Euro collapse 'possible' amid deepening divisions over bail-out

It is feasible that the euro will not survive the current sovereign debt crisis sweeping Europe, one of the Treasury’s leading independent forecasters has said.

Herman Von Rompuy – Reuters image

Philip Aldrick
Telegraph

Under questioning from MPs on the Treasury Select Committee, Stephen Nickell, a member of the Office for Budget Responsibility (OBR) and a former Bank of England rate-setter, said a collapse of the single currency was “a possibility”.

Asked more broadly about the sustainability of currency unions, he added: “The general consensus is that sooner or later they fail for one reason or another – but that doesn’t mean to say it always happens.”

His comments came as deep divisions in the eurozone threatened to drive Spain, Portugal and Ireland into more difficulty.

Attempting to defy Germany, the eurozone’s powerhouse and the nation that will provide the bulk of any rescue fund, Belgian Finance Minister Didier Reynders called for the €440bn bail-out fund to be expanded, while Luxembourg Finance Minister Jean-Claude Juncker and Italian counterpart Giulio Tremonti outlined proposals for a joint European government bond.

However, Germany, the Netherlands and Austria on Monday pitched themselves against weaker member states by insisting the rescue package should not be increased. Finance ministers from the 16 member nations were debating the bail-out plans late into the night.

Mr Juncker and Mr Tremonti’s “E-Bonds” would be sold by a European Debt Agency, created as early as this month, to finance as much as 50pc of the issuances by EU members. For troubled members, like Ireland and Portugal, it could fund the entire bond issue.

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