The euro crashed to a 22-month low yesterday as the European economy took another dramatic turn for the worse.



Figures showed the biggest slump in private sector business across Europe this month for nearly three years.



The dire news sent the euro tumbling against the dollar to $1.25 – its lowest level since July 2010. Against the pound it was worth little more than 80p.



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Rift: French President Francois Hollande (left) and German Chancellor Angela Merkel (right), pictured at the EU summit yesterday, have differing views on how the debt crisis should be tackled



Line-up: EU Heads of State pose for a group photo during the EU summit in Brussels last night

The latest gloom came against a backdrop of a continuing sense of crisis over Greece as Berlin and



Paris remained at loggerheads on what to do, despite the emergency Brussels summit that ended in the early hours of yesterday morning.

This comes as a senior economist at the world's second-largest currency trading bank claims Greece will leave the single currency eurozone on January 1, 2013.

Citigroup's Michael Saunders said Greece's new currency would fall in value immediately by 60 per cent - and unleash a massive, yet manageable, wave of contagion across Europe.



In a note to clients, he said the likelihood of Greece leaving the euro in the next 12 to 24 months was now between 50 to 75 per cent - and assumed there would be a 'Grexit' at the start of next year.

The firm based its case on the belief that Greece would fail to form a government capable of implementing austerity measures after its next set of elections on June 17.



This would 'accentuate' the stalemate between the nation and its creditors.



Mr Saunders said: 'We assume Grexit occurs on January 1, 2013, with Greece staying in the EU and receiving external loan support [to mitigate risks of social unrest and collapse of civil society].

'We expect that Grexit will be followed by a series of policy responses aiming to prevent a domino-style collapse of the banking system and escalating economic disruption.'

The claim came as stock markets across Europe remained stable today despite increased fears of Greece's chaotic exit - and a growing rift between France and Germany on plans to save the single currency.

Markets plunged yesterday after the mighty German Bundesbank warned it would be better to let Greece leave the euro than give its crippled economy any more cash.

Appeal: Spain's Prime Minister Mariano Rajoy (left) and British Prime Minister David Cameron (right) are both urging leaders to try and sort the mess out once and for all



Protest: Miners stand behind burning barricades in Oviedo, Spain, as they strike against cuts in government subsidies to the sector Strike: The action is part of a nationwide miner's strike against cuts in subsidies to the industry

There were concerns shares would slide even more today after last night's emergency six-hour EU leader summit in Brussels showed there are no new ideas on the table as to tackling the crisis. David Cameron, echoing Spanish Prime Minister Mariano Rajoy's call earlier in the day, even pleaded with dithering European leaders to end the ‘fudge’ over the euro crisis. But, despite the fears, the FTSE100 opened this morning 1.05 per cent up at 5,321, before levelling off to 0.21 per cent up at 5,277.

The FTSE100 is currently 1.18 per cent up at 5,328.46; France's CAC 40 is 0.85 per cent is up 3,028.92; and Germany's DAX is 0.39 per cent up at 6,310.36.

Koen De Leus, strategist at Brussels-based KBC Securities, said investors were seeing value in some sectors after yesterday's steep falls. He said: 'Long term investors are absent and the market is currently being driven by traders who have a short-term investment horizon and look for bargains. 'The market remains vulnerable as we still don't have any concrete proposal on the table to resolve the debt crisis. 'People are looking for signs that politicians are going to act, but that feeling did not emerge from yesterday's EU meeting.' The relative stabilisation of the markets came as Spanish miners' went on a nationwide strike in protest against cuts to government subsidies for the industry. In Greece, its four largest banks were told they will get an €18billion capital injection by tomorrow or Monday, with the country's central bank chief George Provopoulos saying: 'The funding will be disbursed tomorrow or on Monday to Greek banks, which is important in a period of great uncertainty.'

Earlier this week, Greece's bank stability fund approved the recapitalisation that will allow the banks to return to funding from the European Central Bank.

It was cut off some Greek lenders last week because they lacked enough capital to be considered solvent.

It also occurred as a major rift opened between Germany and France, at the summit, over how best to restore confidence in the single currency. France's new President Francois Hollande challenged his German counterpart Angela Merkel over how the economic bloc should proceed. Merkel rejected his calls for the introduction of so-called Eurobonds to ease the debt crisis. The German Chancellor said the idea, which would effectively see Germany underwrite the eurozone’s vast debts, was illegal under EU law and was ‘not a contribution to stimulating growth’. Her stance is a major blow to Hollande who had insisted that Eurobonds were on the agenda of last night’s summit. But it is also a snub to British Prime Minister David Cameron, who had earlier told MPs that the German stance was ‘changing to an extent’. He said Eurobonds ‘must’ be part of the solution, and suggested that ‘large fiscal transfers’ to struggling eurozone countries would also be needed. Warning: Officials said the instruction was agreed on Monday by a teleconference of the Eurogroup Working Group (EWG) - experts who work on behalf of the bloc's finance ministers Hollande also called for the eurozone's new bailout vehicle to be allowed to draw funds from the European Central Bank. He said it should be able to recapitalise banks directly, another proposal also fiercely resisted by Berlin and currently impossible under EU law.

