Euro pain is not over yet

The UK may have emerged from the worst of the shocks caused by the failure of the banking system but there was a reminder yesterday, if any were needed, that dangers still remain as the Bank of England’s new financial watchdog warned the eurozone debt crisis now poses the biggest single threat to domestic stability.

Although the exposure of UK banks to debt in countries such as Greece is limited, the knock-on impact on other countries could be severe if the crisis continues to worsen.

At least Prime Minister David Cameron offered some relief to UK taxpayers yesterday after winning his battle to keep Britain out of a second financial bail-out to Greece despite pressure from Germany for the EU to provide a rescue effort too.

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But risks that the UK will have to get involved in shoring up the Greek economy still remain and it is vital the eurozone countries work together to prevent a collapse.

The problems securing a new deal for Greece underline the inherent contradictions within the euro experiment. Thoughts on the continent must surely be turning to how to unravel the mess the single currency faces and there can be little doubt some countries will have to switch to an alternative if the whole venture is not to fail completely.

As the Bank of England’s governor Mervyn King pointed out yesterday, the UK economy will be hit hard if problems continue in the eurozone, which accounts for 40 per cent of UK exports.

While Mr Cameron is undoubtedly correct not to commit cash to the crisis – although there will be some outlay through membership of the International Monetary Fund – there may come a time when the British taxpayer will have its pockets picked again to sort out the unfolding disaster.

The creation of a free trade area in Europe with the common market in its original form was all very well in principle.

But as the euro debacle shows, there is only so far that integration can go in countries with very different economies, not to mention peoples and customs.

It cannot be right for the taxpayer to foot the bill for the euro’s failure. But if the worst happens, it may have to pick up the pieces – or risk even worse fall-out.

With the domestic economy apparently stagnant, the pain may continue for years to come.