The Eurozone – will they or won’t they break up?

And what are the implications for investors?

The long running soap opera around whether the Eurozone will break up is now into its eighth year! In 2015 all the focus was on the latest Greek tantrum and last year the big fear was that the populist/nationalist Brexit vote and Trump victory would lead to a surge in support for populist parties across Europe and drive a Eurozone break up. There was no sign of this in Spanish and Austrian elections, but this will be put to the test again with elections this year in the Netherlands, France, Germany and maybe in Italy. The fear is that a Eurozone break up will plunge the world’s third biggest economic region into recession and financial chaos, which would adversely affect the global economy and Australia. Such a fear may be exaggerated – the UK hardly imploded after Brexit – but that’s the worry.

Key points

• Elections in the Netherlands, France, Germany, possibly Italy and another Catalonian referendum will keep Eurozone break up risks in the headlines this year.
• However, while the risks are significant – particularly in Italy and France – there are good reasons for thinking the Eurozone will continue to hang together.
• Periods of market turmoil driven by such fears should be seen as opportunities for investors in Eurozone shares and peripheral bond markets.

Read the full article by Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital.

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