EUROPE - The €750bn (US$970bn) European rescue package is a positive short-term fix, but does not provide the structural changes needed to make pension funds and other investors fully comfortable with European sovereign credit, asset managers said.
AllianceBernstein senior European economist Darren Williams said the massive rescue package provides "breathing space" but "does nothing to solve the longer-term problems" of liquidity and competitiveness.
"Ultimately, for a pension fund, you want to know how stable your investment is. None of this addresses the question of whether Greece is solvent in the medium-term," he said.
European Union finance ministers and the International Monetary Fund (IMF) have unveiled a so-called "shock and awe" strategy to stabilise the Eurozone and prevent contagion from the Greek debt crisis.
Under the agreement, the 16 members of the Eurozone will have access to a €440bn debt facility and €60bn of emergency European Commission funding. The IMF will also contribute €250bn.
Meanwhile, the European Central Bank announced it would buy Eurozone government and corporate debt.
Asset managers welcomed the move as a needed step to stop the spread of solvency risk throughout the Eurozone.
PIMCO managing director and head of European portfolio management Andrew Balls said: "They've finally done something to get ahead of the problem."
He said problems at the country level were starting to seep into the European bank level and the EU's measures have "stopped that downward spiral".
Williams added: "It clearly helps with the short-term problem of liquidity and financing."
However, Balls warned the rescue package doesn't address the structural issues that underlie the debt crisis spreading though Europe. "Countries like Greece, Portugal, Spain, have very big fiscal adjustments that need to be made," he said.
He said investors have been offloading European sovereign bonds, and while the packages may prevent force-sellers from slashing their holdings, it will not stop investors with long-term concerns about solvency from selling.
Fidelity investment director Tom Stevenson had similar questions about the long-term solvency of some Eurozone countries, but said there's a lesson to be had for pension fund investors.
"The takeaway for pensions is the need for broad diversification because there's such volatility at the moment and I don't think that is going to go away," he said.
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