Economists cast doubt on survival of the Euro

A leading independent economics centre has cast doubt on the survival of the Euro and says that to keep it in its current form would require cuts in consumer spending of 15% or more in Ireland, Greece, Spain, Portugal and Italy.

 Such cuts would be greater than the fall in consumer spending faced by the UK in World War Two, according to a calculation contained in the latest issue of Global Economic Prospects from the Prospects Service of the Centre for Economics and Business Research (Cebr).

The report argues that for the euro to survive in its current form, five things need to happen: German growth needs to be 3% plus for at least four years; A European bail out fund sufficient to bail out Spain and Italy needs to be constructed; a system whereby the European Union has a some control over economic policy in the weaker economies needs to be constructed and encapsulated in a new treaty; government spending in the weaker economies needs to be cut by around 10% of GDP; and living standards in the weaker economies need to be cut by on average 15%.
 
However, the report argues that making all these things happen at the same time is unlikely to prove either politically or economically acceptable.
 
‘There is no modern history of falling living standards in peacetime on the scale necessary to keep the Euro in its current form. Indeed, the scale of the cuts necessary was only just achieved in wartime. This is why I think there is at best a one in five chance that the Euro will survive as it is,’ said Cebr chief executive Douglas McWilliams, co-author of the report.
 
As a result of the potential problems for the European economy, Cebr has revised down its forecast for world GDP growth.
 
Meanwhile former UK chancellor Alistair Darling says that Germany needs to do more to save the Euro. He told Sky News that the eurozone will reach a crunch point in 2011 when Germany will have to step in to help smaller countries.
 
‘My guess is that we will come back to this at the beginning of next year and that is when I believe eurozone countries are going to have to recognise that if you have a single currency there’s huge benefits but also there is a price when you go through difficult times,’ he said.
 
‘We are going through some very difficult times at the moment and Germany has to recognise it’s got to help some of the weaker economies get through this,’ he added.

Find out more about the eurozone and euro crisis with Investment International guides:
 
Currency war report - read here

Eurozone Crisis report - read here