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.

Mr Riley urged the European Central Bank to abandon its current reluctance to scaling up its purchases of troubled euro zone debt such as Italy’s and drop its resistance to the bloc’s bailout fund, the EFSF, borrowing directly from it.

“Can the euro be saved without more active engagement from the ECB? Quite frankly we think no,” Mr Riley said, adding that the bank had plenty of scope to expand its balance sheet without unleashing a wave of inflation across the euro zone.

“Why not have the ECB come out and say ‘We are going to cap interest rates’, say ‘We are not going to allow interest rates to exceed 7 per cent’ or whatever level they see is the limit?.. Why not turn the EFSF into a bank so it can borrow from the ECB so it doesn’t have to go to the market?”

Greece the joker in the pack

Fitch has warned that the economic outlook for the euro zone has darkened further in recent months and has said there is a high chance it will downgrade Italy, Spain, Belgium, Ireland, Slovenia and Cyprus by one or two notches by the end of this month.

But unlike larger rival Standard & Poor’s, which has all but Greece on a downgrade warning and said France risks a two notch cut, Fitch has said it does not expect to strip Paris of its triple-A status for this year at least.

Still, Mr Riley cautioned the euro zone’s second-biggest economy was in a precarious position as the crisis rumbled on.

“France is the weakest AAA country in the euro zone,” he said, adding it had the additional burden of being the main country alongside Germany underpinning the euro zone’s bailout fund.

Speaking on the sidelines of the event, he also said that Germany’s robust finances meant it would require a serious escalation of the euro zone’s crisis to bring its triple A rating under threat.

Greece, meanwhile, remained a major threat for the euro zone.

Last year’s move to force investors to take losses on their Greek bonds had destroyed the pre-crisis assumption that no euro zone country would default, while the current debate on Greece potentially leaving the euro was forcing investors to fundamentally rethink their view of the single currency.

“Arguably Greece leaving the euro could be the beginning of the end for the euro,” Mr Riley said. “Greece is still the joker in the pack. It still has the potential to plunge the euro zone into crisis.”

But he reiterated that a euro split was not Fitch’s current expectation. “We don’t think Greece will leave the euro. The cost benefit analysis doesn’t add up,” Mr Riley said.

January 7, 2012 – WORLD – The global economy could withstand widespread disruption from a natural disaster or attack by militants for only a week as governments and businesses are not sufficiently prepared to deal with unexpected events, a report by a respected think-tank said. Events such as the 2010 volcanic ash cloud, which grounded flights in Europe, Japan’s earthquake and tsunami and Thailand’s floods last year, have showed that key sectors and businesses can be severely affected if disruption to production or transport goes on for more than a week. “One week seems to be the maximum tolerance of the ‘just-in-time’ global economy,” said the report by Chatham House, the London-based policy institute for international affairs. The current fragile state of the world’s economy leaves it particularly vulnerable to unforeseen shocks. Up to 30 percent of developed countries’ gross domestic product could be directly threatened by crises, especially in the manufacturing and tourism sectors, according to the think-tank. It is estimated that the 2003 outbreak of severe acute respiratory syndrome (SARS) in Asia cost businesses $60 billion, or about 2 percent of East Asian GDP, the report said. After the Japanese tsunami and nuclear crisis in March last year, global industrial production declined by 1.1 percent the following month, according to the World Bank. The 2010 volcanic ash cloud cost the European Union 5-10 billion euros and pushed some airlines and travel companies to the verge of bankruptcy. “I would like to think we can learn from those experiences and be more resilient for longer but it won’t happen unless governments and businesses are better prepared and put in place different supply chains which can be relied on when disasters strike,” said Alyson Warhurst, chief executive of UK-based risk analysis company Maplecroft. Costs can escalate quickly when transport or major production hubs are disrupted for more than a few days, which can in turn threaten food and water supplies and energy and communication networks, the report said. Climate change and water scarcity will only add to risks, putting even more pressure on infrastructure and resources. Experts have been warning governments over the past few years that they are not properly prepared to deal with national crises.

PARIS: One way or another, this is crunch week for the euro. By the end of the EU summit on Friday, European voters and markets will know how their leaders plan to save the single currency bloc.

The outlines of a plan have begun to emerge, but details will be thrashed out over a perilous week of high-wire economic diplomacy, starting on Monday, when Germany’s Chancellor Angela Merkel comes back to Paris.

She and French President Nicolas Sarkozy have vowed to unveil proposed EU treaty changes to create what Merkel has dubbed a ‘European fiscal union with strict rules’ and the French leader calls ‘true economic government.’

If the proposed reforms are seen as a credible guarantee that eurozone governments will at last bring their deficits under control, European Central Bank chief Mario Draghi has suggested ‘that other elements might follow’.

This has been taken as a signal the ECB might intervene to protect European banks from any credit crunch and to buy bonds to rein in soaring interest rates on government borrowing, perhaps acting in concert with the IMF.

Would that be enough to end the debt crisis and save the euro? Some expert observers think so, others fear it will be too little too late, and in any case between now and then many questions will have to be answered.”

The economic crisis across Europe has made it clear that the European Union isn’t meeting today’s economic realities, a condition that promises to have a global impact on other economies, including that of the United States, according to a report from Joseph Farah’s G2 Bulletin.

The economic crisis is growing worse as central European bank lending to such countries as Italy, Greece and Spain now has dwindled to a trickle because investors are backing away from funding the region’s lenders.

There isn’t enough capital on hand to finance debt which is due to mature next year. Analysts believe there need to be dramatic changes in the structure of the EU if it is to survive.

They add that the EU is at the stage now where it needs to change to a more centralized parliament representing the respective members, who will have to give up some national sovereignty to create what amounts to a United States of Europe.

“The old EU is finished,” said one informed regional observer. “The 27-member bloc has never been as unpopular as it is today.”

As it now stands, the old EU is made up of countries whose parliaments can dictate the limits of their participation. They’ve seen how some countries in southern Europe with fewer resources and spiraling debt are forcing the more productive countries of northern Europe to help bail out the less fortunate ones, without any requirement for the southern countries to implement belt-tightening measures needed to help themselves recover from their own economic downturn.

As a consequence, the richer, northern countries such as Germany are dictating terms to such southern countries as Greece and Italy on belt-tightening measures needed to receive further bailout money.

Given the level of interdependence by countries now, it is too late to recede to a more isolated position. In fact, these experts say the thinking is toward “more Europe” with expanded powers and a “real government.” These analysts say that Europe today is where the U.S. was as a confederation prior to 1787 when the U.S. Constitution gave the U.S. a federal system.

Then, the confederation was comprised of 13 sovereign states with a Congress having certain powers in foreign affairs, to borrow money, deliver mail and control Indian affairs.

However, Congress then didn’t have the power to enforce its requests to states for money or troops until the 13 states ratified the U.S. Constitution.

Various analysts’ views are reflected in the concept put forward by Charles Grant of the Center for European Reform. He envisions a democratically united Europe in which citizens of the various countries vote directly for European commissioners, much like the U.S. does now in electing its representatives for the U.S. House of Representatives and Senate.