The Treasury is working on contingency plans for the disintegration of the single currency that include capital controls.
The preparations are being made only for a worst-case scenario and would run alongside similar limited capital controls across Europe, imposed to reduce the economic fall-out of a break-up and to ease the transition to new currencies.
Officials fear that if one member state left the euro, investors in both that country and other vulnerable eurozone nations would transfer their funds to safe havens abroad. Capital flight from weak euro nations to countries such as the UK would drive up sterling, dealing a devastating blow to the Government’s plans to rebalance the economy towards exports.
Earlier this year, Switzerland was forced to peg its currency to the euro to protect the economy after a massive appreciation in the Swiss franc due to spiralling fears over Europe.
The plans emerged as Spain’s new finance minister Luis de Guindos warned the country’s economy was set for negative growth in the last quarter.
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See Also:
Euro Outlook 2012 – Do or Die?
The challenges facing EU and US
FOREX-Euro struggles, at risk from Italy auction
Afternoon Updates:
12:03 pm EST, December 27th, 2011 — Europe: Bye, bye, AAA
12:06 pm EST, December 27th, 2011 — Eurozone banks park record amount of funds at ECB
12:09 pm EST, December 27th, 2011 — Denmark to take on diminished rotating presidency
12:12 pm EST, December 27th, 2011 — Hannan: Poor people! Stop paying taxes!
12:14 pm EST, December 27th, 2011 – European financial woes likely to cut apparel exports by 15%
12:18 pm EST, December 27th, 2011 — Treatment of Motherhood Illustrates Divides in European Union