Cyprus and the other Euro angst

Written by Manfred Hübner | 25 March 2013
Posted in sentix Euro Break-up Index News

The tiny island nation of Cyprus holds the euro zone in breathing. The impending collapse of the Mediterranean island has unsettled investors and from their perspective increases the likelihood of a breakup of the euro zone. The sentix euro break-up index, which measures that probability rises to 41.05% (19.25% for the previous month). This is the highest level since late September 2012. The survey was taken from March 22nd to March 23rd, 2013 and attended by some 1,000 investors.

Although a majority of investors still expect that the composition in the euro club not in the next 12 months will change, but with a strong jump in the EBI the euro crisis is arrived back in their heads. Investors see an exit of Cyprus as a relief from a burden rather than a start of a wave of exits. This is evident at the individual country EBIs.

The EBI for Cyprus jumps to 92.75%. So many investors expect that it will be Cyprus, which must leave the euro zone. Since about 41% of investors expect the exit of a country, the result is an exit probability of 38.1% for Cyprus. The real surprise, however, is Greece. The exit probability drops significantly to only 19.2%, the lowest measured value since the introduction of the EBI! This means that from an investor's perspective in the case of a Cyprus exit no further contagion is expected. The sentix Contagion Risk Index falls slightly to 38.36%.

The second worrisome Euro country in recent months, Italy, remains under strict observation of the investors. Still about 15% of the investors expect that it will be Italy, which will possibly leave the euro zone. As the number of Euro-skeptics has increased in the current survey, with 6% we note the highest exit probability for Italy since the introduction of the EBI. In clear contrast, Spain and Portugal are no longer among the top candidates for an Euro exit. Spain in particular has greatly improved in investor confidence.