The break-up of Europe's monetary union is no longer an impossible scenario, international credit ratings company Moody's Investor Service said.

The pace of economic growth in the dozen countries that share the euro has been lacklustre since 2001.

Based on current trends, potential gross domestic product, or GDP, in the euro region may slow to 1.25 per cent between 2010 and 2020 from a rate of about 2 per cent between 2005 and 2010, the Organisation for Economic Cooperation and Development (OECD) has predicted.

If this scenario becomes a reality, the income gap with the US will widen further.

EU institutions have been weakened and member states have been strengthened by the rejection of the region's constitution by French and Dutch voters earlier this year, the ratings service said.

Moody's said it was paying keen attention to the direction and pace of EU reforms because 2005 is ending with a new uncertainty.

"While the events of 2005 have yet to have a direct affect on any of our credit ratings and outlooks, and they are not likely to have an impact for some time, the potential for long-term risks and the emergence of new rating pressures are quite real," Moody's said in a statement.

An awareness that the single monetary policy may be too strict for some members of the euro zone, along with political disenchantment with Europe, has stimulated debates across the region, Moody's said.

"In our view, the political, economic and financial cost of breaking apart is so enormous that such a scenario remains highly improbable - but no longer impossible," Moody's said.

The ratings company questioned whether Europe, and especially the euro region, will recommit to reforms and achieving higher growth rates, and whether the euro zone will succeed in boosting economic efficiency.

In its annual report on the Republic of Ireland, New York-based Moody's said the country's Aaa rating and "stable" outlook are supported by successful macroeconomic management and a highly competitive economy which should allow the country's fiscal position to remain sound.