Caution on sovereign debt issued by the struggling eurozone economies is paramount for investors as the region’s future remains uncertain, says Lombard Odier.

The investment strategy group at the Swiss private bank says that Greece is heading towards exiting the euro and that the country could be followed by Portugal, Spain and Ireland.

The Swiss bank believes that Europe has found itself in an economic cul-de-sac, where austerity has proved to be the wrong policy choice but that the growth policies championed by François Hollande, the French president-elect, are equally flawed. The French socialist will struggle to convince Germany to acquiesce to eurozone members abandoning austerity, Lombard Odier says. The firm also argues that anyone going down the fiscal stimulus path would not only be punished by financial markets, but that the route is also unlikely to work in any event.

In other words, while Lombard Odier welcomes the anti-austerity message coming out of last weeks’ elections in France and Greece, it does not think that a dash for growth will work in practice.

The only option left for the continent is public and private debt restructuring accompanied by massive recapitalisation of the banking system, according to Lombard Odier’s analysis.

More interventionism from the European Central Bank could, however, give a lift to broader equity markets, at a time when the Bank of Japan is under pressure to pump more money into the economy and a third round of quantitative easing by the Federal Reserve in the US could be in the pipeline, the firm says.

After Hollande’s victory over Nicolas Sarkozy in the French presidential election on Sunday, many commentators are sceptical as to whether the markets will allow the socialist to embark on his ambitious growth plans. On the other hand, Pioneer Investments, the Italian asset manager owned by Unicredit, has said that Hollande is likely to be more economically responsible in office than implied during the election campaign, and the firm has increased its exposure to French sovereign debt on that basis. Pioneer also holds Italian and Spanish debt as it believes that the countries’ respective governments are on the right track.