Euro zone situation is serious but no chance of collapse

There are fears that the debt crisis in Ireland will spread to Spain and Portugal - and other weak euro zone economies.

However, Klaus Regling of the European Financial Stability Facility has stated it is “inconceivable” that the 16-nation euro currency will fail.

The Irish debt crisis has caused the euro to fall more than three cents against the dollar this week alone.

While Mr Regling admitted that the “situation is serious” he told Germany’s Bild newspaper there was “zero chance” that the euro would collapse.

In particular, fears have been raised for Spain and Portugal as 10-year bonds have been rising to dangerous levels – mimicking what happened in Greece and Ireland – just before they were forced to seek emergency aid.

Both countries have ballooning deficits. In particular, Portugal’s spiralling deficit has been making markets nervous and failure to hit Government targets for bringing down the deficit could cause a market panic over the country early next year, according to economists.

This is also putting pressure on the euro.

However, both Portugal and Spain have brushed the fears aside and Portuguese Prime Minister, Jose Socrates, said it “has no need for any aid” and insisted that its difficulties are different to those in Ireland, while Spanish Foreign minister, Trinidad Jimenez, insisted the Irish deal will “stabilise” the euro zone.

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