Tories warn of collapse of eurozone and danger of a depression as Germany is criticised for slow response
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George Osborne fears a run on the banks in Italy and other troubled eurozone members. Photograph: Fiona Hanson/PA
George Osborne said in his autumn statement on Tuesday that the Treasury is "undertaking extensive contingency planning" in response to the eurozone crisis.
The chancellor gave little detail of this planning. This was in line with the decision of the Office for Budget Responsibility (OBR) not to assess the impact on Britain's economic growth of a "disorderly outcome" to the eurozone crisis.
Behind the scenes Treasury officials are hard at work. They are losing sleep over fears of a run on the banks in Italy and some of the other troubled eurozone members. This is what one Treasury source told me:
The five to midnight scenario will be a run on the banks in Greece, Italy and Portugal. Spain is fine. There is already a drawdown from banks. But we haven't got to a run on the banks yet.
Sir Mervyn King, the governor of the Bank of England, highlighted concerns about banks in the eurozone in his evidence to the Commons Treasury select committee on Monday. But there are growing fears among members of Osborne's circle that the eurozone could break up. An article in Monday's FT by Wolfgang Münchau has concentrated minds. Münchau argued that eurozone leaders must agree a package of measures to shore up the euro by the time of the next European Council:
If the European summit could reach a deal on December 9, its next scheduled meeting, the eurozone will survive. If not, it risks a violent collapse. Even then, there is still a risk of a long recession, possibly a depression.
Münchau's suggestion of a depression set alarm bells ringing. One senior Tory, who is familiar with the chancellor's thinking, says:
A depression will mean we won't be able to take money out of holes in the wall.
The Tory believes people have not grasped the gravity of the eurozone crisis and its potential impact on Britain. The MP said:
The disaster will hit a lot quicker than people have realised. There is a good chance the eurozone will split up.
There is growing anger about Wolfgang Schäuble, the German finance minister, who is seen to be leading the charge in Berlin against allowing the European Central Bank to act as the lender of last resort for the eurozone. I blogged last month that Schäuble told Osborne not to use the eurozone crisis to try and repatriate EU social and employment laws. The MP said:
Wolfgang Schäuble is the most dangerous man in Europe. Born in 1942, he was brought up in the embers of post war Germany. He is going to have to end up writing a cheque for well over €1tn euros. It would have been a few hundred billion if Germany had acted sooner.
There is at least some cause for comfort. Gideon Rachman argued in the FT on Tuesday that a "grave economic crisis in Europe" would not lead to a repeat of the instability of the 1930s:
For all the parallels, I still cannot bring myself to believe that we are heading back to the 1930s.