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BoE prepares for euro collapse

  • 29/05/2012
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David Cameron hosted a meeting with Mervyn King yesterday to prepare the Bank of England for the collapse of the euro and discuss contingency plans.

Measures could include cutting interest rates or launching more QE. A senior official for the Bank said the measures would “again play [their] part in mitigating the impact” of Greece or other countries leaving the single currency, the Telegraph reports.

The Prime Minister and Governor of the Bank also met with Lord Turner, the chairman of the FSA, and the Chancellor as fears grew Greece may be forced out of the euro if a coalition government cannot be formed to back austerity measures.

In Britain, ministers have already overseen extensive contingency planning to prepare for the possible break-up of the euro, the paper reports. These include asking banks to insure holdings in Greece and considering new border controls.

The head of the IMF suggested last week British interest rates may have to be cut to zero if the economic situation deteriorates. The Bank has already completed a £325bn quantitative easing programme and this may be extended again.

Yesterday, Dr Ben Broadbent, a member of the Bank’s monetary policy committee and former Treasury adviser, said the Bank was ready to intervene.

He said: “Were the still unlikely worst case risks in the euro area actually to be realised, then our own monetary policy would again play its part in mitigating the impact.

“While they are both necessary and effective, these domestic interventions have their limits. It remains the case that, for the time being at least, the most important policy decisions affecting the UK are being taken in other parts of the continent.”

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