The structured finance industry remains in flux, with ongoing rules and regulations dragging down the market. However, events in Europe in the next year will provide another large drag on mortgage finance in the United States, according to a panel at the American Securitization Forum. In opening remarks at the conference in Las Vegas, ASF Executive Director Tom Deutsch said upcoming regulation, such as the Volcker Rule, could irrevocably damage the recovering securitization market. "We are all supposed to respond to these, but we don't know how it will yet work," said Ronald Mass, co-head of structured products for Western Asset Management Co., at the 2012 Securitization Market Outlook panel. Moderator Douglas Murray, managing director at Fitch Ratings, referred to these unknowns as "wild cards" in the industry. However, panelists appeared confident that the securitization industry would survive and pointed to positive performance of the auto and collateralized loan obligation markets as proof fixed income is working well. Mortgages remain a soft spot, they admit. Murray asked Ganesh Rajendra, head of international asset & mortgage-backed strategy at RBS Securities, for an outlook on the European economy. Rajendra didn't hold back. His team, he said, expects Europe to officially hit a recession for the first half of 2012, with some areas doing better than others. The events will have a negative effect on American securitization the panelists indicated, though were not specific about the possible mechanics. "It is suddenly a two-tier economy," Rajendra said of Europe, with the South decoupling from the stronger North. The U.K. and Germany are particularly positioned to withstand the downturn. Murray offered a slide of the ratings of separate European countries to back Rajendra's claim. "Greece default has a material probability. Italy remains the elephant in the room," Rajendra added, though he feels these risk are likely already priced in to the market and political solutions seems unlikely. "Policymakers lack coordination, unlike in the U.S. where there is one political body making decisions," he said, "there is no concept of approaching this with a bazooka and solving it, therefore it's always going to be piecemeal." Write to Jacob Gaffney. Follow him on Twitter @jacobgaffney.