Reduced risk of contagion

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Following the French presidential elections, investors' perception of the euro crisis has once again relaxed considerably. The overall Euroland index fell to 11.4%, the lowest since autumn 2015. While the Greek sub-index remains virtually unchanged, the probability of exit from France and Italy drops significantly. As a result, the risk of contagion is reduced to around 34%.

The final election of Emanuel Macron to the new French president and the accompanying political signals aimed at closer cooperation in the European Union have once again had a positive effect on investors' perceptions of a break-up of the Eurozone. The Euroland overall index of the sentix Euro break-up index drops to 11.4%, the lowest since Oc-tober 2015. The risk of exit from France and Italy has decreased significantly, with a sharp decline in the contagion risk index.

sentix Euro Break-up Index: Headline Index Eurozone and contagion risk index (left scale)
sentix Euro Break-up Index: Headline Index Eurozone and contagion risk index (left scale)

The sub-index for France falls to 1.1% and thus close to insignificance. In Italy, too, we are seeing a significant decrease in the risk of exit (from 7.4% to 5.5%). Only Greece remains a significant risk for the euro from the point of view of investors. The index here only drops by 0.5 percentage points to 8.2%.

sentix Euro Break-up Index – Sub-indices for France and Italy
sentix Euro Break-up Index – Sub-indices for France and Italy

Background

The sentix Euro Breakup Index is published on a monthly basis and was launched in June 2012. Its poll is running for two days around the fourth Friday of each month. 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. Further details on the sentix Euro Breakup Index can be found on http://ebr.sentix.de.

This month’s reading of 11.4% 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 in which 946 institutional and retail investors participated was conducted from May, 25th to May, 27th 2017.

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