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The Eurozone, today’s Marmite tomorrow’s Jam?

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Hello everyone,  and welcome to my first ever blog post. Over the coming months I hope to present a series of posts dealing with a range of topical financial issues which I trust you’ll find both interesting & informative. With this being my first ever post I deliberated as to which topic to start off with. With so much happening right now certainly there was no shortage of material to choose from. The following is a sample of the topics that merited consideration;

 

Gender Pricing

Like most things this started off some time ago as a European directive initially tasked with tackling issues of male/female gender inequalities in the workplace such as salaries pensions etc. More recently providers of insurance products have been forced to fall in line where since the end of 2012 people of both sexes have to be offered equal terms when purchasing insurance products such as car or health insurance.

Auto enrolment

This is being phased in over the next 5 years starting with larger firms aimed at making pension provision (almost) compulsory funded by both employers and employees

Retail Distribution Review (RDR)

New legislation which came into effect from the start of 2013 aimed at driving up the professionalism and standard of advice provided by financial intermediaries as well as transparency of charges for their clients

 

 

Any of the above would have been worthy for inclusion as all will have a major impact on a large proportion of the population and will no doubt feature to some degree in future posts.

However, my choice may seem odd to some for I have decided to cover….

The Eurozone

Love it or hate it, although we have been trading for a number of years with North America, more recently South America Asia also the Emerging Markets such as India, Brazil etc. there is no denying that the Eurozone remains the major trading partner of the UK and has direct impact on our economy.

The latest turmoil in the financial markets regarding the banking crisis in Cyprus highlights only too well how fragile this sector remains.

The European Parliament has launched a consultation asking firms and individuals across the continent how it can improve EU financial services rules and make them more coherent. The public consultation, launched this week by the economic and monetary affairs committee, included a questionnaire that asked firms whether they were given enough consideration by politicians creating new rules.

The troubles within the eurozone seem to have been with us for quite some time. Earlier attempts to tackle sovereign debt seemed to lack leadership or sense of purpose, were deemed inadequate and often seen as little more than applying a “sticking plaster” to a huge problem. However, in the eurozone, concerns about sovereign debt sustainability eased markedly after ECB President Mario Draghi commented on 26 July 2012 that “within our mandate the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough” and the subsequent announcement of Outright Monetary Transactions (entailing ECB purchases of a sovereign’s debt on condition that the sovereign seeks a formal bailout) i.e. the conditions currently being imposed on Cyprus.

By the end of December 2012 the yields on all of the troubled peripheral eurozone countries’ sovereign debt had fallen sharply. So far, the ECB has not bought any bonds under its OMT programme, but financial commentators regard that Spain will almost certainly need a bail-out, while Italy may well escape the need for one. Looking to 2013, there is concern that the ‘core economies’ are being contaminated by the depression in the periphery. This can be seen in the decline of German exports to the periphery, and in the decline in business sentiment indicators in both France and Germany.

There is, however, a silver lining to the changes. It is widely commentated upon that “governments in Europe are taking advantage of the crisis to change labour laws and make them more flexible. Italy and Spain have made huge steps forward in terms of making their labour laws more flexible and market friendly.”

It has been noted that “policymakers have done a lot. We’ve seen massive support for the capital markets and political commitment to the euro.”

That has helped the banking sector. A year ago, it was acknowledged that, “banks couldn’t issue debt; now they are issuing subordinated debt and meeting good levels of demand.” It is my opinion that the eurozone will survive. There can be no denying that restructuring is required, emerging out of that will be a stronger, wiser entity having learnt and been reshaped by the lessons from past misdemeanours. Back in the UK, the fiscal tightening plans are falling behind the initial schedule, with the elimination of the structural budget deficit now unlikely even in 2017/18. It looks like the UK will have “two parliaments of pain, not just one”.

Hope you all enjoyed this, my first ever blog post and sorry I couldn’t finish on a happier note in the meantime but watch this space.

 

WARNING – this blog is intended purely to be informative and should not be regarded as an inducement or recommendation to take any particular course of action. Every care is taken to ensure accuracy of information printed but this cannot be guaranteed.

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About the Author:

“Eddie Papazian is Principal of EP Wealth Management Ltd with over 20 years experience in the financial services industry and a keen interest in all matters financial. Strong bonds have been forged with clients over this period with many referring family and friends on a regular basis. Eddie is a member of the Chartered Insurance Institute (CII), level 4 qualified to provide advice on; pension, investment, mortgage and protection products. Other interests include reading, tennis, walking and cycling.”

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