November 07, 2011 8:29PM
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A POTENTIAL eurozone breakup would cost the UK economy less than feared, with the collapse of the single currency giving British exports a boost in the long run, according to a study published Monday by the Centre for Economics and Business Research (CEBR).
The research suggests that the costs associated with Greece leaving the euro would lead to a two percent contraction in eurozone gross domestic product (GDP) next year, which translates to a 0.5 percent drop in UK GDP.
But CEBR says that the short-term pain would likely give way to long-term gain.
“We would expect that within about 30 months, growth will actually be faster than if the eurozone survives in its current form,” it said.
The prediction is supported by claims that a euro failure would boost currencies belonging to fiscally-sound countries such as Germany, thereby decreasing the relative value of the British pound and giving UK exports a competitive advantage.
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“After five years, we would expect the UK to be at least as well off if the euro breaks up as it would under the alternative scenario of holding it together,” CEBR added.
It maintains that the eurozone will survive the immediate debt crisis but forecasts that politically-unpopular austerity measures eventually will force the monetary union to break up.
The study was released as Greek politicians scrambled to form a new government that would enable the debt-stricken country to avoid bankruptcy.
European leaders were putting pressure on Athens to announce a new prime minister today before a scheduled meeting of eurozone finance ministers later in the day.
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