Institutional investors expect eurozone crisis to persist: Fitch

“48% of survey respondents expect the sovereign debt crisis to continue largely as is,” said Monica Insoll, managing director in Fitch’s credit market research group. “A quarter of investors are more pessimistic, expecting the situation to worsen, evenly balancing the 24% who think it will get better or be solved.”

Ed Parker, head of EMEA Sovereigns at Fitch, says that, “The investor survey largely accords with Fitch’s view that the eurozone crisis will persist, be punctuated by episodes of severe financial volatility, and not be resolved without a broad-based economic recovery.”

While a move to boost liquidity by the European Central Bank in December boosted market confidence in banks, the benefits to sovereigns are viewed as more uncertain, Fitch says. It reports that 37% of respondents said they see the ECB liquidity action as “the big bazooka”, reducing the risk of eurozone sovereigns facing liquidity crises. However, 54% said there would only be limited take-up by banks for the purpose of buying sovereign debt, and 9% of participants even thought the action could worsen the crisis by increasing the sovereign-banking sector links.

“Although the [liquidity action] has eased near-term bank and sovereign funding pressures, it is not evident that banks are using it for large-scale purchases of sovereign debt outside their home countries, nor that it has removed the risk of self-fulfilling liquidity and solvency crises,” said Parker.

Fitch says its survey represents the views of managers of an estimated US$7.1 trillion of fixed income assets.