Europe's single currency is in crisis, and businesses need to prepare for the worst, warns a new report by the Economist Intelligence Unit.
The report, "After €urogeddon? Frequently Asked Questions About the Break-up of the Euro Zone," starts with the premise that European policymakers—for all their highly publicised differences—will do just enough to save the single currency.
The Economist Intelligence Unit attaches a 60% chance to this central "muddle through" scenario. However, at 40%, the chance that policy will fail, and that the monetary union will fracture in some way, is too high to ignore.
"The financial crisis that followed the collapse of Lehman Brothers in 2008 caught people unawares," says Charles Jenkins, editor of the report. "If the euro zone fractured, the turmoil in Europe could well surpass the post-Lehman meltdown, while the consequences for the rest of the world would also be grave. Organisations need to know what a break-up of the euro could mean for their product markets, for their access to finance, and for the overall economic climate."
"Predicting the future of the currency union and anticipating what "break-up" would mean in practice is complicated by the fact that the creators of the single currency allowed for no such eventuality," says the EIU. The report notes there is no formal mechanism for a country to be expelled from the euro zone or to leave of its own volition, which suggests that any break-up would be extremely messy.
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