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2012 Eurozone fireworks!
by Simon Garrett on 17 January 2012
Changes in the Eurozone should be very interesting over the coming year. Reports that analysts were considering downgrading the triple A debt rating for France over 18 months ago. Behind the scenes the French were saying “we can’t be downgraded ahead of the UK”. However, President Sarkozy has now said this publicly, ahead of the downgrade last Friday. Apparently, the markets had already been working on the basis that a downgrade had happened already.
Of course, the downgrade of France is very damaging for Sarkozy, who faces election. His chances of re-election were already limited, even prior to the downgrade. It looks like the candidate likely to be elected in France has different views regarding the Eurozone financial policy and is likely to therefore have a weaker relationship with Angela Merkel – watch out for fireworks!
Of course, the UK is deeply affected by the Eurozone crisis via the exposure of its banks to Eurozone banks, many of which look shaky, and to European Sovereign debt. Europe is the UK’s biggest export market. For these reasons the UK economy and UK SMEs are deeply affected by decisions made by the Eurozone.
One has to hope that Germany , the senior partner in Europe manages to come up with an approach that minimises the impact of the Eurozone debt crisis – so far its domestic political situation seems to have prevented this from happening. Whether a change of French president will make the situation worse, who can tell? There are now so many variables that predicting the outcome can’t be realistically done. What does appear to be likely- and I am sorry to be pessimistic, is that living standards in Eurozone and the UK are going to continue to fall for a while- it’s simply a question of how far and for how long.
I have no doubt that life will be tough for UK SMEs.
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