IMF: Euro Break-Up Cannot Be Ruled Out
The International Monetary Fund (IMF) has for the first time accepted the prospect of the euro breaking up.
In its flagship economic survey of the world economy, the IMF acknowledged there were fundamental "flaws" in the design of the single currency and said that one prospective "tail risk" is a "disorderly default and exit by a euro area member".
It is the first time the IMF has openly contemplated such an outcome.
Its previous forecasts disregarded such a scenario, and its managing director, Christine Lagarde, said earlier this month that it had no agenda to see the euro collapse.
The announcement comes amid growing consternation about the plight of Spain, which has suffered an exodus of bank deposits and is struggling to raise money at reasonable rates.
Many now believe that Spain could follow Greece, Portugal and Ireland in having an emergency bailout.
The IMF said it was impossible to quantify the impact of a country defaulting or exiting the currency union.
But in its World Economic Outlook, it added: "If such an event occurs, it is possible that other euro area economies perceived to have similar risk characteristics would come under severe pressure as well, with a full-blown panic in financial markets and depositor flight from several banking systems.
"Under these circumstances, a break-up of the euro area could not be ruled out. The financial and real spillovers to other regions, especially emerging Europe, would likely be very large.
"This could cause major political shocks that could aggravate economic stress to levels well above those after the Lehman collapse."
However, the IMF's working assumption is that "policymakers succeed in containing the sovereign crisis through continued crisis management and further advancing measures toward its resolution".
Nonetheless, it raised its forecast for overall world economic growth this year by 0.2% points to 3.5%.
It also increased its economic growth forecast for the UK this year from 0.6% to 0.8%, the first such increase in recent years, which is likely to reinforce Chancellor George Osborne's insistence that he is following the right path.
However, it is the IMF's warning over Europe which is likely to disturb policymakers most profoundly.
It cut its economic growth forecast for Spain this year from -1.6% to -1.8%, which is lower than Madrid's official forecast and makes it harder to meet its deficit reduction plans.
That comes with Spain facing government borrowing costs of more than 6%, a sign that investors are fearful of buying the country's debt.
And in a further blow, the country has become embroiled in a row with Argentina, which is set to nationalise its oil company YPF, the majority stake of which is owned by Spanish oil group Repsol.
what do you think?
They should all leave the euro and go back to their old currencies
If all of these countries were able to set their own interest rates etc. (which they could do before joining the Euro), then they would probably not be in their current financial mess. Yes, they would have to de-value their economy to aid recovery but at least they could do it at a level that was right for them & not just to please the European Central Bank.
UKIP have been warning of this for ages and been dismissed as cranks. I think they will rather enjoy saying we told you so. The Greek election will be interesting as desperate people turn to fringe parties. I fear a far right upsurge
NOT ONE PERSON IN THE EU I HAVE SPOKEN TO WANTS THE EURO. IT IS INFLATIONARY AND UNWANTED. I WANT IT TO BREAK UP, WITH BORDERS UP AND SOME FORM OF CIVIL NATIONALISATION PROGRAMME. HOW CAN WE EVER PAY SAUDIS ETC WHEN OUR ECONOMY RUNS ON OIL WE ARE FOREVER IN DEBT.
Thank god they are finally talking about this Should of happened long ago
STUPID TO EVER INTEGRATE ALL EUROPEAN ECONOMIES. IT RAISED UNEMPLOYMENT, INFLATION, CAUSED COLLAPSE IN INDIVIDUAL COUNTRIES INDUSTRIES. IT INDEBTED MOST TO IMF MORE. TIME TO WRITE DEBT OFF, GET OLD/NEW INDIVIDUAL CURRENCIES BACK, AND GET INDIVIDUAL COUNTRIES WORKING. EURO WAS PRODUCT OF BRETTON WOODS AND GLOBALISED AGENDA OF CITY/WALL STREET. IT HAS FAILED FACE FACTS.
The Euro had nothing to do with Bretton Woods. Otherise I agree.
Maybe just a glimmer of sense is starting to creep into the IMF. With Spain looking more likely to need a bail out that would cost us 10 billion in payment to the IMF,which is more than other EU countries would contribute,you have to ask how long can this continue to cost the UK money that would be better put to use in this country?
Best news from europe yet. Why spen centurys fighting them off just to hold their hand and get slated off the french at every turn. They were named turncoats because they always jump to the winning side when in difficulty. Are they not regretting slating us over euro passport control and reinstating their passport control to prevent free travel ? A typical example of divided europe.
Wake Up!! These countries, including the UK are insolvent. There isnt enough money to save europe. The UK is toast! The money printing or rather pressing a digital button is reducing the value of the pound just like the US dollar is worth less. Those in power are just buying time, the media tells you very little. What will you do when the SHTF
So true. The people that negatived this post have no idea that we are in a bubble which sooner or later will burst. The money floating around is an illusion. We have none! People need to wake up and think rationally.
UK has already electronically created £325 Billion, They are planning to create up to £600 Billion. It is madness. All we do is raise the cost of living
Mr Soros and the elites are there causing chaos or at least they hope so. So they can jump in and save us all with a new world order. Dont be fooled. Stand up and be counted and value your family, community, religion or not and make the world a better place. Revolution and communism never ever made the world a better place.
European unity on a capitalist basis was NEVER going to work. In the end, capitalism only benefits the rich and then the richest states in the union so it is only a boss's club. Unity in Europe should be on a socialist basis with genuine democratic co-operation, a United States of Europe with equal membership for all.
Keep the eurozone, drop the euro currency. Ill book a holiday to Greece or Spain tomorrow!
Ronald George Halliday
Maybe they have finally realised, what everybody has been saying for over a year now. Lose the euro, and return back to own currencies. But do not forget how much that they have wasted trying to keep the euro bolstered up. Payback time is going to be very expensive, due to incompetent bungling.