While globalisation has undoubtedly led to an increased accumulation of wealth across the globe, it has also meant that countries many miles apart are now very closely linked economically.
So, while it does matter which government we have here in the UK and it is important that our own policymakers are making the best possible decisions so as to deliver economic growth, the outcome of talks concerning the Eurozone and Greece is likely to have a major impact on all of our financial futures.
That’s because the effects of either a Greek exit from the Eurozone or a less stringent programme of austerity in Greece could cause major problems for economies across Europe and, in fact, the world. And, the knock-on effects of recessions and economic turmoil could be higher rates of unemployment, falling asset prices and a long period of financial hardship for consumers.
A Greek Exit
Clearly, an exit from the Eurozone by Greece would cause severe financial turmoil. The country would default on its debts and leave the members of the single currency zone in challenging circumstances. Since the Eurozone is a major trading partner of the UK, it would have a knock-on effect on the UK and cause business and consumer confidence to fall sharply, resulting in a much higher chance of a recession.
Reduced Austerity
Even if Greece does not exit the Eurozone, it seems as though new terms are an absolute must and that its government will not accept a continuation of the recent austerity measures. Any reduced austerity, though, could prompt a wave of anti-austerity movements across the Eurozone and may lead to a change of governments in countries such as Spain and Italy, which are also enduring tough financial penalties from the Eurozone.
The effects of this on the UK, although more gradual, could be equally severe. Certainly, the UK could be viewed as a ‘safe haven’ by investors seeking an alternative to the Eurozone, but the benefit of this is likely to be outweighed by economic weakness across the Eurozone. And, from an individual’s perspective, it could mean that unemployment moves higher, asset prices slide and economic growth grinds to a halt.
Looking Ahead
Of course, the chances of a Greek exit from the Eurozone appear to be subsiding somewhat, with the country’s Syriza-led government now rumoured to be willing to accept a six-month extension to the loan agreement from its 18 partners in the Eurozone. Although this does not mean that a deal is close, any extension would provide time and space for a new deal to be put together and agreed.
The problem, though, is that the Eurozone cannot afford to give an inch when it comes to Greek austerity, or else it could cause the current situation to be repeated across the Eurozone. Likewise, the Greek government has been elected because of its tough stance on austerity, and so is unable to go back to Greece with similar terms to those of previous years.
This stalemate means that the outlook for all economies across the globe remains uncertain and, although a deal of sorts may be agreed in the coming days that provides an extension for a longer term solution, the fact remains that a decision made by Greek and Eurozone politicians will have a major impact upon your finances in the coming weeks, months and years.
