As Europe stumbles from one crisis to another, market participants remain fearful that the region’s debt troubles have yet to fully play out.

With the announcement on Friday by the European Commission that the 17 nations that make up the eurozone are in recession and that their economies are likely to shrink by 0.3% this year, any optimism in European markets appears a rare commodity.

“Large amounts of austerity still need to be put through in Europe this year that will act as a huge headwind,” a London-based hedge fund executive told Markets Media.

For Greece, the epicenter of the euro crisis, last week’s election result reveals the anger that is now being directed at politicians over the continent-wide austerity measures that have been imposed to bring the debt mountain under control.

And these worries continue to permeate the region’s markets. Trading volumes remain slow generally across asset classes as European market participants consider their next moves.

“Investors are holding on to liquidity,” Paul MacGregor, executive director, head of fixed income at NYSE Liffe in London, the global derivatives business of NYSE Euronext, told Markets Media. “A Lot of the hedge funds are saying we can’t really judge the headwinds so we are going to revaluate our trading activities for the time being.”

“Since August last year there has been a significant withdrawal of liquidity in the market, and a lot of flows from end users are very cautious about how the markets are going to play out.

“With economic releases illustrating that we weren’t getting out of the economic downturn any time soon market sentiment changed. So the first quarter this year has been a continuation of the fourth quarter of last year—where we saw quite a severe withdrawal of liquidity globally across all asset classes.

“Investors are very cautious with limited risk appetite in the marketplace; and subsequently our figures for the first quarter reflected this—not just in the fixed income space, but across all asset classes and across all listed derivatives you will find a similar story.”