“Grexit” despite “grecovery”?

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The sentix Euro Break-up Index (EBI) barely changes in November and now stands at 11.6%. Obviously, Mario Draghi's latest announcements have not really impressed investors as far as the integrity of the common currency is concerned. It is mainly Greece about which investors again worry. But France does not look good either.

The sentix Euro Break-up Index (EBI) had risen from July to October. In the current month, the indicator recedes slightly from 11.8% to 11.6%. Consequently, the latest upward trend is stopped. But a significant decrease does not materialise. This surprises as just recently ECB president Draghi had strongly hinted at soon-to-be-implemented government bond purchases by its institution – a step which should take pressure off the euro's member states. At a conference in Frankfurt Draghi, for instance, said: "[...] we will do what we must to raise inflation". But this commitment does not seem to have had much influence on investors' views about a euro break-up within the next twelve months.

Investors worry increasingly about Greece. Although recession hast just officially ended in the Mediterranean country and the expression "grecovery" was coined, a growing number of investors expects a "grexit" in the coming year: the national sentix EBI for Greece rises the fourth month in a row, currently from 9.0% to 9.7%. This is its highest reading since January (see graph). The unclear financial future of the country and the threat of early new elections in February here have forged investors' perceptions.

And there is something going on in the background, too. While the national EBI for Italy falls again (from 2.9% to 2.3%), the French EBI does not send signs of relaxation. It stays at an all-time high of 2.1% in November. Interestingly, this does not fit with the performance of French government bonds: the yield for French 10-year bonds, for instance, just fell below 1.0% over the last few days. The EBI thus points to a possible erroneous trend and shows how fragile the situation still is.

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Background

The current sentix Euro Break-up Index reading of 11.6% means that currently this percentage of all surveyed investors expect the euro to break up within the next twelve months. The EBI has reached its high at 73% in July 2012, and touched its low at 7.6% in July 2014. The current poll was conducted from November 27 to November 29, 2014. 995 individual and institutional investors took part in it.

The sentix Euro Break-up Index is published on a monthly basis and was launched in June 2012. The corresponding poll is running for two days around the fourth Friday of each month. Its results are regularly published on the following Tuesday morning. Survey participants may choose up to three euro-zone member states of which they think they will quit the currency union within the next twelve months.

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