Euro could fail, says UK fiscal watchdog official

Last Updated: Mon, Dec 06, 2010 18:00 hrs

A dissolution of the euro is highly unlikely but is not in the realms of impossibility, a top official at Britain's fiscal watchdog said on Monday.

Former Bank of England Monetary Policy Committee member Stephen Nickell said the Office for Budget Responsibility, an independent body that produces economic forecasts for UK fiscal policy, may have to take into account "very low" growth in the euro zone in its next forecasts before the March 23 budget.

Some commentators have raised the possibility that the euro and the euro zone may not be able to survive a sovereign debt crisis which has forced bailouts for two EU governments -- Ireland and Greece -- this year.

"Of course, there's a possibility that it (the euro) will collapse but, at the moment, it's not something to which I'd assign a very high probability," Nickell told parliament's Treasury Committee.

When pushed to give an exact probability of a failure of the euro within a year, Nickell quipped "1.7 percent".

Britain's fiscal watchdog, created this year by the Conservative-Liberal Democrat coalition government to give more credibility to fiscal policy forecasts, cut its 2011 UK growth estimate last week to 2.1 percent from 2.3 percent.

Nickell said the OBR may have to further factor in the euro zone crisis into its calculations if economic activity weakens on the continent.

"There is of course some probability that growth in the euro zone is going to be very low and so, plainly, that would be part of our thinking when generating a forecast," he said. "I wouldn't consider it at the moment to be the most likely outcome but it's certainly a possible outcome."

(Reporting by Matt Falloon; editing by Patrick Graham)

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