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Net Net: Promoting innovation and managing change

Eurozone Breakup Twice as Likely; Housing Could Surge: BofA Survey

European Central Bank
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A month ago, just one in seven investors considered one or more nations leaving the Eurozone a likelihood. That number has since doubled.

Now, 27 percent consider a currency union breakup the most likely scenario this year for the European sovereign debt crisis, according to the most recent Bank of America Merrill Lynch Global Investor Survey. The prospect is now considered the second most-likely outcome, after “muddle through.”

In December, the choice was considered the fourth most likely of five options – at 14 percent – behind the European Central Bank embarking on a quantitative easing program, muddling through, and fiscal union.

The January survey saw muddle through as the top choice by a wide margin, with 57 percent of the respondents expecting the Eurozone to survive but struggle.

The potential for an ECB QE program tumbled all the way in half, to 19 percent, even though some would argue that the Long-Term Refinancing Operation vehicle, which is helping banks recapitalize for the purpose of buying sovereign debt, is QE by another name.

Investors in the survey changed their minds about other things as well.

The biggest potential surprise for 2012 went from a “hard landing in China,” to a potentially stronger-than-expected housing recovery.

Some 27 percent chose that possibility, relegating economic troubles in China to second place at 20 percent. Successful Italian fiscal reforms were at 17 percent and the spreading of the sovereign debt crisis to Japan came in at 9 percent.

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