Another recession in Europe could lead to the collapse of the Eurozone, a Swiss investment bank has warned.
Credit Suisse said a new downturn would unleash political turmoil that could rip the single currency to pieces unless Europe’s policymakers find a way to ward off a new global slump and quall anti-euro sentiment among the continent’s population.
“The viability of the euro is contingent on the current recovery,” said Peter Foley in a research note entitled “Closer to the Edge”.
“If the euro area were to relapse back into recession, it is not clear it would endure.”
The Telegraph reports that although the bloc’s recovery would likely continue for the coming months, there are growing signs it may not last much longer. An industrial slowdown and increased credit stress in the European banking sector are leaving the continent’s economy increasingly vulnerable.
“The near-term outlook for economic activity, as well as the risks around it, has shifted materially downwards,” the report says.
Growth among the Eurozone’s 19 member states was just 0.3 per cent in the last three months of 2015, and its GDP is still lagging below the pre-crisis peak – unlike in the UK and US.
Greece has already slipped back into recession while Italy, the bloc’s third largest economy, is currently stagnant.
Rising unemployment, falling asset prices and mounting debt costs could “radicalise” electorates across the continent, the report says, leading to countries either rejecting the currency or refusing to bail out troubled neighbours.
“The capacity for a renewed downturn to push the euro area into a destructive negative economic, political and financial feedback loop is considerable,” the report says.
Earlier this week, former Bank of England governor Lord King warned that the Eurozone is doomed to fail and said that unless it is broken up, there will be an “economic [and] political crisis” with endless bailouts, austerity and pressure from “elites in Europe” to create a “transfer union”.
Germany, he added, faces a “terrible choice” between writing blank cheques to keep the bloc afloat “at great and unending cost to its taxpayers” or calling “a halt to the monetary union project.”