Fears of a eurozone break-up ease

Concern over a possible break-up of the eurozone has eased among major corporations in the UK at the start of the New Year, while general optimism over the economic outlook has increased, according to a Deloitte study released today.

Chief financial officers of FTSE 350 companies feel there is a 22 percent chance that one or more countries will leave the eurozone this year, down from the 37 percent cited shortly before the start of 2012, according to the Deloitte survey. The number is also down from 27 percent in the third quarter of last year and 36 percent in the second.

At the same time, CFOs feel the chances of the UK falling back into recession have dropped to 40 percent from almost 55 percent a year ago, according to the 22nd quarterly Deloitte UK poll of CFOs, which canvasses the views of 112 CFOs from the FTSE 100 and FTSE 250.

At the IR Magazine Think Thank ‒ Euro Leaders 2012 in June last year, IROs from around Europe discussed how they were dealing with the possibility of a eurozone break-up. ‘We have had lots of discussions with investors about what would happen if one or two countries left the eurozone,’ said one at the event. ‘We talk about Russia five years ago, or Argentina 10 years ago, or the Asian crisis in the late 1990s, and how our business can survive and even prosper despite difficult circumstances.’

In the second half of 2012, finance ministers in Europe agreed on a common banking supervisor, various governments passed austerity budgets, the European Central Bank pledged firm action, and Greece and its creditors arrived at agreements on conditions over a third bailout package. Those actions eased concern over the eurozone break-up but general concern over the economy persists, according to the Deloitte study.

At the start of 2013, the main concern of UK CFOs is general weak economic activity and GDP growth prospects in the euro area, with 34 percent of those surveyed saying they are ‘very concerned’ about it. The second most common fear is weak economic activity and GDP growth in the UK, cited by 28 percent of the respondents. Around 22 percent say they are ‘very concerned’ about fiscal policy and retrenchment in the US this year.

‘CFOs enter 2013 in a more optimistic mood than they entered 2012,’ the report’s authors write. ‘The dominant concern for corporates a year ago was that the single currency could break up. Such fears have receded. Better news from the euro area and an end to the UK double-dip recession have boosted spirits.’