(REUTERS) - Dealmakers could find themselves with even more free time on their hands next year if Europe's fiscal roadmap fails to convince investors and stabilize global markets.

In Europe, activity will be flat at best next year even if measures agreed to at last week's EU summit restore confidence that the continent can overcome its debt crisis.

We need at least two years before we have visibility on how or if things will stabilize. It is too early to call and any M&A rebound will depend entirely on this wider picture, said Michael Tory, a former Lehman banker and a founding partner of London advisory boutique Ondra Partners.

Bankers in North America and Asia are hoping Europe will not pull them down with it.

If we see stabilization in Europe -- not necessarily a lot of growth -- then I believe deals can get done and priced appropriately, said Steve Baronoff, chairman of global M&A at Bank of America Merrill Lynch. Unless Europe experiences significant upheaval, the intermediate term for M&A has some very good macro factors.

Merger and acquisition volume in the Asia-Pacific region, excluding Japan, is set to rise by a third next year after dipping in 2011, according to Thomson Reuters/Freeman Consulting estimates, as cashed-up Asian companies step up acquisitions to take advantage of depressed asset prices.

If you are working closely with a company getting ready to push the button to do a deal, and the market is souring in Europe, companies will pause, said Todd Marin, JPMorgan's head of investment banking for the Asia-Pacific region.

But certainly the conversations that we are having and the deals that are in the works suggest that people are assuming these issues will work themselves out.

Global mergers and acquisitions rose 3 percent this year to $2.464 trillion from $2.396 trillion in 2010, according to preliminary data from Thomson Reuters.

The increase was driven by a strong first half, which had promised that 2011 would be the start of a new multiyear M&A cycle before the euro zone crisis hit in the summer.

But activity declined dramatically in the second half, with dealmaking in fourth quarter falling 31 percent from the previous three months to $398 billion.

It was the third consecutive quarterly decline and the lowest quarter overall since the third quarter of 2004.

DIFFERENT TRACKS

Bankers said a healthy backlog of deals could emerge when macroeconomic conditions improve. Many companies have conserved cash on their balance sheets through the downturn and valuations are cheap.

Paul Parker, head of global mergers and acquisitions at Barclays Capital, said that prices were running at a 20 percent to 30 percent discount based on a forward price-to-earnings ratio and historical trends over the last two decades.

We may now be experiencing as low a price and financing environment as we'll ever get. If you couple that with strategic need, why would you not transact? he said.

Several companies have taken the chance in North America, even as the uncertainty over Europe and the global economy raged in the second half of this year. Kinder Morgan Inc (KMI.N) agreed to buy pipeline company El Paso Corp for $21 billion, while United Technologies Corp struck a $16.5 billion deal for Goodrich Corp.

Bankers said they were seeing the backlog of deals grow in the fourth quarter.

I'm bullish long term on the M&A environment, said Bruce Evans, head of U.S. M&A at Deutsche Bank. While during periods of extreme volatility, it may be difficult to get the stars to align, we are nevertheless seeing a continued, consistent flow of smart strategic M&A deals.

Even in Europe, some bankers are seeing signs of hope. New engagements have increased since October and when I look at our pipeline for next year, I'm encouraged, said Hernan Cristerna, head of M&A for EMEA at JPMorgan.

EUROPEAN GLOOM

So far though, markets are pricing in a recession in Europe, and economists have warned that the recent Eurozone financial pact will do little to fix a debt crisis that is choking off funding for Spain and Italy. Many there fear continued weakness in the region could spread globally and eventually undermine the healthier M&A markets in the United States and Asia.

European M&A was $96.34 billion in the fourth quarter, the lowest since the third quarter of 2002.

Giuseppe Monarchi, head of M&A for EMEA at Credit Suisse, had predicted that dealmaking would increase by 20 percent to 30 percent at the start of the year.

He now says the outlook for next year remains flat, which he called a very good result in the current macro environment.

Wilhelm Schulz, head of EMEA M&A at Citigroup Inc, said that deals in Asia could help European companies do at least some deals, providing a silver lining.

This year European M&A is down overall. However, we have seen a meaningful increase in both EMEA target activity and acquisitions by European companies in Asia. This trend is going to continue, he said.