EURO AT RISK OF COLLAPSE, SAYS TREASURY WATCHDOG AS ECONOMIC CRISIS SWEEPS CONTINENT

By Ruth Sunderland 7th December 2010

The Euro is at risk of collapse as economic crisis sweeps the continent, Britain’s independent Treasury watchdog warned last night.

‘General consensus’ is the currency unions ‘eventually fail’, said Professor Steve Nickell, a senior member of the Office for Budget Responsibility, as he was quizzed by MPs on the powerful Treasury Select Committee.

And the OBR’s chairman, Robert Chote, added: ‘We are not assuming a cataclysmic outcome for the eurozone but, as Steve said, monetary arrangements come and monetary arrangements go.’

Destined to fail? Leading economists point out that currency unions have a history of eventually collapsing

The admission by the leading economists came as eurozone finance ministers held an emergency meeting in Brussels to discuss possible measures to shore up the single currency.

Greece and Ireland have already been forced to accept bailouts – with Britain making its own £3.2billion direct loan to Ireland.

Warning: Professor Steve Nickell

There are fears Portugal and Spain may be next to go cap in hand for assistance from the EU and the International Monetary Fund.

Professor Nickell added: ‘Of course there is a possibility it will collapse, but at the moment it is not something to which I would assign a high probability.’

Both he and Mr Chote warned that the OBR had not incorporated into its forecasts any attempt at working out what would happen to the UK economy if the euro imploded.

Prof Nickell, a former member of the Bank of England’s Monetary Policy Committee which set interest rates, said he ‘would be quite happy’ to do so ‘if we felt it was a real concern’.

The OBR may have to take into account ‘very low’ growth in the eurozone in its next forecasts before the March 23 budget, he added.

Mr Chote also denied that the OBR’s forecasts for the UK economy were too rosy.

In its report last month it revised upwards its prediction for growth for 2010 to 1.8 per cent from 1.2 per cent.

Mr Nickell added that he believed it ‘very unlikely’ there would be further dramatic falls in house prices.

The euro fell sharply against the dollar yesterday, its first decline in four sessions. It dropped to $1.3261 having traded above $1.34 last week.