Breaking Up Euro Would Be 'Disaster': UBS Economist

UBS's top European economist issued a note on Monday saying the euro should not exist "under the current structure and with the current membership, the euro does not work."

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"Basically the line is very simple. There has been a monetary union being done without a fiscal union. We see the limitation of this kind of exercise," Stephane Deo, UBS head of Euro economic research, told CNBC Tuesday.

"That's where we are now. We have done the monetary union, we need to go to the next step," said Deo.

There are two options, he noted, either break-up the euro or reform it towards fiscal integration. "Frankly breaking-up is a disaster scenario'. That's why I think it will not happen."

"First of all there is no legal basis to do that. The Lisbon Treaty, which is currently the Treaty that rules the Euro and the European Union, does not provide a legal base to get out," Deo added.

"If you start breaking it up, basically what will happen is you will eliminate the debt of your country in the new currency. So that's a breach of contract, you default on your debt. It would be very, very difficult to protect the banks," he explained.

Ultimately, there will have to be some type of fiscal integration that will have to take place because "the cost of breaking-up the euro is immense," concluded Deo.

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