More than ‘fiscal compact’ is needed to end eurozone crisis

EurozoneMany European asset managers that invest in fixed income do not believe that recent policy efforts to solve the eurozone crisis will work.

Research found that although over half of those surveyed (58%) thought the eurozone fiscal compact was positive, they also thought it will be marginal in solving the region’s problems.

However, the Fitch Ratings research found that one-quarter of those surveyed did see the effort as an important policy innovation bringing crisis resolution closer. Seventeen per cent saw it as an irrelevance.

The fiscal compact, if signed by all 12 members of the euro area, will come into force on 1 January 2013 and means that countries that do not either balance their budgets or run a surplus could be fined.

Fitch believes that its survey results indicate that asset managers think additional measures are needed.

Fitch’s views are that the fiscal compact is an “important step towards building confidence in fiscal discipline in the eurozone”, though it agrees there is more to be done.

Further steps are likely to include some dilution of national fiscal sovereignty, Fitch says, and potentially some partial “mutualisation of sovereign liabilities and resources”, as well as measures to enhance pan-eurozone financial supervision and intervention, combined with more reforms to strengthen eurozone economic governance.

The survey was conducted between 27 March and 4 May, and represents the views of managers of an estimated $5.6 trillion (€4.3 trillion) of fixed-income assets.

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