Breakup of Single Currency 'Would Plunge Eurozone into Deep Recession'
THE GUARDIAN: Knock-on effect on global economy would dwarf aftermath of Lehman Brothers collapse, analysts warn

Inflation in Spain and Portugal could soar towards double digits while Germany would suffer deflationary shock, ING researchers said. Photograph: The Guardian
Countries in the eurozone would plunge into a deep recession if European monetary union (EMU) was torn apart, with a knock-on effect on the global economy that would dwarf that of the Lehman Brothers collapse, analysts warned today.

In a bleak assessment of what would happen if EMU – intended to be irreversible – collapsed, experts at Dutch bank ING calculated that output in the first year alone would fall between 5% and 9% across various member states, while their new national currencies would fall by 50%.

Inflation in countries such as Spain and Portugal could soar towards double digits while core countries such as Germany would be suffering the opposite impact – a deflationary shock.

The assessment by Mark Cliffe, global head of financial markets research at ING, comes as the market waits for details about the methodology of stress tests applied to European banks to assess whether they can withstand a calamity in the markets. Read on and comment >>> Jill Treanor | Wednesday, July 07, 2010