A senior Bank of England official yesterday warned that the break-up of the
euro would "overwhelm" the UK as the global economy took a turn for the worse.
Adam Posen said Europe -- and in particular Germany -- would be
"ill-advised" to force Greece to quit the euro and let the single currency
collapse.
It came as Greek Prime Minister Antonis Samaras embarked on a four-day
charm offensive with a desperate plea for more time to deal with the country's
debts.
With time running out, Posen said: "If the eurozone were to break up it
would overwhelm the UK economy in ways we could not really do very much
about."
Treasury estimates suggest that the collapse of the euro could lead to a
7pc plunge in economic output in Britain -- worth pounds sterling 100bn.
Posen's warning came amid fears over the future of Greece and the health
of the global economy.
In the US, the non-partisan Congressional Budget Office said the American
economy will plunge into a double-dip recession if the looming 'fiscal cliff'
is not tackled, with the economy shrinking 0.5pc next year and unemployment
soaring above 9pc.
The Federal Reserve hinted it was ready to unleash another round of
stimulus if the malaise deepens.
Officials in Tokyo said Japanese exports were 8.1pc lower in July than a
year earlier -- the biggest slump in six months -- as shipments to Europe and
China tumbled.
Figures tomorrow are set to confirm that Britain is trapped in a
double-dip recession -- although the Office for National Statistics is
expected to say the slump in the second quarter of the year was not as bad as
the 0.7pc initially reported.
Posen said the UK economy was 'stagnating' but added that falling
unemployment indicated it was in a better shape than the official figures
suggest.
"We are not in complete recession as the private sector is adding jobs,"
he said.
The American economist, who joined the MPC in September 2009, said
soaring borrowing costs in Spain and Italy were "undermining the eurozone and
the world economy."
Referring to the European Central Bank's pledge to do 'whatever it takes'
to save the euro, Posen said: "I wish they would get on with it."
And with tensions between Berlin and Athens mounting, he said overseeing
a break-up would be 'a self-inflicted wound of huge proportions' for Germany.
Samaras will meet German Chancellor Angela Merkel and French President
Francois Hollande in the coming days having held talks with Jean-Claude
Juncker, head of the eurogroup, last night.
