The last few weeks have again been a rollercoaster ride on the world stock and bond markets with the occasional positive day being outweighed by the sheer number of negative ones due to the ongoing crisis gripping the Eurozone.
With the G20 recently having failed to provide the type of support that the Eurozone was seeking, and having been told in no uncertain terms to put their houses in order on the domestic front before they can expect to receive any further international support, we have witnessed changes of government in Greece, closely followed by Italy and then in Spain.
What is interesting in the former countries is that both new Prime Ministers have been parachuted into the job with neither having being elected by the voters. What this means for the democratic process presumably only time will tell, but in the case of Greece and Italy the markets had lost patience with the former incumbents and the cost of borrowing for those nations has reached a level which is deemed unsustainable.
Further concerns have now been raised around the borrowing needs of France, demonstrating how contagion spreads in markets. Borrowing costs have even risen in recent days for nations including the Netherlands and Austria, both of which have growing economies and fairly robust debt to GDP levels relative to their more heavily indebted peers and neighbours within the Eurozone.
UK bank exposure to Greek debt is comparatively small, but with what appears to be a rising threat emerging in Italy, Spain and possibly France also, the potential impact in the event of a default or writedown of that debt for UK banks has serious implications.
What happens in Europe really matters for our economy as more than 50% of UK exports go to the Eurozone. If as nations they cannot pay their way in the world our export markets will dry up very quickly and the impact on our economic output and our already deteriorating unemployment rate will be significant.
The politicians, be they elected or otherwise, need to agree a plan of action sooner rather than later!
Brian Murphy is Head of Lending at Mortgage Advice Bureau
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