The end of the Euro, but not Europe?

As we draw towards the end of 2010 many are turning to the prospect of all manner of festive things and as I write this, the prospect and forecast of snow is on the horizon. Sadly, for those in the Emerald Isle of Ireland, the realisation of an economy in significant trouble is at the forefront of many minds.

Amongst other economic measures, a Bi-Lateral loan of around £7.0-£8.0 Billion has been offered by the UK to Ireland to help with its problems and with the International Monetary Fund (IMF) busy in its halls of power, the political power of the existing administration looks weaker by the day, with the election polls beckoning in January. Their austerity plan due to be released in Dublin later today will make interesting reading.

Ireland is far from being alone in this situation, and many other nations such as Greece and Portugal have suffered similar fiscal situations and other nations, such as Spain, are not looking as healthy as many would want. Other nations in the Euro-Zone, such as Germany, are not seeing the same economic problems and, in a contrary fashion, are seeing sustainable growth going forward, although time will tell if this remains constant. As with all of these things, past performance is not a guarantee of future performance. This imbalance is creating some economic friction. With some nations fiscally falling behind others, the pockets of the wealthier countries that have been dipped into to help out are, as the saying goes, beginning to get deeper with shorter arms, causing concern that this may undermine their own economies. Remember, this has been a painful time for all countries financially and attitudes are changing to the protection of their own countries rather than that of the Euro-Zone.

This has led to some speculation on the future of the Euro as a currency for the Euro-Zone. Some now suggest that the Euro in its present format will not survive. That some of the northern countries will form their own Euro currency, introducing a two tier Euro-Zone or simply revert back to their old currency from whence they came. However, there seems little speculation on the Euro-Zone as a whole, just the currency it uses.

Where does this trouble, concern, comment and speculation leave us as investors?

In my opinion, the answer lies in one word, which is ‘diversification’. The future for Europe as an investment area remains reasonable, although it is likely to go through some change going forward. By diversifying your investments (Pensions, ISA’s, OEICs, Portfolios) to ensure that you are not overly exposed to one investment area and taking regular advice from your Independent Financial Adviser (IFA) you should maintain the potential of reducing exposure to investment risk.

When looking at an individual investment area, you should also do this in conjunction with your overall attitude to investment risk. This should provide a more encompassing approach and Churchouse Financial Planning Limited has prepared an Investment Risk Scale to help with your considerations and this can be found here.

Past performance is not a guarantee of future performance. Values can fall as well as rise and are not guaranteed.

This article should not be treated as individual advice. Individual advice is only available based on your individual circumstances. Further information, advice and contact details are available at our websites, www.churchouse.com or www.planmypension.co.uk

Keith Churchouse

Director of Churchouse Financial Planning Limited

Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority. www.planmypension.co.uk is a trading name/style of Churchouse Financial Planning Limited.

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