Greece Default with Ireland Breaks Euro by 2016 in Global Investor Poll

Fifty-Nine Percent of Respondents Say One or More of the 17 Euro Nations Will Quit

NEW YORK--()--Most global investors predict at least one nation will leave the euro-area within five years and that Greece and Ireland will default, sentiment that is intensifying pressure on policy makers to strengthen their response to the debt crisis.

As the World Economic Forum’s annual meeting gets underway, 59 percent of respondents in a Bloomberg Global Poll said one or more of the 17 euro nations will quit by 2016, including 11 percent who see an exit within 12 months. Respondents were divided (47% vs. 48%) over whether Portugal would default, while a majority (66%) expressed confidence in Spain.

Such pessimism underscores the urgency German Chancellor Angela Merkel and French President Nicolas Sarkozy face in their hunt for new ways to placate investors after almost $1 trillion in emergency financial support failed to calm markets. Europe’s plight ranks high on the agenda for the conference in the Swiss ski resort of Davos, where Merkel, Sarkozy and European Central Bank President Jean-Claude Trichet are among the 2,500 officials, bankers and economists attending.

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Respondents in the poll completed this week of 1,000 investors, analysts or traders who are Bloomberg customers were almost evenly divided about whether the euro area will eventually collapse. Most of the 45 percent who anticipated a breakdown said it wouldn’t occur in the next five years. Forty eight percent said it would never happen.

Portugal’s 10-year bond fell yesterday, pushing the yield up 12 basis points to 7.06 percent, 392 basis points more than on the comparable German bond. Spanish bond yields climbed 10 basis points to 5.25 percent, while the yield on Greece’s 10- year bond gained 12 basis points to 11.34 percent.

A year since Greek officials toured the halls of the Davos Congress Center in an ultimately futile bid to bolster demand for their bonds, Europe’s governments are now trying to augment the crisis-fighting toolkit they designed when rescuing that country in May and Ireland in November. Among the proposals being discussed are boosting the region’s 750 billion-euro ($1 trillion) rescue fund, helping countries buy back their bonds and lowering interest rates on bailout loans.

As well as the majority (59%) predicting a euro-zone member withdrawing within five years, another 13 percent said a country will leave after that. Just under a quarter (23%) said the region would remain intact. Almost half of the euro-zone poll participants (48%) said the euro region will keep its current form, four times as many as in the U.S (11%).

While Greece’s government denies it’s studying ways to restructure debt, almost three-quarters of poll respondents (74%) said the country ultimately would likely default. Fifty three percent said Ireland would also probably do so.

As for Portugal, 47 percent said it will likely default and 48 percent said it’s unlikely to. Two-thirds of the investors (66%) said Spain won’t default and three-quarters (75%) didn’t anticipate Italy doing so.

By comparison, more than 90 percent of those questioned said neither the U.S. nor U.K. will default. Forty six percent see a good chance U.S. will be infected by the crisis, while 53 percent say it’s unlikely. Half said that the dollar will be stronger against the euro in three months, up from 33 percent in November. The euro traded yesterday at $1.37, down 1.7 percent since the end of October.

Sarkozy and Merkel are both delivering keynote speeches in Davos this week. Trichet will participate in a session on the euro tomorrow, while EU Economic and Monetary Affairs Commissioner Olli Rehn -- who said Jan. 12 no country will restructure its debt -- appearing on a similar panel the same day alongside Greek Finance Minister George Papaconstantinou.

EU officials are eyeing a March 24-25 summit to complete a comprehensive package of reforms that overhauls their rescue tools, maps out a future aid mechanism and tightens fiscal coordination. Other Davos attendees include Klaus Regling, the manager of the euro-region’s bailout fund, Bundesbank President Axel Weber and Spanish Finance Minister Elena Salgado.

Investors are expressing confidence in the performances of European leaders, the poll showed. Sixty nine percent said they had a favourable view of Merkel and 63 percent had a positive opinion of U.K. Prime Minister David Cameron, while 56 percent viewed ECB’s Trichet favorably.

Asked if they expected governments to take steps to rein in bank bonuses, 62 percent said they didn’t and 34 percent said they did.

The quarterly Bloomberg Global Poll of investors, traders and analysts was conducted by Selzer & Co., a Des Moines, Iowa- based firm, and is based on interviews with a random sample of 1,000 Bloomberg subscribers. It was conducted Jan 20-24 and has a margin of error of plus or minus 3.1 percentage points.

Contacts

Bloomberg
Meghan Womack, +1 212-617-8514
mwomack4@bloomberg.net

Contacts

Bloomberg
Meghan Womack, +1 212-617-8514
mwomack4@bloomberg.net