There may be trouble ahead….still!/ Europe

With the first decade of Greece’s membership of the European Union (EU) upon us, the member states have to be commended for their hard work and recognition of the problems that this country finds itself in. It is good to see that the powerhouses of the EU, such as Germany and France, amongst others, are able to come together and find a solution to the debt problems that are now so apparent. With financial measures now agreed, it will be interesting to see if, in implementing these changes, they will be enough to control any contagion of default to other member states that find themselves with similar, if not larger, problems such as Portugal, Ireland / Italy and Spain ( together with Greece, unfortunately referred to as PIGS).

Many questions and answers lie ahead as to whether the financial measures agreed to help the Greek economy recover in an acceptable fashion, both to other EU states and the Greek people, will work. The major concern has been that as a state, Greece produces only approximately 2% (1.9%) of the EU’s overall GDP (Gross Domestic Product), which is obviously low. Their GDP deficit was over 10% in 2010 and public debt levels as a percentage of GDP at over 140% (142% in 2010). This raises the question of what happens if another larger EU state needs a similar financial solution and rescue?

Of the other countries already mentioned, using Italy in this example, this member state produces over 12% (approximately 12.7% of the EU’s GDP in 2010) and has a GDP deficit as a percentage of national GDP (4.6% in 2010) and levels of unemployment at 8.4% (2010). Their debt level is ‘only’ 119% (in 2010) and, as a further example, this compares to 80% debt level in the UK.

Default on national debt may have the effect of making debt costs rise in the Eurozone, making it likely that it would be more expensive for all countries to borrow funds to help their economies grow. This, in turn, may slow progress for member states out of recession, which most want to avoid. Time will tell if the measures agreed last week will be sufficient to meet the demands of the economies of the EU and I am sure many complications will appear in the coming months. There are many other global states and trading areas that rely on a strong Eurozone, and this is why it is important that these measures work into the future.

This blog is for information only and should not be seen or used as individual advice. Seek independent financial advice (IFA) for your own circumstances.

Churchouse Financial Planning Limited can help you with your own investment planning and asset allocation.

Keith Churchouse FPFS

Director of Churchouse Financial Planning Limited Chartered Financial Planner

ISO22222 Certified Financial Planner

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