One in five chance that the euro will survive in its current form, says Cebr report
Research report says consumer spending cuts of 15% or more, greater than those endured by UK consumers during World War II, need to happen in the PIGS if the euro is to survive in its current form.Anyone watching the political toing and froing as eurozone members procrastinate over boosting the coffers to rescue indebted weaker eurozone member states, must be tearing their hair out in frustration. As it clearly demonstrates, a single currency alone does not make for real monetary let alone political union.
The lack of widespread support for the Single Euro Payments Area (SEPA) project clearly demonstrates that national interests are still alive and well in the eurozone and that is what we are currently seeing playing out with some of the statements coming out of stronger member states like Germany appearing to suggest that weaker eurozone member states are on their own when it comes to fighting off the threat of contagion.
A report out today published by the Centre for Economics and Business Research (Cebr) suggests that consumer spending cuts of 15% or more will have to happen in the PIGS (Portugal, Ireland, Italy, Spain) which is even higher than those endured by UK consumers during World War II.
For the euro to survive in its current form, Cebr argues that five things need to happen:
- Germany's economy needs to grow by 3% plus per annum for the next four years
- A European bail-out fund big enough to bail out Italy and Spain needs to be developed
- The EU needs to develop a system whereby it has greater control over the economic policies of weaker member states
- Government spending in the weaker economies needs to be cut by 10% of GDP
- 15% cuts in living standards in the weaker eurozone economies
A number of these measures are unlikely to go down well with either the weaker member states or the stronger ones that have pooh poohed increasing the bail-out fund.
"There is no modern history of falling living standards in peacetime on the scale necessary to keep the euro in its current form," says Cebr CEO, Douglas McWilliams. "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."
Date Posted:10th December 2010