Euro will lose a country in 2012 as breakup begins, CEBR says

LONDON — At least one country will pull out of the euro area this year as the breakup of the single currency begins, according to the Centre for Economics and Business Research.

“It now looks as though 2012 will be the year when the euro starts to break up,” the London-based CEBR said in a statement today. “It is not a done deal yet — we are only forecasting a 60 percent probability — but our forecast is that by the end of the year at least one country (and probably more) will leave.”

CEBR said the likelihood of a euro breakup in the next decade has increased to 99 percent.

European leaders return to work this week seeking to buy time for the Spanish and Italian governments to wrest control over their debt and rescue the euro from fragmentation in its 10th anniversary year.

Ten years after euro bank notes replaced national currencies on Jan. 1, 2002, the euro has for the first time recorded two consecutive annual losses against the U.S. dollar while plunging to a record low against the yen. That raises the pressure on leaders as they struggle to hold the monetary union together in the face of credit downgrades, European Union splits and a looming recession that might compound rising debt.

The crisis may force “most of the French and German banking systems” to seek bailouts to compensate for writedowns on their holdings of sovereign debt, CEBR said. “They might even be nationalized as well. Many other European banks will go back into crisis.”

The euro was trading at $1.2946 at 1:26 p.m. in Brussels, down 0.1 percent on the day.

Financial Post