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While the focus within the eurozone is directed on the highly unlikely succession of Greece, Portugal, Ireland and Spain, perhaps more attention ought to be paid to the far more predictable sterling crisis that might even result in a ditching of the pound sterling.

Times of financial crisis are often periods of forced action and major realignments. It is next to unthinkable that the proud British nation will willingly give up its currency. But if it appeared the best of a bad set of alternatives then it might do so.

Debts

What could happen to make things that bad? Well, it is no secret that the UK has by far the worst balance sheet of any major nation with a debt to GDP ratio in a class of its own.

Its response to the global financial crisis – yet more borrowing and printing money – has only made this problem worse and not better. Sterling has been devalued in global financial markets despite the pressure on rival currencies at the same time.

Coming up this year is a possible UK domestic political crisis that could seal the fate of the pound. A hung parliament – with no party commanding an overall majority – would leave the ship of state without a rudder in perilous global currency markets.

The rats would abandon the sinking ship and take sterling down with it. But events may not have to be this dramatic.

Age of austerity

The most likely replacement for Gordon Brown’s discredited crew is a party that will quickly go about slashing UK public spending. Yet without this prop the economy will rapidly sink back into a recession – again hardly a vote of confidence in the national currency.

If it becomes a choice between years of austerity and devaluation and joining the euro then even the most anti-european of europeans will reluctantly begin to look to the European Central Bank for a solution. After all, joining with a devalued currency would be an one-off opportunity to secure an once-in-a-generation boost to British productivity.

Would the ECB welcome a bankrupt Britain back into its fold? Given its record for haute politique the ECB would likely take a longer term view and welcome the return of the prodigal son whose gambling in financial markets proved its undoing.

Disclosure: No positions

Source: Will Pound Be Forced to Join Euro in a Sterling Crisis?