The Economist Intelligence Unit says that the risk is roughly one in seven that Europe’s ongoing debt crisis will push member nations to abandon the shared currency, raising the spectre of the “effective end of the euro area.”
“This scenario posits that sooner or later, the cement that has held European countries together for decades cracks and the progression towards ever-closer union comes to a spectacular halt,” said researchers, who gave it a likelihood of 15 percent.
Attempts to restore investors’ confidence in debt-laden nations’ ability to honour their commitments could see the weaker eurozone members grow ever wearier of the demands placed on them, according to a new report from the research body.
The EIU concluded that either peripheral indebted nations – such as Greece, Ireland and Portugal – will grow tired of the harsh reforms imposed on them, or the richer nations – such as Germany and France – would become more reluctant to support their struggling partners.
The pressure on politicians from voters at home to leave the single currency could then become “irresistible”, resulting in either stragglers like Portugal or Ireland or a robust economy such as Germany deciding to leave, before other members follow suit.
The report’s central scenario – put at a 50pc probability – is that the eurozone will muddle through the crisis, with the most indebted countries accepting the harsh reforms needed to cut their deficits and stronger members reluctantly offering enough support to contain the crisis.
However, even this relatively benign resolution of the crisis expects some countries to default on their debt, with Greece seen as the most likely. The least probable scenario, put at a 10pc likelihood, is that the eurozone will undergo a resurgence as countries manage to rein in their public finances, researchers thought.
The European Central Bank is on Thursday expected to raise interest rates to fight inflation across the eurozone, but there are fears it will make conditions even harder for the struggling periphery. [via The Telegraph (UK)]