CLEGG TAKES AIM AT TORIES 'WHO ARE URGING GREECE TO QUIT EURO'

In a speech in Berlin today Deputy Prime Minister Nick Clegg (right) is expected to expose Coalition tensions over the issue, by taking a swipe at those on the Tory benches who are urging Greece to quit the euro. He will saw that a Greek withdrawal from the euro would cause 'unpredictable, irrevocable damage' to the single currency that 'no rational person' should advocate. He will also criticise the notion 'being whispered behind cupped hands' that Greece's exit could be a good thing for the rest of Europe. And he will say that Europe must show leadership to find a way out of the crisis and address the problems arising from the lack of fiscal coherence in the eurozone. He will add: 'We have got to hit back against this fatalism which says that Europe can't fix this. 'And by the way, let me challenge the fashionable assumption being whispered behind cupped hands - that for some countries, leaving the euro wouldn't be that bad, that actually a Greek exit now would be in everyone's best interests. 'My own view is that that wildly underestimates the unpredictable, irrevocable damage that could be done to a monetary union when it is shown not to be permanent. 'No rational person interested in the wealth and wellbeing of Europe's citizens could advocate taking such a risk: not with Greece's future, or our own.' Mr Clegg, travelling to Berlin with Business Secretary Vince Cable, will visit a Siemens turbine factory and launch a Queen Elizabeth prize for engineering. He will say in his speech that the response to the eurozone crisis has been 'woefully fragmented' and the decision-making process, lurching from one crisis summit to the next, is undermining public confidence. He will add: 'The tree is falling, and we are pruning one leaf at a time. It is piecemeal politics - endless tactics with no strategy. 'So we must gather these overlapping problems together and solve them as one. This is a European crisis. It must be solved at the European level.' Mr Clegg will say that one of the euro's problems is the 'common monetary policy without shared fiscal arrangements'. Europe must either 'share common debt, or change the way money is transferred'. And he will add: 'You cannot have a monetary union in which one country saves, exports and invests and another spends, borrows and consumes without some mechanism to make it all add up. 'So we need new fiscal instruments in the eurozone, through either eurobonds or greater transfers between eurozone members.' Mr Clegg will warn people in Britain that the crisis in the eurozone is not a 'distant irrelevance'. He will add: '3.5million British jobs depend on the EU economy, and 40 per cent of our exports go to the eurozone. 'Culturally, economically, and socially, we share in so much more than we differ. So Europe's future is our future. We must do everything we can to secure it.'

A decision was not made last night, and will not be finalised until the end of June after French and Greek parliamentary elections.

But officials said the summit saw a shift in the balance of power towards the French, with supporters of Hollande's eurobonds demands increasing in number and becoming bolder.

It also shows, they said, there is more of a desire for the French-led drive for growth policies - and not the German-scripted austerity.

Meanwhile, David Cameron told the summit there was no point discussing plans to kickstart economic growth unless they acted ‘decisively’ to shore up the ailing single currency.

And in a separate blow it emerged that all eurozone countries have been ordered to draw up contingency plans for a Greek exit.

The Bundesbank warnings sparked panic on stock markets yesterday, with £35billion wiped off the FTSE 100. Italy’s stock market fell 3.7 per cent, while Spain’s dropped 3.2 per cent.

The euro also fell to a two-year low against the dollar.

Behind closed doors in Brussels, Mr Cameron warned fellow EU leaders that ‘contagion’ from a Greek exit could destabilise the European economy for years.

‘We need a plan to deal with contagion,’ he said.

But Mr Cameron’s words appeared to have gone unheeded last night as Merkel hinted Germany was preparing to cut Greece loose unless it agrees to stick to the tough terms of last year’s bailout deal.

France insisted on pushing ahead with controversial proposals for a tax on financial transactions, which experts warn will hit the City of London. Mr Cameron described the proposal as a ‘bad idea’ and pledged to ‘fight it all the way’.

After the talks, European Council President Herman Van Rompuy said he wanted Greece ‘to remain in the euro area’.

He said: ‘We had an in-depth discussion on the latest developments in the euro area during which we also reaffirmed our commitment to safeguard its financial stability and integrity.’

Speaking in the Commons he appealed to EU leaders to act now. He said: ‘I don’t believe we can afford to allow this issue to be endlessly fudged or put off.’

But he warned it was becoming ‘ever more urgent’ to draw up contingency plans for a possible Greek exit, adding: ‘Frankly, it’s not in our power about whether Greece will decide to stay in the eurozone or out of the eurozone, we have to prepare for every eventuality however difficult that might be.’

Earlier the Bundesbank sparked market panic by suggesting the fallout from a Greek exit would be ‘considerable but manageable’.

Germany’s powerful central bank said allowing Greece to backslide on agreed austerity measures would ‘damage confidence’ in other weakened eurozone states and could ‘call into question’ the future of the entire single currency.

The Bundesbank described the situation in Greece as ‘extremely worrying’.



But it said Greece would have to ‘bear the consequences’ if it reneged on the terms of the bail-out deal.



And the former Greek Prime Minister Lucas Papademos added to the grim backdrop by suggesting Athens was also making preparations to leave the euro.

He said: ‘The risk of Greece leaving the euro is real and it depends effectively on whether the Greek people will support the continued implementation of the economic programme.’

In the Commons yesterday Mr Cameron insisted he was a ‘genuine eurosceptic’.



He told MPs: ‘I’ve always been a genuine eurosceptic, sceptical about the euro, that’s why I didn’t want to join it, but we have to recognise what is now in this country’s interests, which is for the eurozone to sort out its difficulties.’

Riots: Greece has been hit by bouts of civil disorder in recent months