Euro to go up in smoke by 2015

June 20, 2011, 4:42 AM ET

The euro zone is on track to breakup within the next five years, according to new forecasts released today by Britain’s Centre for Economics and Business Research.

Without such a breakup, the economics consultancy has found, the nations of Southern Europe will see growth below 1.5% every year until 2015.

The forecasted average growth for Italy during this time is 1.2%; 1.0% for Spain; 0.6% for Portugal; and Greece will go backward at -0.5%.

Ireland is a standout. The nation’s weary economy is forecast to grow at an annual rate of 3.2% between now and 2015, although little of that growth will be passed on to the Irish consumer, Cebr said.

“Germany has no choice but to compromise in this round of bailout negotiations. The rewards of a stable euro outweigh the cost of further loans from Germany, even if these will not be repaid fully. So the currency is unlikely to collapse in the short term,” said Cebr economists.

But “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 as Greece pulls out, probably followed by other countries.”

The Cebr economists said that the eventual breakup of the euro is likely to damage the solvency of various European banks, especially in France.

Late Sunday, the Eurogroup said that a new financing strategy for Greece would be unveiled by July.

Kim Hjelmgaard