Economist predicts major bust-up in eurozone

The managing director of Capital Economics also said the first signs of real economic recovery in the UK are likely to be seen next year, when the Yorkshire region could outperform the national average thanks to its manufacturing sector.

Mr Bootle, who is one of the City of London’s best known economists, and is also a specialist adviser to the House of Commons Treasury Committee, told the Yorkshire Post at some point at least one country is going to leave the eurozone and maybe far more than that.

He said: “There’s going to be a fundamental split I think between North and South [Europe]. It will either be a messy one in which case weaker countries like Greece leave, or it could be a more fundamental split whereby the powers that be realise they have made a mistake and they fundamentally try and change things. But one way or another I think it’s going to break.”

He was speaking to the Yorkshire Post ahead of a breakfast seminar, held by Deloitte at Thorpe Park yesterday, in which he gave an economic update to an audience of Yorkshire company directors.

Mr Bootle’s comments came after a tumultuous start to the week for the stock markets, caused by political uncertainty in France, the collapse of budget talks in the Netherlands, the news that Spain is back in recession and weak economic data for the eurozone.

Mr Bootle told the audience to expect “some sort of major bust-up” in the eurozone, which he said initially will be “extremely disruptive, it will be a mega financial crisis”. He added: “It won’t be good news for us, but out of all that I think something good can come.”

He said that the Euro project is “a failure”, but that politicians are failing to come to grips with this. “The markets have clearly realised this, and are attacking it at every moment, and still we don’t have a solution,” he said.

The UK Government has been “too much publicly in favour of keeping the eurozone together”, said Mr Bootle, who added: “And by contrast, I think that Britain’s interests lie in the eurozone breaking up.”

While Mr Bootle predicted that the UK economy is going to struggle over the next year, he said that next year he expects to see things getting better. “There were some signs over the last six to nine months the economy was gradually getting better. Unfortunately, they haven’t really been sustained, and although it’s too early to be sure, my guess is that this year will be another bad year.

“However, I do believe next year we will start to see things getting better, and in particular, I think a lot depends upon what happens to the inflation rate. I expect the inflation rate to fall a long way and if that happens, it starts to put money back into people’s pockets, and they are able to spend some more.” London aside, Mr Bootle commented that regional differences are much less than they used to be.

He said: “I’m struck by how similar most of the country is compared to when I first started travelling out to Yorkshire on business about 30 years ago. It’s still true, for instance, that Yorkshire has got more manufacturing but the difference isn’t that big and the trends are the same – the falling share of manufacturing over time, and the rising share for services and financial services as well.”

However, he said that his view of the future is one where UK exports do comparatively well, with manufacturing performing well within that.

Mr Bootle said: “I expect the growth of manufacturing to be faster than the growth of the economy overall over the next few years, in which case I think large parts of the North, including Yorkshire, will be quite well positioned in that regard. I expect to see them to do relatively well against the national average.”

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