MercoPress. South Atlantic News Agency

Risk rating agency says low risk of a Euro zone breakup; praises Stabilization Mechanism

Confidence in the Euro depends in “addressing fiscal imbalances”

Although the sovereign debt crisis has revealed weaknesses in several European Union countries, the risk of a Euro zone breakup is low over the shorter term, Fitch Ratings said on Monday.

The policy responses to the crisis “make the risk of a breakup of the Euro zone even more remote,” over the near to medium term, Fitch analysts said in a report, “Sovereign Credit Crisis - Crisis of Confidence in the Euro Zone.”

The responses included the 500 billion Euros European Stabilization Mechanism, the European Central Bank commitment to purchase sovereign debt in markets that are “dysfunctional,” and accelerated reduction of budget deficits by some member states, Fitch said.

The high legal, financial and economic obstacles as well as the high costs associated with any breakup also make the scenario highly unlikely, Fitch said.

However, apparent weaknesses in the area's economic policy framework and institutions that have led to severe fiscal imbalances “must be addressed if the Euro zone economy is to be successful and if confidence in the sustainability of the Euro zone is to be established beyond doubt,” Fitch said.

Among longer-term risks, Fitch also cited “doubts over the strength of political commitment to the Euro zone, given the initially hesitant and reluctant support given to Greece.”

In related news US President Barack Obama spoke via telephone with Spain's José Luis Rodríguez Zapatero and German Foreign Minister Angela Merkel, in light of the G20 meeting that will be held this week in Canada.

“Obama showed his support of the difficult but necessary economic measures adopted by apatero Zapatero in the last few weeks to strengthen Spain's economy,” said White House spokesman Bill Burton.

Both Obama and the Spanish leader spoke about the “importance of working towards a strong recovery and the strengthening of financial regulation,” added the spokesperson. The conversation came days before the meeting in Canada between the main economic powers and the principal developing economies.