June 20 (Bloomberg) -- The euro area is on course to break up as member nations’ willingness to continue bailouts for the region’s indebted countries dissipates, the Centre for Economics and Business research said in a research note.
The stronger common currency and government spending cuts will limit growth in southern Europe, while Germany will balk at continuing to support Greece, the London-based group said in a report today. The group forecasts average growth from 2011-2015 of 1.2 percent for Italy, 1 percent for Spain and 0.6 percent for Portugal. Greece will contract 0.5 percent.
“Sooner or later both the Greek population and international creditors will tire of fighting a losing battle, leading to a breakup of the currency union,” Douglas McWilliams, chief executive officer of the London-based CEBR, said in the statement.
Greek Prime Minister George Papandreou last week faced political challenges in convincing officials to pass austerity measures needed to secure a second bailout from the European Union. German Chancellor Angela Merkel said at a June 17 joint press conference with French President Nicolas Sarkozy that she’ll work with the European Central Bank to rescue Greece to avoid disrupting markets.
In a separate report today, Ernst & Young raised its growth forecast for the region to reflect expectations that officials will contain the region’s financial crisis. The group sees growth of 2 percent this year and 1.6 percent in 2012, though risks from a Greek rescue may undermine the predictions.
“There is still much uncertainty about the impact of Greek debt restructuring on the financial sector and its implications for the euro-zone economy as a whole,” Marie Diron, senior economic adviser for the E&Y forecasts, said in a statement. “We could easily tip into a disorderly scenario where euro-zone gross domestic product would fall significantly.”
On the euro region’s breakup, the CEBR said its unlikely to collapse in the short term because for Germany, the “rewards of a stable euro outweigh the cost of further loans.”
“But it will be difficult to keep paying for the likely successive rounds of bailouts that are likely to be required,” CEBR economist Tim Ohlenburg said.
--Editors: Fergal O’Brien, Craig Stirling
To contact the reporter on this story: Jennifer Ryan in London at firstname.lastname@example.org
To contact the editor responsible for this story: Craig Stirling at email@example.com