The eurozone sovereign debt crisis has been looming for more than two years now. Bold actions by the European Central Bank (ECB) have provided liquidity to the eurozone banking system but policy makers have not been able to convince the financial markets. The agreement by eurozone leaders to provide up to EUR 100 billion in loans to recapitalize the Spanish banking sector neither restored investors’ confidence nor has it eased the pressure on Spanish government bonds. Several southern European countries (most notably Italy, Portugal and Spain) have started to implement structural reforms, although any benefits will be for the long term. To date, the eurozone has been more a political than a financial concept. Even though many commentators are predicting or even asking for abreak-up of the eurozone, we believe that the eurozone will remain intact until all political will disappears. In such a “muddling through” environment, investors become risk-averse and in many cases have been reluctant to commit capital.
Source : UBS AG