European Investors Expect Eurozone Crisis to Persist for Another Year

Fitch Ratings’ latest quarterly European fixed income investor survey, which closed on 31 January 2012 and represents the views of managers of an estimated US$7.1 trillion of fixed income assets, shows that most survey participants think the eurozone crisis will persist through 2012.

“Forty-eight percent of survey respondents expect the sovereign debt crisis to continue largely as is,” said Monica Insoll, managing director in Fitch’s credit market research group. “A quarter of investors are more pessimistic, expecting the situation to worsen, evenly balancing the 24% who think it will get better or be solved.” A very small minority of 3% optimistically anticipate the crisis will be solved during the year.

“The investor survey largely accords with Fitch’s view that the eurozone crisis will persist, be punctuated by episodes of severe financial volatility, and not be resolved without a broad-based economic recovery,” said Ed Parker, head of Europe, Middle East and Africa (EMEA) sovereigns.

Although the European Central Bank’s (ECB) December long-term refinancing operation (LTRO) action boosted market confidence in banks, benefits to sovereigns are viewed as more uncertain. 37% of respondents said the ECB liquidity action in December was “the big bazooka”, reducing the risk of eurozone sovereigns facing liquidity crises. However, 54% said there would only be limited take-up by banks for the purpose of buying sovereign debt. 9% of participants even thought the action could worsen the crisis by increasing the sovereign-banking sector links.


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