'Sterling crisis' could hit Britain

 By Philip Aldrick, Economics Editor

In a swipe at the UK, Jeroen Dijsselbloem, the Dutch finance minister who took over as president in January, said that Britain’s high national debt and persistent budget deficit had left it vulnerable to attacks from currency traders. 

His comments will not be welcomed by the Coalition, coming just days before the Budget and with the pound already in freefall, having dropped from €1.23 to below €1.16 since the start of the year. It will also invoke ugly memories of the last sterling crisis, when the pound crashed out of the ERM in 1992. 

Speaking to students at the University of Amsterdam, Mr Dijsselbloem said the UK was a much riskier proposition than the US due to the state of the public finances, despite its equally high deficit and the battles in Washington over the need to cut spending. 

“England is vulnerable, it may be faster on the currency speculation. That has happened in the past. A new sterling crisis could happen again,” Mr Dijsselbloem said. 

His intervention is reminiscent of Christian Noyer’s attack on the UK in late 2011. The head of the French central bank, who sits on the European Central Bank, said at the time that Britain should lose its AAA sovereign credit rating before France. 

“[The ratings agencies] should start by downgrading Britain which has more deficits, as much debt, more inflation, less growth than us and where credit is slumping,” Mr Noyer said. France was stripped of its top-notch rating the following month – a year before the UK lost its AAA status. 

Mr Dijsselbloem’s comments will also risk further damaging relations between the single currency bloc and the UK at an already sensitive time. George Osborne is trying to negotiate new terms for European Union rules that will cap bankers’ bonuses at a maximum of twice salary levels. 

Senior politicians, including London mayor Boris Johnson, see the cap as a straightforward attack on the City. 

Mr Dijsselbloem has already run into controversy in his handling of discussions over a potential bail-out for Cyprus.