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Solvency issues could send the euro crashing

Foreign & Colonial Investment Trust fund manager Jeremy Tigue says the EU’s continued attempts to rescue smaller European countries on a reactive basis could place the future of the euro at risk.

Tigue says the euro may fall apart if the EU does not work on a proactive basis. He says if it does not look to address solvency issues by 2011, the eurozone could end up consisting of just Germany, Austria, the Netherlands, Belgium, Luxemburg and Denmark.

Tigue also believes that Germany may have no option but to leave the euro because it is being negatively affected by struggling eurozone nations.

He says: “Both of these outcomes are unthinkable in terms of political consequences, not to mention the impact on the European and UK markets.”

Tigue also says it is inevitable that more countries may need assistance in the future as the IMF and the EU have not resolved the underlying issues over solvency.

He says: “For this reason, I believe the problems will simply move from one country to the next, starting with Port-ugal and then probably Spain and Italy. Whether this is next year or in 2012, in my view, it seems inevitable.”

Economists the Legatum Institute and the American Enterprise Institute also believe that the euro is set to fall apart, with smaller debt-ridden countries likely to fall out of the euro.

In the report, entitled, Can The Euro Survive, the institutes say that the so-called Pigs nations, including Portugal, Ireland, Italy, Greece and Spain, would be better off negotiating an orderly exit from the euro now to avoid sparking a banking crisis throughout the West that would be on a par with the financial meltdown in 2008.

The report says: “A default by any member is more likely to trigger contagion to the rest of the periphery.”

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