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Chance of Euro Death up 50%: Economist

Monday, 12 Jul 2010 | 5:30 AM ET

Fears over the future of the euro zone have eased somewhat in recent weeks.

On Thursday, European Central Bank President Jean-Claude Trichethit out against the euro "pessimists" and the euro is well above its early June lows against the dollar.

But economists at Capital Economics are predicting it is more likely the euro zone will break up than survive. (Read the case for euro survival.)

“We have come to the conclusion that the balance of probabilities has swung against the euro-zone surviving in its present form," Capital Economics said last week in a note to clients.

The team are very concerned by indebtedness, competitiveness and structural economic weakness in the euro zone, combined with recent market anxiety about sovereign debtand the continued fragility of the world economy.

“A substantial change to the euro may take the form of a single country, most likely Greece, choosing to leave, or being asked to leave, or a series of countries leaving, Germany leaving, or of a split between a northern euro and a southern euro," Julian Jessop, chief international economist, wrote in the note.

The chances of one of these scenarios actually happening have increased by 50 percent, Jessop said.

“The timing remains highly uncertain," Jessop said. "There are good reasons why such a drastic change will not come soon, not least the continued political commitment to the euro pretty much across the whole euro zone."

“The pressure seems most likely to rise to breaking point in about two or three years time – but we cannot rule out the denouement coming sooner."