Higher support for the euro after the Brexit vote

Pernille Bomholdt HennebergSenior Analyst+45 45 13 20 21/+44 20 7410 8157perni@danskebank.com

2 January 2017

Investment Research

www.danskemarketsequities.com Important disclosures and certifications are contained from page 10 of this report.

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• The European Commission’s Eurobarometer for autumn 2016 showed higher support for theeuro as a single currency. Support was at 70% in the euro area, which equals the recordhighs reached in autumn 2004, spring 2007 and autumn 2008.

• On the other hand, optimism about the future of the EU was unchanged at 50%. The figurewas at 58% in spring 2015 and the 50% level is the lowest since the debt crisis in 2011-12.

• Immigration was still seen as the most important issue facing the EU followed by terrorism,but both were considered slightly less important than in the spring 2016 survey.

• Across countries, especially Italy and France remained countries with low optimism aboutthe EU. In Italy, the ratio for the common currency was 53% – below the average in both theeuro area and the EU and EU optimism weakened to 42% – the lowest since the debt crisis.

• In France, optimism about the EU also remained low at 41%, but the ratio for the euro as acommon currency was only a little weaker and stayed at 68%.

• In Germany, on the other hand, support for the euro as a common currency jumped by 8pp to81%, while optimism about the future of the EU increased to 50%, having declined sharply tobelow crisis levels in autumn 2015.

Higher support for the euro as a single currency after Brexit vote

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Higher support for the euro after Brexit vote:Of people in the euro area, 70% support the euro as a common currency

Higher support for the euro as a single currency after Brexit vote

The European Commission’s autumn 2016Eurobarometer survey showed highersupport for the euro as a common currency.Of people in the euro area, 70% support theeuro as a single currency. This equals therecord highs reached in autumn 2004,spring 2007 and autumn 2008.

The survey was carried out between 3-16November and is the first since the UK’s voteto leave the EU. There is a risk that upcomingBrexit negotiations between the UK and EUas well as the UK leaving the EU are affectingsentiment and optimism about the EU.

Among the four biggest euro area countriesthe support for the euro as a commoncurrency was 81% in Germany (+8pp), 71%in Spain (+3pp), 68% in France (-2pp) butonly 53% in Italy (-1pp).

Source: European Commission Eurobarometer, Danske Bank Markets

IE85% DE

81% FI78%

NL77%

BE76% PT

74% SP71%

EA70% FR

68%GR

68%AT

62% EU58%

IT53%

DK30% SE

27% UK24%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Share being for one single currency, the euro

Ratio being for the euro as a common currency

November 2016

33

Ratio for the euro equalled record highs In Germany, higher ratio for the euro

Higher support for the euro as a single currency after Brexit vote

20%

30%

40%

50%

60%

70%

80%Ratio being for the euro as a common currency

For (Euro area) For (EU) Against (EU) Against (Euro area)

IE

DEFI NL BE PT

SP EAFR GR AT

EU

IT

DKSE

UK

+2pp

+8pp+2pp0pp -1pp

+5pp+3pp+2pp

-2pp+6pp-7pp

+3pp

-1pp

+1pp+2pp

+7pp

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Ratio being for one single currency, the euro

Ratio being for the euro as a common currency

Spring 2016 compared with Autumn 2016

Spring 2016

Autumn 2016

Source: European Commssion Eurobarometer, Danske Bank Markets Source: European Commission Eurobarometer, Danske Bank Markets

44

Optimism about EU still at debt crisis levels: Optimism in Germany improved in autumn 16

Optimism about the future of the EU remained low

At an EU level, optimism about the future ofthe EU remained unchanged at 50% inautumn 2016. Optimism was at 58% inspring 2015 and the 50% level is the lowestlevel since the debt crisis in 2011-12.

In Germany, optimism about the EU’s futureimproved in the autumn 2016 survey afterdeclining sharply to below crisis levels inautumn 2015. In France and Italy, future EUoptimism weakened to 41% and 42%respectively and in Italy, the optimism is atthe lowest level since the debt crisis.

Immigration is still seen as the mostimportant issue facing the EU followed byterrorism, but both were considered slightlyless important than in the spring 2016survey (see page 5).

