The prospects for the eurozone are gloomy and its break-up would be incredibly painful, federal shadow treasurer Joe Hockey says.
German Chancellor Angela Merkel is preparing to meet British Prime Minister David Cameron for talks on Friday as they seek solutions to restore stability in Europe.
With Europe gripped by potentially its worst economic crisis since World War II, Mr Hockey was asked at a business luncheon if he believed the eurozone would break up.
"Look, I'm very pessimistic about the euro and I'm not going to pretend otherwise," he told the Australia-Israel Chamber of Commerce in Sydney.
"But the break-up of the euro will be incredibly painful, there's no doubt about that."
He described the possible disintegration of the 17-nation eurozone, the world's largest economy, as uncharted territory.
"No-one knows how they do break up," Mr Hockey said.
Germany, a major exporter of manufactured goods, would struggle if it returned to its previous currency, the Deutsche Mark, which the euro replaced in 2002.
"A weaker euro is quite attractive to the Germans," he said.
"If they go back to the Deutsche Mark, their goods will shoot up in price."
The Australian dollar fell below parity on Friday as news of the eurozone crisis also weighed down financial markets.
