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.
“Investors are more constructive toward the euro zone,” said Peter Kinsella, a currency strategist at Commerzbank AG in London who participated in the poll. “But the fundamentals are still very weak.”
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.
The trend toward greater optimism among investors helps remove Europe as a subject of elevated concern with executives, bankers and policy makers meeting today 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. Even a year ago the region was still in its longest ever recession.
The situation in Europe is “hardly dynamism, but it’s a big improvement from blowing up,” Havard University economist Kenneth Rogoff told Bloomberg Television in Davos today. “I still see it as -- not fragile, in the sense of falling apart -- but definitely severely growth-challenged and a region that is really not taking care of its future,” he said earlier, during a panel discussion at the conference.
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.
“The recovery in Europe has a lot of challenges,” said UBS AG Chairman and former Bundesbank President Axel Weber during today’s Davos panel discussion. “It’s a recovery that’s too weak to generate the growth in jobs to get us out of this crisis.”
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.
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 yesterday 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 is attending the WEF meeting in Davos.
Policy makers are finding there is a dividend from calmer markets. Recently re-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 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.
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