The best result of the euro crisis in Greece would be a gradual reduction in the cost of living rather than a traumatic exit from the common currency, according to Barclays’ chief economist.
Dr Brian Clark told the annual Barclays Travel Forum in London on Tuesday that a situation similar to the banking collapse in Argentina in the 1990s would be a disaster.
“That was a traumatic experience. You had major civil unrest, you had a major banking collapse and you basically had a non-functioning economy for some time.
It became very difficult. It was not the sort of place you wanted to go on holiday.”
Clark said a Greek exit from the euro would see the newly restored Drachma devalue very quickly, raising questions about whether Greece would be able to afford essential items like fuel.
He added it would also raise the possibility that there would not be any banks in which visitors could change money.
“The best outlook for holidaymakers would be if Greece stayed in the Eurozone and you could have an internal devaluation, not through the currency but through prices falling.
“This means you would still be able to come to a country with a stable currency but see prices in hotels and restaurants having to fall. That, to my mind, would probably be a better scenario.”
Clark said he thought there were a number of populist political parties in Greece making lots of promises but that the true implications of a euro exit, a prospect he described as “frightening”.
Although this would not necessarily directly impact the UK, the economic fallout would have an impact on this country due to UK exports remaining heavily reliant on Europe.
Clark painted a downbeat picture of the prospects for future economic growth in the UK in the near term saying: “We are not in for a rapid growth spurt this year.
“We expect consumer spending to grow a little but only on the margins. We do see the consumer and investment side of the economy gradually picking up next year as the economy improves.”
Clark said this would go some way to offsetting the impact of the government’s austerity programme, the impact of which has only just started to be felt.
Inflation will remain low meaning interest rates were also likely stay at the current historically low levels, said Clark, and unemployment is not expected to hit the highs of previous recessions.
But Clark added: “We are looking at a fairly slow recovery. It’s going to take a while for us to get back to where we were before the recession.”
Following the recent presidential elections in France, Clark said a growth agenda was gaining traction in Europe, something he welcomed. “It’s not just about debt, it’s also about income. I think you do need to have a bit of a balance between austerity and growth and that’s the argument going on in Europe now.
“Infrastructure investment will generate short-term growth but will also form the foundation for future growth. There is talk of that happening here in the UK.”
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