Greek debt could hurt Britain’s small firms
King offers reassurance – but says lending system is “still failing”
Greece’s debt crisis could trigger a full-blown banking collapse – and small businesses could bear the brunt.
That is according to the Bank of England, which has been locked in talks with a House of Commons committee over the consequences of Greece’s financial strife.
Britain’s banks have little direct exposure to Greece; however some may have loaned money to banks in France, Germany and America, which will suffer hugely if Greece defaults on its debts.
Adam Posen, an external member of the Bank of England’s Monetary Policy Committee, told MPs that, if a Greek debt default precipitated a chain reaction across the world’s banking community, Britain’s banks might retreat – offering only “very gilt-edged lending.”
Posen added that Britain’s small firms are “particularly vulnerable” to global banking contractions, and concluded:
“If there were to be a financial problem in the euro area or, say, through the US banks, that would probably reduce liquidity for small and medium enterprises in this country.”
Sir Mervyn King, governor of the Bank of England, reassured the Commons committee that systems are in place to deal with the sort of global banking crisis which led to the recession in 2008.
According to King, the government is far better placed to lend money to ailing banks now than it was three years ago.
However he added that, in the UK, “lending to businesses by banks is still falling.
“That is not an environment in which it is easy for small businesses to operate, and clearly that is a concern for the long-run health of the small and medium-size sector.”