Investors Who Say Europe's Economy Is Deteriorating: 79%
A survey of 1,209 subscribers to the Bloomberg Professional service uncovers deep skepticism about Europe's economy. Just under 80 percent say it's deteriorating and 48 percent say it's the worst place to invest among all major developed and emerging-market economies in 2012. The doubts stem from the sovereign-debt crisis that started with Greece, a tiny slice (2 percent) of the euro-zone economy. Meanwhile, the International Monetary Fund sees a mild recession across Europe this year. Impending government austerity measures and more bailouts, in Greece and elsewhere, would add to the slowdown.
Photograph by Vladimir Rys/Getty Images
Why It Matters
By failing to confront the Greek crisis decisively, the 17-nation euro zone has effectively made a leveraged -- and increasingly worrisome -- bet on the success of Greece alone. If Greece does default on its debt, the rest of the euro zone will be left holding a bag that has gotten bigger and bigger -- the most recent proposal would expand the size of the rescue fund to $750 billion. The best-case scenario confines the crisis more or less to Greece, which must pull off a tight-rope act. The country must make good on its loans while imposing severe public-spending austerity and reengineering its economy.
Graphic by Charlos Gary/Bloomberg
What It Means for Your Portfolio
The worst-case scenario has Greece becoming the Lehman Bros. of Europe, a scenario that hedge fund manager John Paulson warned of this week in a letter to investors. A disorderly default could wreak havoc across the continent, most immediately in Ireland, Italy, Portugal, and Spain. Europe's entire economy could slip into free fall and cause losses in any investment of almost any kind in the region. Default could likely affect U.S. stock markets as well. "The snowball gets bigger, the problems get bigger, and the dynamics become more difficult to control," Pimco's Mohamed A. El-Erian recently told Bloomberg Radio.
Photograph by Francisco Seco/AP