Worst of Europe debt crisis ended in poll with 57 percent optimistic
The worst of Europe’s debt crisis is over in the eyes of most international investors, a shift in sentiment reflected by increased demand for the region’s financial assets.
Fifty-seven percent of the investors, analysts and traders who are Bloomberg subscribers said in a poll conducted last week that Europe’s bond markets have ceased deteriorating. That is the first time in two years of being asked that a majority declared an end to the sell-off that roiled the euro area and raised doubts over the currency’s existence.
The improved mood is visible in markets where the average yield to hold bonds from Greece, Ireland, Italy, Portugal and Spain fell this month to a euro-era record, according to Bank of America Merrill Lynch bond indexes. Ireland sold bonds this month for the first time since exiting its bailout and the Stoxx Europe 600 Index is at the highest in six years.
“Investors are more constructive toward the eurozone,” said Peter Kinsella, a currency strategist at Commerzbank AG in London who participated in the poll. “But the fundamentals are still very weak.”
At the center of concerns about the outlook is unemployment, a legacy of the region’s recession. With the jobless rate at a record 12.1 percent and many of the region’s youth without work, 40 percent of those polled identified unemployment as the biggest threat to European expansion.
Twenty-nine percent of respondents pointed to excessive public-sector debt as the main risk and 15 percent cited government austerity. The European Commission forecast in December that euro-region debt will average about 96 percent of gross domestic product this year. Ireland, Greece and Italy are among nations that will have a ratio above 100 percent.
“In the longer term there are reasons for caution,” said James Butterfill, head of global equity strategy at Coutts & Co. in London and another poll respondent.
The trend toward greater optimism among investors nevertheless helps remove Europe as a subject of elevated concern when executives, bankers and policy makers begin meeting on Wednesday in the Swiss retreat of Davos for the World Economic Forum’s annual meeting. Previous meetings saw debates over whether the euro would break up, and even a year ago the region was still in its longest ever recession.
On the program for the Davos conference on Wednesday is a panel titled “Is Europe Back?” featuring former Bundesbank President Axel Weber as well as executives from France, Italy and the U.K.
Forty-nine percent of those surveyed this month said the euro-zone economy is now improving, up from 16 percent a year ago and the most since the question was first asked in September 2011. Forty percent said the European Union presents one of the best investment opportunities this year, up from 22 percent in January 2013 and 8 percent at the start of 2010.
While the International Monetary Fund on Tuesday raised its forecast for euro-area growth this year to 1 percent from the 0.9 percent it anticipated in October, it said the recovery will be uneven and about a third the pace of the U.S. expansion.
“Europe’s still not exactly high-performing now,” said Ian Bremmer, president of the New York-based Eurasia Group, who will be attending the WEF meeting in Davos.
Policy makers are finding there is a dividend from calmer markets. Recently-elected German Chancellor Angela Merkel’s policies were regarded optimistically by 70 percent of those surveyed. Just 12 percent said they were upbeat about the work of scandal-hit French President Francois Hollande.
European Central Bank President Mario Draghi, who will be in Davos and vowed in July 2012 to do “whatever it takes” to save the euro, was viewed favorably by 71 percent of respondents. With inflation still below the ECB’s target, Draghi said this month that there remains the potential for fresh aid if needed and he wants to see sustained confidence before he will “declare victory.”
The poll of 477 Bloomberg subscribers was conducted on Jan 16-17 by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 4.5 percentage points.