At the time of writing, the talks between Greece and its creditors are ongoing and we do not yet have a deal to keep the country in the Euro. Clearly, there have been moments in the last few days when a deal seemed likely, with the FTSE 100 making strong gains earlier this week as the two sides were said to be close to an agreement. Today, however, talks continue and there appear to be a number of sticking points that are holding up a deal.
Grexit
Of course, the impact on your personal finances of Greece leaving the Euro is a known unknown. In the short run, it is likely to cause an increase in fear among investors, and so it is perhaps a given that stock markets will fall considerably if Greece cannot come to an agreement with its creditors. Furthermore, the outlook for the Eurozone is likely to deteriorate, which could cause business confidence to weaken and lead to reduced investment and lower demand for goods and services. In turn, the UK economy is likely to be affected by this, since Europe is a major trading partner.
However, the major long term impact of a Grexit could be on the prospect of a larger scale break-up of the Eurozone and, potentially, the EU. In fact, if Greece were to leave the single currency region and the EU it could act as a ‘blueprint’ for other countries that are unhappy with the levels of austerity being demanded to follow Greece out of the door. In other words, by voting in an anti-austerity government, it may be possible to either reduce the severity of austerity or even leave the Euro/EU altogether. And, while a number of Brits may be in favour of a Brexit, a break-up of the Euro and/or EU would be likely to have a major impact on jobs, house prices and economic growth over the medium term.
No Grexit
The chances are, though, that a deal will be reached. That’s simply because, ultimately, there is too much for both sides to lose. However, even if Greece does remain in the Euro and the EU, its economy may struggle to recover as quickly as is being hoped. That’s because it is intending on a number of wealth creation taxes, such as increasing taxes on businesses which, in the long run, may starve economic growth and cause a lack of new jobs, prosperity and tax receipts to pay back the vast sums owed. And, if Greece does struggle to mount an economic comeback, it seems likely that further negotiations may be just around the corner, with the Greek electorate unlikely to stick with the status quo if unemployment remains high and economic growth remains low. As such, more negotiations could lie ahead even if a deal is reached this week.
Opportunity
So, while the avoidance of a Grexit may be good news for your personal finances in the short run, there may be further challenges ahead which impact on asset prices and the UK’s economic outlook even if a deal is reached. As such, further uncertainty may lie ahead but, as history tells us, there are always a number of ‘grey swans’ on the horizon and, while they may cause uncertainty, they also create opportune moments to benefit from weak asset prices.
