A&M Wealth Management | Grexit, Brexit or Fix It?
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Grexit, Brexit or Fix It?

Grexit, Brexit or Fix It?

The effects of the 2008 global financial crisis will be felt for decades. It wasn’t just banks, but governments that were caught out by years of profligate spending.

They say that every cloud has a silver lining but can that be true in this instance? The answer is yes, …. maybe!

Before the crash, the European Union project was developing at speed, however, as federalism increased, so did Euro scepticism. For many people across the continent it wasn’t a question of whether further integration was right or wrong, it was about decisions being taken by unelected bureaucrats in Brussels, pushing us along a route we were not sure we wanted to take.

To question the European project was frowned upon, with some politicians even suggesting that it was “unpatriotic”!

The global financial crisis brought everything to a grinding halt and as the music stopped, it was Greece that was left holding the parcel. Greece joined the monetary union by adopting the Euro (after fudging its financial data) and was able to borrow heavily at very attractive rates. Unfortunately, Greece is now bankrupt and has to borrow money to meet its obligations. It will never be able to repay its debts and may leave the EU (known as a Grexit), seeking funding from elsewhere.

The lesson to be learned is that “one size does not normally fit all”. A single currency linking an economy like Germany with an economy like Greece has proved unworkable.

The immediate future for the eurozone remains uncertain and whatever happens, there will be repercussions and asset volatility in the short term.

Meanwhile, growing scepticism in the UK about further integration increased and became a major issue in the recent election. As a result, the newly elected Prime Minister is seeking a renegotiation of powers in Europe followed by a referendum in the next two years. It is likely that the electorate will be asked if Britain should leave the EU (Brexit), or remain as a member of a restructured union.

Although finding common ground with all member states will prove difficult, Germany seems willing to support change to ensure that the UK remains an active member.

The immediate future for the eurozone remains uncertain and whatever happens, there will be repercussions and asset volatility in the short term. Greece may return to its original currency, leave the EU, or both. Alternatively, a solution may be found that enables them to manage the debt. Either way, Greece should be able to rebuild its economy over time and possibly become more fiscally responsible in the future.

Meanwhile, Britain is forcing the EU to take time out to review and reassess the European project. As with Fifa, Brussels is now being held to account and is learning that it cannot become a dictatorship. Member states are now listening to the concerns of the people and this could help to reshape the European Union in a way that is more realistic and acceptable.

If the political will is there, the EU may be able to Fix It, ….. a silver lining indeed!