European debt crisis ‘could spark second crash’ says Neil

POLITICAL pundit and journalist Andrew Neil warned last night that there is a danger of a second credit crunch if the European sovereign debt crisis spirals out of control.

Addressing business leaders at an Ernst & Young Entrepreneurs’ Forum in Manchester Neil said there is a  70/30 chance that Greece will default on its debt repayments, and that Ireland and Potugal could follow suit.

“The problem with Greece Ireland and Portugal is not one of cash flow – but that they are basically bust. There could be serious affects on British banks with Ireland, not really with Greece and Portugal.

“It would hurt more if Spain joins the basket cases, and the British banks are seriously exposed to Spain.

“If this was to happen I believe it has the potential to be as disastrous as the collapse of Lehman Brothers – the impact on banks’ balance sheets would be just as severe as the US toxic waste from sub-prime.”

Neil, the former editor of the Sunday Times, said there it was not a “foregone conclusion” that this doomsday scenario will unfold.

In a hard-hitting assessment of the economy and the Coalition Government, he said he feels that more could be done on the “supply-side” to help businesses grow – but the private sector is creating more jobs than are being lost in the public sector.

“The trouble is though, that the jobs that are being created are not going to young people – employers are happier to recruit either older, more experienced people over 50, or hard-working, motivated immigrants, so there is clearly a systemic weakness in our labour market.

“Employers are finding the under 25s don’t have the right skills or attitude, which is a concern.”

He said since last December just 8,000 new jobs had gone to under 25s, while 220,000 older workers had been recruited.

Neil said the Government was pinning its hopes to its deficit reduction policies, and it is too early to say what the outcome will be.

“If by 2014 the economy is moving forward and the deficit is down and the squeeze on living standards we’re seeing now has finished I can see tax cuts and Osborne and Cameron handing us all discounted bank shares in RBS and Lloyds to make voters feel better.

“If we are in this scenario, there’s every chance the Conservatives will form a majority government. If the deficit reduction plan does not work, then Labour will win the next election.”

Asked by Robert Hough, chairman of the NWDA, about whether he feels the Japanese nuclear disaster has derailed hopes for investment in a second-generation of nuclear plants in this country, Neil said: “I think Japan has delayed the introduction and it may make it more expensive, but the political will is there from the Tories and Labour and the alternatives in terms of wind and renewables aren’t really there.”