Brussels: The gradual weakening of the euro towards a parity with the dollar over the next year may save the monetary union by helping countries in peril, a New York University economist said.

Nouriel Roubini said the weakened euro may help countries such as Greece, Italy and Spain regain competitiveness.

"An orderly fall in the value of the euro is the only thing that is going to prevent a break-up of the monetary union," Roubini said yesterday.

Over the next 12 months the euro would "go toward parity with the dollar if not weaker than that," he had said earlier.

Several factors were weighing on economic growth, such as government budget cuts and falling stock prices, so the euro's decline may not be enough to prevent another recession, Roubini said.

Europe's single currency plunged below $1.20 (Dh4.40) Saturday for the first time since March 2006. The euro has dropped more than 16 percent against the dollar this year.

"If you want Greece, Spain, Portugal, Italy and Ireland to stay in the monetary union rather than exiting, the only way of restoring competitiveness is going to be having a weaker euro," Roubini said.

Euro-area ministers agreed on May 2 to provide $135 billion (Dh495 billion) in aid to Greece as the country struggled to control a deficit that reached 13.6 per cent of GDP last year more than four times the EU limit.

When that failed to stop the euro's slide, the EU and International Monetary Fund offered a financial lifeline of almost $1 trillion to member states.

Euro growth

The 16-member euro area emerged from a five-quarter recession in the three months through September.

The area would grow 0.9 per cent this year after contracting 4.1 per cent in 2009, the European Commission estimated May 5.

Greece's economy would contract three per cent this year and a further 0.5 per cent in 2011, the commission estimates.

While countries with large debts such as Italy should trim deficits and contain wages, Germany should spend more and raise wages to help fuel demand in the euro area, Roubini said.

"Germany can afford having more stimulus not just this year but next year," he said. "The stock of public debt is much lower" in Germany than in the euro-region's periphery," the economist said.

The declining euro would make Germany "hyper-competitive" and justify wage increases, Roubini said.

Germany could afford to have slightly faster wage growth to stimulate exports and domestic demand, and demand for European and euro zone goods, he said.