The euro, already under pressure, came under renewed attack Monday as a French bank speculated that the currency union would inevitably collapse.
Meanwhile, a former chief economist of the European Central Bank warned that a bailout for member country Greece could damage the euro's credibility.
Société Générale strategist Albert Edwards warned investors that any help given to Greece merely “delays the inevitable break-up of the euro zone,” while former European Central Bank Chief Economist Otmar Issing, in a Financial Times piece, said bailing out Greece would be a “major blow” to the currency.
“The viability of the whole framework — nothing less — is at stake,” wrote Issing.
“Financial assistance for countries that violated the terms of their participation in EMU would be a major blow for the credibility of the whole framework.”
The euro could sink to $1.3483 from its $1.5144 high in November, traders told the U.K. Daily Mail.
At issue are the terms of the pact that created the euro, which requires its members to maintain an annual budget deficit no higher than 3 percent of GDP and a national debt lower than 60 percent of GDP.
Greece is expected to hit 12.5 percent deficit in 2009 and debt of 72 percent by 2010 and 2011.
Details of a plan to bail out Greece are being hammered out today and Tuesday at a special meeting of the European Central Bank's Economic and Financial Affairs Council, Ecofin.
In addition to the open question of Greece, the fate other countries with similar debt and deficit problems, notably Spain, Italy, Ireland, and Portugal, hang in the balance.
Currency speculators have increased their bets on the dollar to their highest since 2008, while short euro positions rose to a record, according to Reuters.
Meanwhile, euro critics have piled on. David Cameron, the opposition leader in the U.K., reiterated his statement that Britain would “never join the euro.”
Cameron is expected to become prime minister of English in a few months, ending 13 years of Labor government.
Martin Feldstein, a former adviser to President Ronald Reagan, said the euro system wasn't working.
“There's too much incentive for countries to run up big deficits as there's no feedback until a crisis,” he said.
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