German election fuels eurozone uncertainty


    As markets digest the results of the latest eurozone agreement on further support for Greece, 2013 looks to have in store a continuation of the volatility and uncertainty that comes with failing to fully resolve a crisis for more than two years.

    Ted Scott, director of global strategy at F&C, says the issue will continue to overshadow the economy and markets in Europe as politicians have simply become more adept at “kicking the can down the road”.

    He says: “An example of that is what happened with Greece; there’s no real resolving of the situation but it does provide Greece with enough money to keep going for another several months or perhaps a year.”

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    Uncertainty over whether Greece will stay or leave the eurozone is continually debated, although most think an exit unlikely, at least for now.

    Wouter Sturkenboom, investment strategist at Russell Investments, says: “In my opinion it’s something of a sideshow, but it’s something the markets are focusing on so we have to take it into consideration as well.”

    Mr Sturkenboom says there is presently no argument strong enough to change the current route of extensions and providing incremental support to Greece when necessary.

    Peter Dalgliesh, investment director at Parmenion, agrees that a Greek exit is unlikely, not least because it would make Angela Merkel’s re-election prospects difficult.

    The German elections, in the second half of 2013, will see Ms Merkel aim for a third term in office. The result could have a significant effect, with Mr Dalgliesh adding: “If Ms Merkel loses, it could sow a seed of meaningful instability across the eurozone, so that is a big uncertainty that sits out there.”

    However, the key focus in the first half of the year remains policy action to resolve the debt crisis.

    Tim Cockerill, head of collectives research at Rowan Dartington, says: “Markets have become quite sanguine about the situation for now because of the ECB’s statement that it will do whatever is needed to save the euro and protect vulnerable countries.

    “But this has not been tested yet as no country has asked for a bailout. With little or no growth in some economies, the day when help is asked for gets closer. There has to be a crunch point because it is not possible to keep bailing out Greece or anyone else ad infinitum.”

    Mr Sturkenboom adds: “We think 2013 will be characterised by a tug of war between new policy actions. Specifically, we expect the ECB to trigger its OMT [outright monetary transactions] programme on Spain, but on the other hand we also expect the real economy in Europe to do rather poorly.

    “If you look at the drivers of growth, weak lending, weak consumption, weak production, high unemployment and continued austerity will make it very hard for the real economy to do well.”

    However Mr Scott’s main concern is the policy adopted by the eurozone leaders and its effect on the region’s future. “The problem is the policy thus far has been to combine austerity with bailout packages and providing finance for the various sovereigns and the banks. While that keeps the show on the road, it means you get lower growth as a result.