2011 was the year that the sovereign debt crisis jumped from the businesses pages to the front page, with austerity measures to address sovereign debt piles resulting in weakened economic growth, rising unemployment and fears of a double-dip recession. In the UK, the impact on the capital markets has been profound; the market for new issues has been virtually closed for business, M&A work was down significantly and secondary market volumes have been at historic lows. This, plus new banking regulations, have led to a further round of bloodletting in the financial services industry. In summary, a pretty tough year all round.
As a famous economist once said, running into debt isn’t so bad – it’s running into creditors that hurts. The systemic nature of the sovereign debt crisis means that the impact on creditors is significant with banks exposed to perceived “bad debts” tightening their lending even further, adding to an already severely constrained lending environment.
Call me an optimist but I think 2012 will be the year governments finally get their arms around the problem with prevarication amongst Eurozone ministers in particular finally giving way to a sustainable solution that sees French and German taxpayers (grudgingly) supporting their profligate southern European cousins. It won’t be easy but I think that, as in the immediate aftermath of the 2008 banking crisis, growth in emerging markets will help to power the global economic recovery and corporate cash piles will bring M&A back to life albeit stutteringly. A rekindling of the IPO market may need at least another year of investor confidence rehab – perhaps skip 2012 and bring on 2013 then.