City insiders yesterday speculated that the “death warrant” for the euro had already been written
PREPARATIONS were under way last night for the break-up of the euro as Europe’s debt crisis spiraled out of control.
As Treasury officials worked through the night to soften the impact on Britain, David Cameron warned that the single European currency was facing its “moment of truth”.
Business Secretary Vince Cable went further and spoke about “Armageddon” while Brussels officials warned that the chaos threatened to plunge us all into a new recession.
France’s Sarkozy and Germany’s Merkel have been in secret talks over debt-ridden Berlusconi’s Italy
Certainly it affects our trade and potentially, in this Armageddon narrative, it affects the banking system, but we’re not there yet.
Business Secretary Vince Cable
Ministers are understood to be deeply concerned that French President Nicolas Sarkozy and Germany’s Chancellor Angela Merkel are secretly plotting to build a new, slimmed down eurozone without Greece, Italy and other debt-ridden southern Euro- pean nations.
At the same time, City insiders yesterday speculated that the “death warrant” for the euro had already been written, with a new economic bloc dominated by Germany and France almost certain to emerge in its place.
Howard Wheeldon, senior strategist at BGC Partners, said the single currency experiment had failed.
“Undoubtedly it has failed. We know the concept of a single currency was flawed right from the start. There were too many big differences, in language, in culture and in the economies. There is absolutely no chance of the euro surviving in its current form. It cannot happen.
“There are limits to what the markets, the people and the voters will accept. That doesn’t mean the euro won’t carry on with fewer members, but it has been a failure.”
Stephen Lewis, of Monument Securities, said the search for some sort of Grand Plan or mega-fund to save the euro was corroding the whole project.
David Cameron has said it’s a moment of truth for Europe
“Whatever they do, the underlying economic divergence will still exist,” he said. “It may be that there is no solution and that it would be better to finance an orderly break-up of the euro.”
Economist Nouriel Roubini said on Twitter: “It will be soon an end-game for the eurozone: restructurings and exits till break-up. Slow motion train wreck.”
And Gideon Rachman, of the Financial Times, said: “The euro is not an end in itself. The single currency is just an instrument, aimed at promoting economic prosperity and political harmony across Europe.
“As the evidence mounts that it is doing the precise opposite, it is time to think not about how to save the euro but about how to scrap it, or at least allow the weakest members to leave. Rather than insisting that the break-up of the euro is unthinkable, Europe’s leaders need to start planning for it.”
The secret plans being drawn up are for the creation of a “smaller eurozone” consisting of “fewer members” who would push towards economic and fiscal union.
Britain would be excluded from the new economic grouping, to the delight of many Eurocrats.
French and German officials have already set up a secretive cabal known as the “Frankfurt Group” to pursue their federalist agenda and bully Britain.
The Brussels source insisted the plan was not about creating a two-tier Europe but a radical re-drawing of the entire euro project.
The EU’s Olli Rehn has warned of new a recession due to the euro
Mr Cameron, in his starkest assessment of the crisis yet, confirmed that the Government was engrossed in contingency planning for the unravelling of the single currency.
“If the leaders of the eurozone want to save their currency then they, together with the institutions of the eurozone, must act now. The longer the delay, the greater the danger,” he said. “Here in Britain, outside the euro, we must prepare for every eventuality, and that is exactly what we will do.”
Mr Cable went even further by conceding that officials were examining the dangers of an “Armageddon narrative” in the eurozone.
Confirming that the Government’s contingency planning for a euro break-up was well under way, he said: “We have a plan. There’s a lot of scenario planning, thinking about all possible outcomes. We have to deal with the world as it is.”
He added: “I don’t think we should be panicking, and although the situation is very difficult and we’re inevitably affected by it, I think the extreme pessimism and gloom really isn’t justified in this case.”
Conceding that preparations for an economic doomsday scenario were under way, he said: “Certainly it affects our trade and potentially, in this Armageddon narrative, it affects the banking system, but we’re not there yet. We have a very clear commitment to stabilising our own country’s finances, and for shifting the base of the economy and its investments into manufacturing.”
Official European Union statistics yesterday slashed the growth forecast for the eurozone next year from 1.8 per cent to 0.5 per cent and raised fears that Britain will be hit by the fallout from the euro crisis.
And in a chilling admission that the continent’s debt crisis is having an even more ravaging impact than previously expected, EU finance commissioner Olli Rehn said: “Growth has stalled in Europe and there is a risk of a new recession.
“This forecast is in fact the last wake-up call. The recovery in the EU has come to a standstill and there is a risk of a new recession.”
The revised economic forecast from Brussels slashes predicted growth levels by nearly two thirds compared with six months ago. A section of the report dealing with the British economy said: “Risks from the euro-area sovereign debt markets and the banking sector heighten this uncertainty. As such, a contraction in Gross Domestic Product in at least one of the next few quarters cannot be ruled out.
“However, the outlook for corporate investment and net exports still appears positive enough to justify a forecast of modest positive growth, with the economy expanding by 0.7 per cent in 2011, 0.6 per cent in 2012 and 1.5 per cent in 2013.
“The substantial downward revision from the spring forecast is explained mainly by the bleaker outlook for household consumption, corporate investment and exports, offset partially by slower expected import growth.”
In Italy, the threat of crippling interest rates eased slightly as the country’s banks bought £4billion of Government debts and Prime Minister Silvio Berlusconi confirmed he will quit at the weekend.