London: Global investors anticipate Europe's debt crisis leading to an economic slump, a financial meltdown and social unrest in the next year with 72 per cent predicting a country abandoning the euro as a shared currency within five years, a Bloomberg survey found.
About three-quarters of those questioned this week said the euro-area economy will fall into recession during the next 12 months and 53 per cent said turmoil will worsen in a banking sector laden with government bonds, according to the quarterly Global Poll of 1,031 investors, analysts and traders who are Bloomberg subscribers.
Forty per cent see the 17-nation currency bloc losing at least one member in the next year. More than a third of participants say deteriorating European debt will derail the world economy over the next year, with the pessimism highlighting the pressure European policy makers face as they try again to fix their 18-month sovereign crisis.
Stocks last week tumbled into their first bear market in two years and international finance chiefs, including Treasury Secretary Timothy Geithner, urged European leaders to intensify their rescue efforts. "It's a bad crisis," said Jean-Yves Chereau, a poll respondent and chief investment officer at Halkin Investments in London.
"Since the resurgence of troubles in Greece, you suddenly have a crisis of confidence and trust and that's impacting markets and could hurt economies. Politicians need to move ahead pretty quickly."
Europe's woes have reignited as Greece attempts to stave off default and spars with its European Union partners over whether it deserves the next tranche of aid next month. Euro-area lawmakers are also taking their time implementing a July overhaul of their rescue fund to give it more crisis-fighting tools, while investors question the ability of banks to withstand further market unrest as signs also mount that the economy is losing momentum.
Shifting money
Investors signalled the stresses are prompting them to shift money out of the euro area. Fewer than one-fifth of those polled said the EU's market offers the best investment opportunity over the next year, about half the number that cited the United States.
Fifty-three per cent identified the EU as offering investors the worst opportunities during the next year. Fifty-six per cent said they will reduce their exposure to the euro in the next six months and even one in three inside the region plan to. Half of all investors said they expect the Euro Stoxx 50 index to fall.
Economists at Pacific Investment Management Co., JPMorgan Chase and Royal Bank of Scotland Group all said in the past week that the euro-area is entering recession.
Eighty-eight per cent of those surveyed by Bloomberg said the region's economy is deteriorating. Almost half of Asian respondents said they expected Europe's pain to spark a worldwide economic meltdown within the next year, compared with 34 per cent in the US and Europe.
"If the euro crisis continues to fester or become more dangerous, the cumulative effect of declining economic confidence and harsh austerity measures will tip the peripherals into certain recession," said Akber Naqvi, a poll respondent and executive director at Al Masah Capital in Dubai. "The ensuing chaos and banking crisis will almost certainly tip the whole region into a recession."
As Greece struggles to impose the austerity needed to tap more international aid next month, 93 per cent said the country will eventually default, up 8 percentage points from May.
Fifty- six per cent said Portugal faces the same fate, down 3 points. Sentiment toward Ireland also improved as 58 per cent said bankruptcy would be avoided, four months after the majority bet otherwise. Sixty-four per cent said Spain will keep paying its bills and a similar number of respondents said the same of Italy.
More than 90 per cent said Britain and France won't go insolvent. Almost every respondent described Greece's creditworthiness as poor, with more than half saying the same of Italy and Spain. By contrast, 38 per cent said Germany's was excellent and 45 per cent said it was good. Fifty-three per cent described their faith in Japan as "just fair" or "poor" and 59 per cent gave the same rating to France.
—