A major new cross-party thinktank - the Centre for Brexit Policy (CBP) - has issued the warning over the eurozone in its first paper. It claims that the Covid-19 will transform the Brexit negotiating framework and expose toxic debt within the eurozone. Former Cabinet minister Owen Paterson will chair the CBP, backed by a cross-party team of directors including Labour MP Graham Stringer, DUP MP Sammy Wilson and former Brexit Party MEP Matthew Patten.
John Longworth, former Director-General of the British Chambers of Commerce, will be responsible for day-to-day management in conjunction with Senior Adviser Edgar Miller, also Convener of Economists for Free Trade.
CBP has concluded that the resulting slump caused by Covid-19 will blow the lid off deep-seated flaws inside the eurozone set up 20 years ago.
Once the UK leaves the EU’s framework at the end of 2020, this financial risk should be lower for the UK itself and the global financial market and it is more likely that the threat can be mitigated by collaborating with other global financial centres.
They warn that a recently published report identified that the foundation of the eurozone financial regulatory system is based on toxic country debt that is wrongly treated by the eurozone as riskless liquid sovereign debt.
Covid-19 has revealed deep-seated flaws inside the eurozone (Image: Getty)
The impact of the virus crisis on countries, such as Italy, could be that of a “financial Chernobyl” exposing the fatal flaws inside a currency union without the fiscal and monetary powers to cope with a huge drop in output driving thousands of European firms to the wall.
The experts say Britain is well placed to avoid the fallout from such a crisis because it opted to keep the pound and City regulators have long been taking actions that protect the global financial centre based in the UK.
But the UK must still take great care to avoid getting sucked into the looming eurozone financial crisis via liabilities to the EIB and other agreements with the EU. This should be a guiding principle in our Brexit negotiations and could potentially protect us – and the global financial market - from the actions of others.
Mr Longworth said: "Covid-19 has produced cause for another round of quantitative easing (QE) and will cause multiple pits of bad debt to deepen in Southern Europe.
“It is possible that the whole edifice could be teetering on the brink very soon.
“The entire economic and political raison d’être of Germany, especially, and of France, depends on the EU project and no doubt they will do everything possible to continue to defy gravity.
"It is not in our interest to see a precipitous collapse. We must, however, put as much distance between us and the eurozone as possible - it would not be wise to be in the same room with an explosion.
“The realpolitik of the massive bargaining tool this gives the UK should not be lost on us, just as the USA saw its opportunity at Bretton Woods at the end of World War II.”
Mr Patterson added: “The period of recovery could be long, but the countries which emerge the strongest will be those which can manage their own laws and affairs to suit their own circumstances. For all the hardships which we now face, we should not lose sight of the fact that regaining those kinds of freedoms was exactly why the UK voted for Brexit in the first place.”
