Argentina and a eurozone breakup

Sigh! Some readers, commenting on my column for this morning's Daily Telegraph on the eurozone crisis, say the arguments are right but I've reached the wrong conclusions in thinking that the best outcome for the UK is for Europe to move closer towards fiscal union.

Actually, I didn't really say that but what I did argue is that the consequences of a disorderly breakup or series of defaults would be economically catastrophic for both Europe and us here in Britain. There is good reason to doubt the legitimacy of the estimates recently produced by UBS. I too don't think the effect would be that large (up to 50pc of GDP for weaker countries. UBS says), but we are only arguing about differences of degree here.

Mass liquidation would be the order of the day, which might be OK if you don't work, own agricultural land and have all your savings under the bed in gold bars, but for everyone else would be an economic calamity to match that of the 1930s, and we all know what that led to.

As I say, once the omelette is made, it cannot be unscrambled without consequences. Comparisons with Argentina, which is now apparently booming again after abandoning its dollar peg, are invalid. For starters, the immediate consequences for Argentina were horrific – a collapse in GDP, the destruction of middle class savings and pensions, and so on.

But the real point is that Argentina was not in a currency union, which meant that the banking crisis associated with the collapse of the sovereign was largely confined to Argentina. So called "spill over" effects were limited. In Europe, the banking system is now so heavily integrated that for one part of it to go down imperils the rest. Credit across Europe would contract violently, causing a depression.

What is more, Argentina devalued and defaulted against a backdrop of relatively benign external conditions. The world economy was growing strongly, and a commodities boom came along to supercharge the recovery. None of that's likely to be true for the European periphery, which in any case, is in far worse shape in terms of the size of national debts and current account deficits than Argentina was back then.

I hope that answers some of my critics.