China Agency Warns of Collapse in Euro Confidence

Chinese ratings agency Dagong has warned that Europe's debt problems would cause a collapse of confidence in the euro, and predicted a worsening of the global financial crisis this year.

The agency said the world's economic woes would grow more severe in 2012, with the sovereign debt crisis developing into a "currency crisis" as investor confidence in the euro continued to suffer.

"The credibility of the euro will fall, leading inevitably to a sell-off as foreign confidence in the single currency collapses," Dagong warned in its 2012 Global Sovereign Credit Risk Outlook, published on Wednesday.

Dagong has relatively little influence outside China, but it has made headlines by accusing better-known agencies Moody's, Fitch and Standard & Poor's of causing the 2008 financial crisis by not properly disclosing risk.

Chairman Guan Jianzhong, a paid adviser to China's government, insists his agency is fully independent -- and stands by his tough talk about rivals, whose ratings affect interest rates at which states and companies can borrow.

Dagong's report comes after U.S.-based Standard & Poor's downgraded Europe's bail-out fund, the European Financial Stability Facility (EFSF), and nine Eurozone countries in the past week, stripping France and Austria of their prized triple-A ratings.

The Chinese firm cut its own rating for France and Italy last month.

Dagong said the funds available to the EFSF and the new European Stability Mechanism, due to be in place by June, were "inadequate for the potential rescue needs of crisis-hit countries and the banking sector".

It said that it could not rule out the possibility of certain member countries pulling out of the euro, or even a total collapse of the Eurozone, as the depreciation of the currency pushed up interest rates and inflation.