Greece is the word

Markets were in retreat last week after a raft of uncomfortable economic news. The biggest issue was Greece’s potential default on its sovereign debt, but US jobless claims and the end of quantitative easing in the UK also played their part in the slide. Are the resultantfears founded? Or do they represent a buying opportunity for those investors who didn’t get back in the market last year? The issue of Greece is complicated. From a purely economic perspective – which is the position of many international investors – the situation makes no sense. Greece must default on its debt or exit the eurozone in order to allow its currency to devalue and regain its international competitiveness. The cost of propping it up could be high and why would France and Germany – both well on the road to economic recovery – support a profligate nation whose financial problems are largely self-made? There is, however, the contagion problem and there is also the political problem. Spain, Portugal and Ireland are vulnerable. The crisis has exposed the gaping holes in the euro experiment, but the stronger nations in the eurozone may not be prepared to abandon it just yet – the grouping of nations had a political as well as an economic purpose. Certainly European Union policymakers seem determined to keep it afloat. They are also – better late than never – crawling all over the Greek government’s plans to reduce the fiscal deficit. In this case, the question is how much it will cost the larger nations in the EU to support Greece. They’ve already done a fair bit of bailing out and it’s not as if Greece is likely to be more competitive at the end of it. Some fund managers, notably Richard Buxton of Schroders, have suggested the markets are simply forcing action that would have needed to be taken anyway. The euro is depreciating against the dollar, which should help the situation slightly. Much will depend on the GDP numbers due out from France and Germany this week. If they are strong and it pushes up the euro again, it could create further problems. The trouble is that this, plus the end of quantitative easing, plus the US payroll numbers, adds up to a whole load of uncertainty. The markets have lived with uncertainty for a very long time now, but it doesn’t mean they have grown any more used to it. Everyone is eager to see the clear blue skies of recovery but, for the time being at least, they may need to accept the horizon is still thick with fog. The experts always recommend buying equities when it is painful to do so, but it would be brave to suggest this level of uncertainty represents a buying opportunity. Please call Mark or Clare at GMP Independent Financial Advisers LLP on 0207 288 6400