According to a report out today, the eurozone financial system is heading for another crisis and unless the UK leaves now on a unilateral basis, we could be on the hook for billions of bail-out money.

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The Eurozone financial system will fall off a cliff by 2021 at the latest and could leave the UK exposed to up to €441 billion in liabilities to prop up the single currency, says a new report by Bob Lyddon for Global Britain.

And the author of "Why the Eurozone's Fate Makes an Immediate Brexit Vital" says:

"This all derives from near-criminal irresponsibility by the UK's negotiators."

Because the Withdrawal Agreement does not free us of these potential liabilities.

In a foreword to the report, the former Brexit Secretary, Steve Baker says:

"This alarming report exposes the huge contingent liabilities with which the UK will be saddled if we accept the negotiated Withdrawal Agreement. Once again we see the astronomical financial problems created across Europe by poor-quality rules imposed from the top down on a continent. The Eurozone will end in tears and we must not be shackled to it at the time. I congratulate the author."

So where does this date of 2021 come from and why is it so important?

This is the time, says the author, by when the financial markets will come to "…realise that compliance with the EU Fiscal Stability Treaty is unattainable."

This is the pact that all Eurozone countries signed up to saying they would lower their debt to GDP ratios to below 60% by the year 2030 and keep it that way until 2050. This would make the Euro a truly single currency as all debt across the eurozone would be priced the same and given the same credit risk.

The trouble is that the Debt-to-GDP ratios of Italy, Belgium, France, Cyprus, Greece and Portugal are all above 95% and only Greece has a current budget surplus. And all have different credit risk ratings, with some verging on falling out of the investment grade category. Italy for example has a debt to GDP ratio of 130% and rising and a credit rating of Baa3.

So it appears that there is little hope of this convergence happening.

And if this harmonised debt to GDP ratio is not met across the Eurozone the author says:

"….the situation since 1999 to date becomes the entrenched and accepted norm: that there are as many forms of Euro central bank money as there are Eurozone Member States – times two because the credit risk on the government and on its central bank may not be identical, and plus one more because the notes are the liability of the ECB."

That means, he says, that the Euro is a synthetic currency and it would be shown not to be a single currency, but several. And that would pull it and the EU apart.

And the only way to sort this out says the report, would be for those Eurozone countries with remaining borrowing capacity to max out to the limit allowed by the Eurozone, right now and redistribute it so as to re-set everyone to the same level, in the hope that everyone would then work to reduce it down further to the required 60% in their own respective countries by 2030.

But to do this properly would take about a trillion Euros as reflected by the TARGET2 imbalances, and the only way to do that would be to ensure that the biggest non-euro countries like the UK, Denmark and Sweden are also roped in at some stage.

And that would mean the UK contributing €230.5 billion for just this re-set, which would take the UK debt to GDP ratio back up to 96.6%.

But the report also says that a crisis could well occur sooner, as the whole Eurozone is so fragile.

As the report says, the only sensible option open to the UK is to leave the EU unilaterally right now without a withdrawal agreement.

Otherwise we are firmly on that very expensive hook.

Sources:

https://globalbritain.co.uk/wp-content/uploads/2019/06/GB-paper-High-Financial-Risks-V3-FINAL-28.06.19-.pdf

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