Breakup of eurozone 'would have disastrous consequences'

Eurozone countries could fall into a deep recession if the European Monetary Union (EMU) were to be broken up.

This is the warning of the Dutch bank ING, which said that output across the affected nations would drop by between five and nine per cent in the first year if such an event were to happen.

According to the Guardian newspaper, the group also predicted that the value of their new national currencies would drop by 50 per cent.

And it would not just be the members of the eurozone that would feel the effects of a collapse of the EMU. The knock-on impact on the global economy would be much more damaging than the fall of Lehman Brothers, the bank claimed.

"We do not address the potential long-term pros and cons of dismantling EMU," said Mark Cliffe, global head of financial markets research at ING.

"However, the initial trauma outlined in this report is sufficiently grave to give pause for thought to those who blithely propose EMU exit as a policy option."

The euro has been coming under continued strain as a result of the sovereign debt crisis among its 16 members, and it has shown on the foreign exchange markets.

Posted by Thomas Smith

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