UK is more vulnerable than any other country in Europe to the worsening of the crisis in the euro area. British economy could get very affected by a possible division of the monetary union, writes Daily Mail. Because of its massive exports to countries in the monetary union and strong banking and financial ties with this region, UK is in the top of countries exposed to the euro area, prepared by Maplecroft, a risk management company. Britain “leads” the top of 18 countries extremely vulnerable to monetary union exposure, followed by Poland, Hungary and Czech Republic.
“The impacts of these economies include decreased industrial production, loss of competitiveness, sovereign debt,” reads Maplecroft report, quoted by Daily Mail. Concerns over a full-fledged crisis in the euro area have occurred during this week, when the euro and European markets were hit by the collapse of finance from the Iberian region and the increase of borrowing costs for Italy and Spain. Moreover, recent research shows that UK doesn’t have the financial ability to recover if the euro area crisis worsens, mainly because of strict austerity measures to reduce the budget deficit, imposed by British Chancellor George Osborne.
Nearly 50% of the UK trade activities are carried out in partnership with countries in the euro area and a collapse of strategic states such as Italy or Spain would lead to a decrease of 7% of British trade. Losses would amount to about 95 billion pounds in English banking sector. Other factors taken into account in market research is UK’s exposure, worth 380 billion pounds in European banks and sovereign bonds, with direct foreign investment in the euro area, representing 27% of GDP. Also, Britain’s being in the top of countries threatened in case of an European division show the concern of international groups about the resilience of the UK economy. The fiscal deficit of almost 8% of GDP and net public debt of nearly 80% of GDP are seen as weaknesses that limit the responsiveness of UK in response to fiscal crisis in the euro area. According to Maplecroft, UK should immediately diversify its exports and investment to reduce over-dependence on the other European countries.
Also, countries in Central Europe are among the 17 economies classified under extreme risk in the event of division of the euro area. BRIC (Brazil, Russia, India and China) are also quite exposed to the sovereign debt crisis in Europe, according to Maplecroft statistics. Of the four BRIC countries, China is the least exposed to the crisis in the euro area.
Last but not least, many African countries, dependent on trade and business ties with countries in the euro area could be greatly affected by a possible collapse. Mauritania, Mozambique and Morocco are considered highly exposed to the eurozone debt crisis. Tunisia, Egypt, Libya, followed closely by Russia, Brazil and India were also included in the high risk top. “Countries in danger would have to diversify their business, trade relations developed in Europe, heading to Middle East countries or focusing on domestic markets,” said Mandy Kirby from Maplecroft.
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