UK Politics

Euro crisis: Why Whitehall dare not mention the C-word

Greek flag flying in front of the Parthenon in Athens
Image caption What happens in Greece is likely to have major repercussions for the rest of Europe

Outside of the corridors of power, it is impolite to utter the "c-word" - contingency.

Plans have been drawn up in Whitehall not just to deal with the side effects of a potential Greek exit from the single currency but also to try to immunise the UK from the effects of contagion.

The official line is: "The government is undertaking extensive contingency planning to deal with all potential outcomes in the euro area". And that's it.

Downing Street believe it would "not be sensible nor prudent" to say more.

And, rather like the mention of Macbeth for thespians, government officials don't like to mention contingencies in case something bad happens as a result.

But away from the public gaze, the Cabinet Office is providing the secretariat for cross-departmental contingency planning in the event of a crisis.

A Whitehall source says this is much the same model that was used to keep abreast of the ash cloud crisis two years ago.

This is based on cross-departmental input but with one department - in that case, it was Transport, this time it is the Treasury - nominated as being in the lead.

Self-fulfilling prophecy

Squeezing some blood from the stone of state, it has become clear that a range of different scenarios are being discussed.

A Greek exit, while not seen as desirable by officials or ministers, is not the most dramatic. It's a relatively small country and our banks - unlike some other EU countries - aren't hugely exposed to Greek debt.

But if a Hellenic departure from the euro led to less - rather than more - confidence in the economies of some of the remaining members of the single currency, then there is the risk of the crisis spreading. A run on Spanish banks would, for example, be seen as much more serious.

Hence the reluctance to talk up the potential for a crisis.

Image caption In a worst-case scenario, contagion could spread to other countries such as Spain

It is, to an extent, the role of senior civil servants to predict the future and advise ministers accordingly - but a self-fulfilling prophecy is something they want to avoid.

At the moment the government, publicly, is urging eurozone countries to follow our lead and to do more to recapitalise their own banks. Why? Well in part because of their private fears.

Weak eurozone banks could spell further trouble for British banks.

Under these circumstances, the UK may have to contemplate a further recapitalisation -a mini bailout -here to ensure lines of credit to business do not contract. But talk of this might spook the markets - and would not exactly bolster business confidence either.

One source said 'we would have to look at the level of capitalisation against a bank's ability to lend and see if there is an appropriate balance' but Downing Street's belief that it's imprudent to discuss such scenarios openly does seem to make sense.

Bank exposure

If Greece were to leave the European single currency, then logically and prudently UK banks might want to lessen their exposure to debt in other 'weak' economies - and this could, of course, cause greater weakness as a result.

But, as the Labour opposition believe it's better if Greece stays in the Euro, it will not be pressing the government to speculate about what happens if it doesn't.

The prime minister himself shows no such reluctance when it comes to exhorting other EU countries to have contingency plans in place - for example, he has talked of a stronger firewall (built with German cash) for the remaining Eurozone countries, and a longer time frame for some to get their debts down.

That's because this is a key part of any contingency planning for the UK, as these measures would help guard against some of the scarier scenarios here such as a bank bailout mark two.

Of course there could be a political as well as an economic reason for keeping the details of our homespun contingency planning confidential. Our trade with other EU countries was down 3.3% over the past year and it was confirmed on Thursday that the UK economy is back in recession.

So there is a danger that any discussion of what would happen under the not exactly fanciful scenario that trading with the eurozone could further deteriorate might, in turn, bring more pressure to bear on the government to come up with a Plan B for the economy.

Currently the line is that there will be no further let-up in getting the deficit down.

Tourists and expats

But a Greek exit from the euro would not just have political and economic consequences - it could have highly personal implications for British tourists and expatriates.

Image caption Plans are in place to help tourists but mass evacuations are not anticipated

The Foreign Office prides itself on contingency planning and officials have discussed a range of possibilities and probabilities.

Sources admit there could be serious issues if tourists cannot get money out of, say, Greek banks - or for retired expats who have their pensions paid through, say, troubled Spanish banks. While they say they have plans in place for extensive "consular challenges", again they are reluctant to say exactly what they are.

However, any talk of mass evacuations of Brits from the eurozone is regarded as over the top and their extensive planning doesn't extend to that.

Doubtless, Deputy Prime Minister Nick Clegg has seen the various scenarios which Whitehall officials have been working up.

Perhaps that's one of the reasons why, in his speech in Berlin on Thursday, he said: "Let me challenge the fashionable assumption being whispered behind cupped hands - that for some countries, leaving the euro wouldn't be that bad. That actually, a Greek exit now would be in everyone's best interests.

"No rational person interested in the wealth and wellbeing of Europe's citizens could advocate taking such a risk: not with Greece's future, or our own."

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