Gov't Debt Crisis Heightens Concern over Eurozone Stability
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Stability of eurozone under threat
The worsening government debt crisis triggered concern about the stability of the whole eurozone.
Now the crisis was largely confined to those countries which are located along the periphery of the eurozone. Their economic strength is relatively weaker than that of the core members, such as Germany and France.
However, there was an increasing risk that the market anxiety may spread to other eurozone members.
New York University Professor Nouriel Roubini warned last week of a possible breakup of the eurozone.
"Down the line, not this year or two years from now, we could have a breakup of the monetary union," Roubini said at the World Economic Forum in the Swiss resort of Davos. "It is a rising risk."
Although ECB President Jean-Claude Trichet said it was "absurd" to imagine that the 16-nation eurozone could collapse, speculation of a breakup has mounted in financial markets, which undermined confidence in the euro.
The euro struck a nine-month low against the US dollar on Friday.
Roubini said Spain would hold the key to the stability of the eurozone since it is the fourth largest economy in the monetary union.
"If Greece goes under, that is a problem for the eurozone," he said. "If Spain goes under, it is a disaster."
Portugal, Ireland and Greece altogether account for only 6 percent of eurozone GDP. When Spain is included, that share rises to almost 20 percent.
Investors also began to worry that the government debt crisis in several eurozone countries may trigger a second round of sub-prime crisis as it had already affected European banks and other credit markets.