What Eurozone Policy Will Mean For Financial Planning

February 27, 2023



Even if you fail to understand exactly what is going on, the crisis in the eurozone is never far from the news at the moment.

It is worthwhile to dig a little deeper into the issues, and consider how they will likely affect the financial landscape in the wider world over the coming months.

Image: Images_of_Money


Stories centred around Greek debt that have dominated the news. First there was the dramatic installation of an ECB stooge at the head of the Greek government, which is newsworthy in and of itself (especially considering that Athens is the birthplace of democracy). This has been followed by continued unrest in the Mediterranean country as mass protests have erupted against the austerity measures that have been imposed in a desperate bid to reduce Greek debt to a manageable level.

There have been dramatic pictures on the television of rioting and protest. These have been accompanied by stories of the hard times that the Greeks are enduring, with unemployment running high and cuts to the minimum wage that have plunged many into poverty. The question has been asked about whether this suffering is even in a worthwhile cause – with critics suggesting that the measures are proving damaging for the Greek economy.

What’s it all been for? The goal of the latest austerity measures to hit Greece was to ensure that they would meet the criteria for a further bailout. The fear was that if they could not then they would have to go bankrupt and leave the euro, which could have wide ranging implications.

One Crises Averted

The Greeks eventually made it to the bailout bus.  What has been termed a ‘disorderly default’ has been averted – in the short term at least. The bailout will not be without its cost outside of Greece however.

Debt is not just an abstract concept, it is a product. The debts of Greece will have been part of the investment portfolios of all kinds of individuals and institutions. Even if you do not have large scale personal investments, if you are invested in a pension fund then there is a chance that you could be  affected by the debt write down that was part of the deal.

  • Participants in the private sector involvement (PSI) agreed to take a further hit and accept an increased 53.5% write-off on the value of their Greek bond holdings.
  • Member states sponsoring Greece’s two bailout packages agreed to reduce Greece’s funding cost by a half to 1.5 percentage points.
  • The European Central Bank (ECB) will hand any profits made by holding Greek bonds over to the member states, who have committed these profits to Greece.
  • The IMF will reportedly only contribute less than a third of the funds, smaller than its share of the first Greek bailout. However, member states committed to a total bailout amount of EUR 130bn, regardless of the IMF’s involvement.

Via Adam & Co

Many are now suggesting however that the writing is on the wall for the Greek membership of the euro. The temporary crisis is over, but whether Greece will be able to stomach further austerity measures without descending into a state of near civil war is a subject  of debate.

According to financial planning specialists Adam & Company there are a number of dangers that lie ahead. First of all there is the prospect of further credit rating  downgrades in other European countries. This could risk spreading the crisis further. There is also the possibility that the new EU treaty will be nixed by some of the member states – the French elections in April are thought to be a key turning point for that.

The main dangers however revolve around Greece. The possibility of a Greek hard default already has markets twitchy, and the more likely it seems the worse it is likely to get. There is the very real possibility that Greece will have to leave the eurozone – which then raises the ultimate spectre: the eurozone breaking up entirely.

Do you think Greece will leave the Eurozone and cause its collapse? Do you have business interests in Greece which have suffered? Let us know in the comments below.

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  5. Punk economics: the Eurozone crisis explained
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