Move along, nothing to see here. Expectations that the European currency system will disintegrate in the next year have dropped to new lows, according to an investor sentiment survey. “Someday we’ll look back on this and it will all seem funny,” as the old Bruce Springsteen song goes. Well, someday appears to be today.
In a poll of 778 investors, research firm Sentix said in December its Euro Breakup Index (EBI), which measures the likelihood of at least one country leaving the euro in the next 12 months, fell to 25.0 percent from 32.7 percent in November. The EBI had reached a high of 73.3 percent in June 2012.
Notably, even an exit by Greece seems remote, according to survey respondents. In December only 22.5 percent of respondents predicted a so-called “Grexit” within the next year (after 30.1 percent in November). Greece’s EBI level is now the lowest since the poll was introduced in June 2012, Sentix said. Sentix cited a successful Greek debt buyback at the beginning of December “and the continuing easing of financial markets tensions over the past weeks” as reasons for the improved sentiment.
Similarly, sentiment improved for Portugal, Italy and many other countries in peripheral Europe. “These readings show that investors do not expect a sudden euro end for the above mentioned countries anymore,” Sentix said.
Over the last year or more, most observers expected a Greek exit of one form or another. There was also some speculation that the UK or Germany would decide to exit the euro because of the glut of structural and economic problems. But lately Europe appears to be making progress, with an announcement for a new pan-European supervisory system for banks that could shore up the eurozone’s financial stability. Also, in addition to Greece, other sovereign debt auctions have gone well, adding to the sense of stability.
As recently as the fall 2012, many observers, including many treasurers in the NeuGroup peer group universe, expected at least a Greek exit in the second half of 2013. For instance, in a pre-meeting survey for The NeuGroup’s Treasurers’ Group of Thirty (T30), more than half of respondent (53 percent) thought Greece would exit the zone by the end of 2013. Also, many companies have prepped for such an eventuality, moving cash to northern European countries, setting up contingency plans and in many other ways making ready for eurozone breakup.