Source: European Commission Eurobarometer, Danske Bank Markets

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

80%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Optimistic about the future of the EU

EU DE FR IT SP IE UK

55

Immigration the most important EU issue Unemployment most important for countries

Immigration and terrorism were seen as important EU issues

Source: European Commssion Eurobarometer, Danske Bank Markets Source: European Commission Eurobarometer, Danske Bank Markets

-10 10 30 50

Energy supply

Pensions

Taxation

The enviroment

Cimate change

Rising prices/ inflation/ cost of living

Crime

EU's influence in the world

Unemployment

The member states' public finances

Economic situation

Terrorism

Immigration

Most important issues facing the EU

Autumn 2016

Spring 2016

0 5 10 15 20 25 30 35

The environment, clamate and energy

Taxation

Housing

The education system

Goverment debt

Crime

Terrorism

Pensions

Rising prices/ inflation/ cost of living

Health and social security

Economic situation

Immigration

Unemployment

Most important issues facing the countries

Autumn 2016

Spring 2016

66

In the euro area, 67% felt like EU citizens High support for free movement of people

Two-thirds in the euro area felt like EU citizens

LU92

MT82 PT

79ES79

FI79

PL78

IE78

DE77 EE

75

SE75 LT

74

DK74 LV

73SK73

SI73 BE

71 HU69

NL68 RO

67EU67 AT

66 FR61 HR

60UK55 CZ

53CY53

IT51 BG

50 GR47

8

1721 21 20 21 22

2223

24 25 25 26 26 2629

3032 31 32 34

37 39

43 46 4748 49

53

LU

MT

PT

ES F

I

PL

IE

DE

EE

SE

LT

DK

LV

SK S

I

BE

HU

NL

RO

EU

AT

FR

HR

UK

CZ

CY IT

BG

GR

You feel you are a citizen of the EU (%)

Total 'Yes' Total 'No' Don't know 0 20 40 60 80 100

Further enlargement of theEU with more countries

Trade and investment agreement betweenUS and EU

Economic and monetary union

A digital single market within EU

Common foreing policy

Common migration policy

Common energy policy

Common defence and security policy

Free movement of EU citizens

Percentage of EU-citizens for the following topics (% - EU)

Autumn 2016

Spring 2016

Source: European Commssion Eurobarometer, Danske Bank Markets Source: European Commission Eurobarometer, Danske Bank Markets

77

Will EU-sceptic parties acquire some power? Many political events and risks during 2017

Political uncertainty will not vanish in 2017

2017

French presidential election

23 April and 7 May

2018

Italian general election

Before 23 May 2018

German general election

Between 27 Aug and 22 Oct

Dutch general election

before 15 March

The UK to trigger Article 50

before the end of March

Source: Danske Bank Markets Source: Danske Bank Markets

0% 5% 10% 15% 20% 25% 30% 35% 40%

DK: Danish People's Party

SE: Sweden Democrats

UK: UK Independence Party

IE: Sinn Fein

PT: Left Bloc

GR: Golden Dawn

GR: Syriza

FI: Finland's Finns Party

AT: Austrian Freedom Party

BE: Vlaams Belang

NL: Dutch Freedom Party

SP: Podemos

IT: Five Star

FR: Front national

DE: Alternative for Germany

Latest polls (Nov-Dec) Last national election EP 2014 EP 2009

88

Resilient economic and financial sentiment: High policy uncertainty – no economic impact

Political uncertainty has not weakened the economic recovery

The euro area economic recovery hascontinued as political uncertainty has notderailed consumer and business optimism.

Given the limited economic impact of politicalevents, we expect GDP growth to remainpositive and for the unemployment rate tocontinue to decline in 2017.

We forecast investments will contributerelatively more to economic activity in 2017as they are supported by accommodativefinancing conditions, the synchronised globalrebound and a need to modernise the capitalstock following very weak investments duringthe crisis. Source: Economic Policy Uncertainty, Markit PMI, Danske Bank Markets

99

Business confidence strengthened in Q4 16 Consumer confidence remains at a high level

Political uncertainty has not weakened the economic recovery

Source: Markit PMI, Eurostat, Danske Bank Markets Source: European Commission, Eurostat, Danske Bank Markets

1010

This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske Bank’). The author of the research report is Pernille

Bomholdt Henneberg, Senior Analyst.

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