The euro currency might not survive the current sovereign debt crisis and may be in danger of collapse, according to Stephen Nickell, an economist at the independent Office of Budget Responsibility (OBR) member and former Bank of England member.
“[The] general consensus is that currency unions eventually fail,” he warned.
Nickell made the comments in evidence before the Treasury Select Committee yesterday in connection with a hearing into the OBR's autumn forecast.
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, Nickell told MPs under questioning.
However, he softened his language by adding that there is a possibility [the euro] will collapse but at the moment it is not something to which I subscribe a very high probability.”
The chairman of the OBR Robert Chote, supported his colleague’s assertions by adding “We are not assuming a cataclysmic outcome for the euro zone but, as Steve said, monetary arrangements come and monetary arrangements go.’
Nickell’s comments underscore the ongoing disagreements among European Union (EU) finance ministers as they wrangle in Brussels over such issues as the size of the EU rescue fund, while the Greek government reportedly is seeking an extension on its bailout repayment schedule.
Belgium’s finance minister Didier Reynders has requested for an expansion of the EU’s 440-billion bail-out fund, while his counterparts in Luxembourg and Italy have proposed a common European government bond.
The continent’s most powerful nation, Germany, has thus far rejected these proposed measures
As a result of the EU’s gridlock, the cost of insuring the sovereign debt of weaker EU countries Greece, Ireland, Portugal and Spain soared again.
Nickell and Chote cautioned that the OBR had not prepared a forecast of the potential impact on the British economy in the event of a euro collapse.
The euro has dropped about 7.7 percent against the U.S. dollar year-to-date, although the currency remains well above its yearly lows in early June.