Despair will turn into hope for European markets in 2012 but only after recession settles in, a Goldman Sachs analysts finds.
Markets will continue to roil during the early part of the year, but eventually, European governments will resolve the euro crisis and send stocks up 10 percent from where they are now even as a recession strikes the continent concludes Peter Oppenheimer, the chief European equity strategist at Goldman Sachs.
"We think in the near term the market has further to fall as recession is further priced in and earnings downgrades accelerate," Oppenheimer writes in a research note, CNBC reports.
"The timing of this rebound, however, is difficult to predict as it is party dependent on policy developments."
The entire eurozone economy will shrink by 0.8 percent in 2012.
Europe remains stuck in crisis as the European Central Bank (ECB) says its mandate prevents it from acting like a lender of last resort and prop up irresponsible fiscal behavior.
Still, SCB President Mario Draghi says the monetary authority is prepared to play a larger role if member nations adopt tighter budget controls.
"What I believe our economic and monetary union needs is a new fiscal compact — a fundamental restatement of the fiscal rules together with the mutual fiscal commitments that euro area governments have made," Draghi tells the European Parliament, according to Reuters.
"We might be asked whether a new fiscal compact would be enough to stabilize markets and how a credible longer-term vision can be helpful in the short-term. Our answer is that it is definitely the most important element to start restoring credibility. Other elements might follow, but the sequencing matters."
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