Some calm before the showdown

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In May, the sentix Euro Break-up Index recedes from 49.0% to 41.2%. Investors obviously take – despite Greece’s still unclear future – comments of the Hellenic government seriously that the country wants to keep the common currency. And a default on its debt could still be an option while staying in the euro! At the same time, investors rate dangers of contagion emanating from a possible euro-exit of a country as fading.

Recently, statements of Greek officials have increased in number saying that one is determined to remain a euro member. As a result, the Greek Euro Break-up Index (EBI) falls and now stands at 40.7% after 48.3% in the previous month. This, in turn, leads to a decrease of the overall sentix EBI by around eight percentage points to 41.2%.

20150526 sentix ebi eng

Consequently, uncertainty concerning the common currency’s future is still elevated just before the next Greek IMF payment is due at the beginning of June. But, at least, relaxation is observable. The avoidance of a “Grexit”, however, would not necessarily mean that the country would fulfill all its financial obligations in the future. Probably such a scenario has come more and more into the focus of investors’ thinking over the past weeks and thus has contributed to the fall in the EBI.

If Greece keeps the euro, this should hold all the more true for the rest of the currency-club members. Thus, on a nation-al level it is – besides Greece – only Cyprus that sticks out with an EBI of 6.3% (after 10.6% in April). All other national indices display negligible levels, and that is why the sentix Contagion Risk Index falls to a new all-time low (see graph).

At first sight, the generally low EBI readings could be understood as a positive sign for the spreads of euro-zone government bonds. But, if behind this there is actually the conviction that possible future defaults could occur while keeping the euro, this would undoubtedly be very bad news for the periphery!

Background

The sentix Euro Break-up 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 Break-up Index can be found on: http://ebr.sentix.de.

This month’s reading of 41.2% 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 May 21 to May 23, 2015. 1,009 individual and institutional investors participated.

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