The 17-nation euro area is on the verge of losing one of its members, with more than 50 percent of investors predicting an exit this year as Greece’s election impasse threatens to push the debt crisis to new depths, according to the Bloomberg Global Poll.
As Greece faces political paralysis and voters balk at austerity, 57 percent of the 1,253 investors, analysts and traders who are Bloomberg subscribers said at least one country will abandon the euro by year-end and 80 percent expected more pain for Europe’s bond markets. With a majority identifying a deterioration in Europe as a large threat to the world economy, respondents to the May 8 survey were increasingly worried Spain will default and less willing to buy French debt as Francois Hollande takes power.
Europe’s financial turmoil is reigniting on the second anniversary of policy makers’ first attempt to prevent Greece’s fiscal woes from turning toxic. That raises fresh doubt over the crisis-fighting strategy just as Greece’s inconclusive election spurs concern that the country may not meet the terms of its international rescues and will seek a solution outside the euro.
“Certainly from a financial perspective the crisis can only intensify,” said Michael Derks, a poll respondent and chief strategist at FXPro Financial Services Ltd in London. “We’re likely to get more debt restructurings and it would be remarkable if Greece didn’t leave the euro within a year.”
European stocks slid this week and Spanish default risk climbed to a record as Greece struggled to form a government after voters swung behind anti-bailout parties. France elected its first Socialist premier since 1981 in the latest ballot-box rejection of the budget cuts governments had believed were the best cure for their debt troubles.
“Another flare-up of the crisis is likely,” said Alessandro Mercuri, an interest-rate strategist at Lloyds Banking Group Plc in London who responded to the poll. “The key variable for Europe is domestic politics.”
About 386 billion euros ($501 billion) in aid commitments for Greece, Ireland and Portugal, the establishing of a larger rescue fund as well as 214 billion euros in bond purchases and more than 1 trillion euros in cheap bank loans from the European Central Bank have failed to placate investors.
The number of poll participants who predicted a smaller euro area within a year ballooned to 57 percent from 11 percent in January 2011. The 80 percent saying evidence Europe is stabilizing is temporary and that the market will be roiled again also marks a jump from about two-thirds who held that position at the start of this year.
The 55 percent who said backsliding by Europe posed a high risk to the world economy was more than double the number which said the same of a hard landing by China’s economy or gridlock among U.S. politicians.
Even policy makers have begun to quiz whether Greece can stay in the euro, reviving the once taboo debate of if the single currency is for life and establishing a likely new round of elections as a referendum on membership.
“If Greece decides not to stay in the euro zone, we cannot force Greece,” German Finance Minister Wolfgang Schaeuble said yesterday. “They will decide whether to stay in the euro zone or not.”
With recession beckoning, 84 percent said the euro-area economy is worsening. The same amount said they expect social unrest including riots, a worry that has progressively increased from 56 percent in September.
Cuts Versus Stimulus
Mirroring the irritation of voters, only a third of those questioned backed budget cuts as the most effective medicine for weak economies; 53 percent advocated fiscal stimulus.
Greece, where stocks this week fell to their lowest level in about two decades, remains the focal point of the crisis. Ninety-four percent of poll respondents said it will default on its debt, the most since the survey began. The country has already restructured what it owes private bondholders.
Economists at Citigroup Inc. were among those to say this week that the fragmented election result that left no party with a mandate had increased the chance of Greece quitting the single currency.
In a sign of contagion, 47 percent said Spain is likely to default, the most since the survey started measuring this in June 2010 and almost double the tally of four months ago, as investors question whether Prime Minister Mariano Rajoy can tackle both climbing debt and the region’s highest jobless rate. Sixty-three percent bet Portugal will fail to pay its bills, although only about a quarter anticipated the same fate for Italy and Ireland. Just one percent said Germany will go bankrupt.
While 90 percent expected France to pay its way, Hollande’s victory was greeted with disappointment among those polled as 71 percent said it makes them less willing to buy French bonds. Sixty percent regarded Hollande unfavorably and 71 percent viewed his policies with pessimism, about the same as predecessor Nicolas Sarkozy.
Reflecting the confusion of policy makers, investors split over the biggest threat to the euro zone. Thirty-five percent cited the lack of political cooperation among European Union leaders, edging out the 30 percent who pointed to anemic economic growth and 28 percent who blamed excessive debt.
There is some room for comfort. Eighty-three percent said the euro zone won’t collapse this year and 66 percent bet against a financial meltdown in the region’s banking sector. Eighty percent said Europe’s travails won’t prompt a global economic slump in 2012.
Two-thirds were favorable of ECB President Mario Draghi and sixty percent said they had a positive opinion of International Monetary Fund managing Director Christine Lagarde. Fifty-six percent were optimistic about the policies of German Chancellor Angela Merkel, the most since January 2011, while the actions of U.K. Prime Minister David Cameron were praised by 49 percent.
The survey was conducted by West Des Moines, Iowa-based Selzer & Co. and had a margin of error of plus or minus 2.8 percentage points.