, visiting Rio, says he wants each of us to be given shares in our nationalised banks – RBS and Lloyds…the very banks that are in the maelstrom of the UK’s exposure to Greek, Portuguese and Irish debt.