The euro will survive in its current form but the region’s stability mechanisms should be further strengthened, according to a survey of European institutional investors. The Allianz Global Investors survey showed 80% of the 140 institutional investors questioned believe that the euro will survive current challenges. However, over 40% expect that the stability mechanisms within the eurozone will likely be further strengthened in the future.
The most likely change to these mechanisms would be the introduction of euro bonds, according to 25% of those polled. But only 11% believe the introduction of a joint fiscal regime for the eurozone, which is often cited as a prerequisite for the sustainability of the euro, is the most likely outcome in the near future.
‘A break-up of the euro seems unlikely as the cost would be prohibitive and we believe that the efforts by the eurozone’s politicians are gaining momentum,’ said Andreas Utermann, CIO at RCM, a company of Allianz Global Investors. ‘While it is still not clear whether the haircut on Greek debt will go beyond July’s proposal of private sector participation of roughly 20%, it seems unlikely that Greece will exit the eurozone. Nevertheless, we must recognize the impact of political risk on the current capital markets environment.’ Scepticism over the eurozone’s survival rate remains high among UK investors with 41% doubtful that the euro will survive in its current form, with a number explicitly stating that they expect Greece to default and exit the monetary union.
By contrast, the vast majority of respondents in Germany and France, and all respondents in Italy, believe that the euro will endure these current challenges. ‘Scepticism from the UK about the euro is nothing new,’ said Utermann. ‘However, there is a growing appreciation that, despite being outside the single currency, the UK economy derives significant benefit from a stable euro due to its strong economic and financial relationships with the eurozone. Recent statements by the UK’s Prime Minister urging his eurozone counterparts to take significant action attest to this.’