As the troubled euro marked its tenth anniversary this weekend, the UK’s Centre for Economics and Business Research (CEBR) said there was a 99 percent chance that the euro currency would not survive the next 10 years and also predicted that Greece and Italy could potentially abandoning the euro in 2012.
“It now looks as though 2012 will be the year when the euro starts to break up.” the CEBR said.
The think tank added that Britain could well be in recession already, with growth likely to contract in the final quarter of 2011 and the first quarter of 2012.
But, it suggested that conditions could improve later in the year as inflation falls and the squeeze on real incomes eases.
“It is not a done deal yet, we are only forecasting a 60pc probability – but our forecast is that by the end of the year at least one country (and probably more) will leave”, said Douglas McWilliams, the CEBR’s chief executive.
He added that Greece seemed “pretty certain” to leave the euro and it now looked “more likely than not” that Italy would follow suit. Both countries have been rocked by the festering debt crisis and have to implement harsh austerity measures which some fear could stifle economic growth.
“It’s become clearer in the last year of the virtual political impossibility of doing the deal that would be necessary to make the euro survive,” said Mr McWilliams.
“To make the euro survive in the longer term, it needs countries to be sufficiently competitive to have some economic growth to be able to pay off their debts”.
He added that a lack of economic growth to improve the debt position was the “the most likely thing that will eventually make the euro collapse; now it’s pretty well certain that it will”.
The disintegration of the euro currency could have a devastating impact on Europe. The CEBR believes it could knock about a percentage point off the UK’s growth and HSBC economists have warned that it could trigger a global depression.
The prediction of the euro’s demise came as European leaders yesterday warned of a tough year ahead.
Angela Merkel, the German chancellor, said she would do “everything to strengthen the euro” and Giorgio Napolitano, Italy’s president, urged people to make sacrifices to prevent financial collapse.
As the crisis weighs on countries across Europe, economists are predicting that recession will return to the region next year, with the CEBR forecasting that the Uk’s GPD will decline by between 0.6 percent and 2 percent.