According to a survey, senior executives at UK corporates believe that the European Financial Stability Facility (EFSF) will not gain the confidence of Eurozone debt markets.

Over 90% of the executives are concerned, or very concerned, about the potential risks to their businesses from the Eurozone crisis and just over half think that the euro will fall against sterling over the next 12 months. However, 60% of them expected their firms to grow in the next year, while 24% have put in place hedging strategies to guard against currency volatility.

The survey was carried out for Investec Corporate and Institutional Treasury. Sir Howard Davies, former chairman of the Financial Services Authority and former deputy governor of the Bank of England commented on the findings: “I remain pessimistic about the Eurozone’s ability to produce a comprehensive solution to the crisis that everyone is hoping for. We should not let the current focus on the EFSF detract from the need to ensure that Eurozone banks remain sufficiently capitalised. If Greece can be isolated from the rest of the Eurozone, the implications for UK companies and the wider economy should not be as damaging as some are predicting. Without ring-fencing Italy and Spain, the results could be catastrophic.”

Investec chief economist Phil Shaw said: “It is critical that European leaders act quickly and decisively to stabilise euro area sovereign debt markets and steer the global economy away from the threat of another recession. Even if they are successful, huge challenges remain in addressing the longer-term structural flaws in the Eurozone.”

In a separate survey, European institutional investors expressed confidence in the Euro surviving in its current form, with 80% believing it will survive the current challenges. However, 42% think that the stability mechanisms in the Euro zone will need to be strengthened, while 25% think Eurobonds will be needed. Only 11 think a joint fiscal regime for the Eurozone will be needed.

RCM chief investment officer Andreas Utermann commented: “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. 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 recognise the impact of political risk on the current capital markets


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Published: October 17, 2011
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