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FCO has advanced plans for Eurogeddon, say papers

By CHRIS GRAEME [email protected]

The Sunday Times claims that the British Government has drawn up plans to evacuate British citizens from Portugal and Spain in the event of a banking collapse.

The evacuation would be organised on the ground in both countries by the Foreign and Commonwealth Office and hence the British embassies and consulates if, for any reason, Portugal and Spain were forced to abandon the Euro.

The same would go if the euro currency collapsed after measures designed to shore up the besieged currency against market speculation, failed.

The paper claimed on Sunday that the FCO is “drawing up plans to rescue thousands of British expats from Spain and Portugal in the event of a banking collapse”.

The article adds that the contingency plans are being prepared in case that the deal struck two weeks ago in Brussels fails to save the euro from further turbulence and collapse.

But on Monday a British Embassy spokesperson in Lisbon played down the reports.

“It is normal for all embassies to have contingency plans. There is no particular focus on a contingency plan to evacuate British nationals from Portugal. The source(s) quoted in the UK media article did not represent the official Government position.”

Market contagion

Credit rating agencies like Standard & Poors and Fitch have already warned that the measures taken earlier this month at the emergency summit may not be enough to prevent further market contagion to Spain and Italy.

“Officials from the Foreign Office and the Treasury are preparing contingency plans to help thousands of Britons to get home if banks in Spain and Portugal – two of the most vulnerable eurozone economies – fail and people are unable to get at their money.”

Two weeks ago, one Portuguese business daily published an outline of what would happen in Portugal if the euro failed.

The Jornal de Negócios stated that the Portuguese government would make an announcement to return to the Escudo after emergency contingency plans had already been set in motion.

These would include the banks being closed and then nationalised and Portuguese frontiers being temporarily closed to prevent an exit of capital from the country.

It estimated that savings held in euros in Portuguese banks would suffer up to a 50% devaluation overnight.

Strict limits would be placed on the amount of cash per day that could be drawn out from ATMs and existing euro notes would be stamped with an escudo stamp until the new currency had been printed and distributed.

Portuguese economist João Duque said in an interview with TSF Radio Notícias in August that if the eurozone countries didn’t do more to harmonise tax and budgetary systems within the EU then the single currency would end.

The president of ISEG and adviser to the government agreed with the IMF’s former deputy director, Desmond Lachman, that Portugal’s exit from the euro was “inevitable” and was quoted in the newspaper Expresso as saying that the “euro had its days numbered”.

Nightmare scenario

The Sunday Times says the treasury confirmed that plans to give emergency aid to Britons if eurozone banks collapse were “being prepared” but has not given details.

The Foreign Office admitted it was preparing for a “nightmare scenario” of thousands of “penniless Britons sleeping” at Lisbon, Faro and Sá Carneiro airports with “no means of getting home”.

They are also reported to be discussing chartering planes, ships and coaches to evacuate expats.

Two weeks ago the Daily Telegraph published an article stating that British embassies in the eurozone had been told to “draw up plans” to help British expats through a collapse of the euro currency amid new fears for Italy and Spain.

The Daily Telegraph reported that the Foreign Office was “preparing for riots” in the event of a euro collapse.

“Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis” it reported.

The Treasury confirmed in November that “contingency plans for a collapse were under way”

It stated that a senior minister had revealed the extent of the Government’s concerns, saying that Britain is now planning on the basis that a euro collapse is now a “matter of time.”

“It’s in our interests that they keep playing for time because that gives us more time to prepare,” the unnamed minister told the Daily Telegraph.

Deflation threat

If the euro collapses in 2012 several things could happens. Firstly there could be runs on the banks, which is why banks would have to be nationalised and withdrawals strictly controlled.

A lot of capital would fly to the United States dollar and perhaps the Pound Sterling and other potentially strong currencies to buy denominated assets in those currencies.

The United States dollar would stand to gain because it has been the reserve currency of the world for the past 100 years.

But as the value of US dollar, US treasury bonds and gold value rises, stocks and commodities could fall and cause deflation. This deflation happened in the 1930s.

At the end of November, the Irish Times published an article based on an interview with a minister from that country who warned that Ireland would return to the standards of the 1950s if the euro collapsed.

Its Minister of State for Europe, Lucinda Creighton was quoted as saying that the collapse of the common currency would result in the “automatic end of the bailout deal with the troika; an immediate funding crisis, cuts of 50% in public pay, capital flight, a brain drain, and the drying up of all foreign investment in the country.”

The same would be likely to happen in both Portugal and Spain given that Eurogeddon scenario.

Stock markets fell steeply last week in both Europe and the United States on renewed worries that Europe’s sovereign debt problems cannot be contained and will cause the collapse of several eurozone banks.