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Greece Financial Crisis and Your Money - Samantha Tanner, Wealth & Living Magazine

Greece Financial Crisis and Your Money

The Greece financial crisis has been at the forefront of investor concerns for the last few weeks, shaking up equity and currency markets in the uncertainty of aid and the protests that have erupted in violence in Athens.

European, Asian and US markets have felt the full force of uncertainty and concern within the region, with some markets completely erasing the gain so far for the year. The euro has also become volatile with investors instead turning towards commodities or other currencies such as the dollar.
However, in reality how much will this crisis affect your investment decisions in the future?

The global downturn really began when banks in the US and UK started lending to individuals who could not afford it and started gaining credit beyond their means. At a time when borrowing was at its highest, mortgages were being sold to those who could not afford it, creating a false demand in housing and resulting in an excess of new builds.

This, of course, meant that the price of houses dropped resulting in companies having to borrow large amounts, thus making credit more expensive and pushing up interest rates. Individuals then could not afford to repay their loans, and in some cases the houses were worth less than what they owed. This resulted in the sub-prime mortgage crisis, and is why the governments on both sides of the Atlantic intervened with the out of control borrowing.

In the UK and US the respective governments planned on introducing measures to attempt to drive down the cost of borrowing and encourage spending within the economy. By now the markets felt the ripple and began to show the effect that outrageous lending had. The uncertainty claimed the first victim of Lehman Brothers in September 2008 when the Obama administration decided not to save it like others affected by the recession before it.

A similar situation had arisen in the UK when Northern Rock and RBS were bailed out by the government. It was this situation that led both governments to turn to borrowing.

Quantitative Easing measures by the UK and US had the desired effect and both countries have seen to be emerging from the recession. However, both economies have been left with huge budget deficits that are in need of plugging before it gets out of control.

This is the situation Greece currently find themselves in, but on a much larger scale than either the US or UK. Government borrowing has now reached a massive 12% of GDP and is expected to rise before it falls. The problem that Greece has is that it cannot afford to pay off its debts, resulting in the budget deficit continuing to widen and a real fear of the country defaulting.

The sheer size of Greece’s debt meant that a rescue bid had to be formed by the EU and IMF in order to salvage investor interest in the euro, and to ease the pressure on other struggling nations such as Spain and Portugal. One of the conditions of the rescue package, thought to be worth €110 billion, is that Greece provide their own austerity measures to try and raise some much needed funds. This decision is what has caused protests and rioting among Greek people in Athens. They believe that their government is corrupt and should not have to take wage cuts and tax increases. This has caught world media attention, alerting investors to what is going on in the region and making them aware that their investments could be risky.

In addition, the European central Bank have been called upon to provide some form of Quantitative Easing to the eurozone, something that Germany are opposed to as they believe it could damage the region further.

With the focus firmly on Greece at the moment, investor uncertainty is causing the equity and currency markets to fall sharply.

However, investors should always look to the long term with any investment they make. It may be the case that markets have dropped considerably on Greece concerns, but it also makes now a brilliant take to invest as it is cheaper to buy into, offering some great buys.

In the grand scheme of things the major markets in Japan and the US do not really deal with Greece. Japan exports out to America and the UK and imports in from China and vice versa. The fact that the markets in these countries have fallen shows how investor fear can spread quickly.

While Greece’s current predicament is a concern for some in the eurozone, it needn’t be for you as an investor. It is always sensible to make a careful selection over investments, or use gold as a great hedge, but for long term investments there are potentially greater returns on cheaper markets.

Samantha Tanner

Samantha Tanner is the editor of Wealth & Living Magazine which provides wealthy individuals and expats advice on relocation and the latest luxury must-haves.

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