Credit agency's warning

Fitch warns of 'cataclysmic' euro collapse

Sydney Morning Herald,

January 12, 2012

The European Central Bank should ramp up its buying of troubled euro zone debt to support Italy and prevent a "cataclysmic" collapse of the euro, David Riley, the head of sovereign ratings for Fitch, has warned.

Speaking to investors as part of a European roadshow, Mr Riley said a collapse of the euro would be disastrous for the global economy, and while it is not Fitch's baseline scenario, it could happen if Italy did not find a way out of its debt problems.

"The end of the euro would be cataclysmic. The euro is a reserve currency," Mr Riley said overnight. "What would that do in terms of financial and political stability?"

"It is hard to believe the euro will survive if Italy does not make it through," he said, adding that while many saw Italy as too politically and economically important to be allowed to fail, "one might also argue that it is too big to rescue."

The warning pushed the euro down towards a 16-month low versus the US dollar.

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