Nations face cuts bigger than wartime UK

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The heavily indebted nations on the fringe of Europe face cuts to their living standards greater than Britain faced during World War II, a leading economic think tank is warning.

The Centre for Economics and Business Research (CEBR) said that to keep the euro in its current form, consumer spending would have to be cut by 15 per cent or more in Ireland, Greece, Spain, Portugal and Italy.

It put the chances of the single currency surviving at just one in five.

It published as Ernst & Young's winter eurozone forecast warned of the creation of a "three-speed Europe" and urged the European Central Bank (ECB) "to stand ready to implement additional significant measures to support the European economy in case of a crisis".

The consultancy firm said a slowdown was expected next year with GDP growth reaching only 1.4 per cent. Ernst & Young said Germany would drive recovery with GDP growth of 3.5 per cent this year and 2.1 per cent next.

GDP growth in peripheral countries in 2011, however, will range from -3.3 per cent in Greece to -0.7 per cent in Portugal.

The CEBR said the cuts of 15 per cent needed in the peripheral countries for the euro to survive "would be greater than the fall in consumer spending faced by the UK in World War II", when consumer spending fell by 14 per cent.

It expected the world's economy to grow by 3.2 per cent next year, against a forecast 3.4 per cent, with 3.6 per cent in 2012, against a previous forecast of 3.9 per cent.

- INDEPENDENT