Greece on the slippery road

We are now 3 years into the economic recovery and unfortunately employment growth remains subdued.

As Governments, companies and consumers continue to repay their borrowing (deleverage) in addition to spending cuts like those seen in the UK with slow consumer spending this has led to a restriction of economic and employment growth and the low interest rate environment is likely to continue for the foreseeable future.

Therefore cash deposits will most likely continue to pay a negative real return, when we factor in the ongoing rate of inflation which is approximately 5% in the UK.

The government (sovereign /central bank) debt crisis in Europe remains the biggest threat to global recovery. Whilst the austerity measures are prevailing, economic growth is not evident at this stage.

Why is economic growth so important? Well, if economic growth is healthy, it means that more people are employed which in turn can stimulate among other things, the property market whilst the flow of money is greater within the economy and governments can raise more taxes to repay debts and raise interest rates to control inflation and public spending.

Unfortunately, for Greece, their method of tax collection is not as efficient as our own HMRC and the alleged corrupt collection of their own tax revenues, means effectively that the country has no sustained income from taxation and mounting debts. It may be a matter of when Greece defaults rather than if, and their departure from the Euro appears inevitable.

So, how can the Euro debt crisis be resolved? Well one solution could be for the European Central Bank to issue a ‘Euro bond’ which could help recapitalise the failing economies within the Eurozone – for example in Portugal, Italy, Ireland and Spain. However, in the short-term and for the remainder of 2011, expect choppy waters and volatility in stock markets until this situation improves.

So, how should investors respond? As we have said before, in the main our clients are not investing over the short-term so the sentiment of the day is not a concern to them. On the contrary, they are playing the long game, remaining patient and in conjunction with our help, ensuring that they are not falling foul of some of the common investment mistakes.

If you would like to discuss your own circumstances or wish to make a positive difference to your own finances, please feel to call us on 01626 833225 to find out more.