Euro debt crisis deadline talks: How the UK is affected
Vital talks aimed at providing an imaginative and comprehensive solution to the euro debt crisis have begun in Brussels.
However, even as they started, the main protagonists, France and Germany hastily arranged a further meeting for next Wednesday, an admission that not everything will be decided this weekend.
A proposed resolution to the problems in the eurozone has seen numerous preludes announcing vital talks, so will it be any different this time?
Eurozone leaders need to agree on three central areas; How to deal with a second Greek bailout, how to recapitalise their banks and how to raise the firewalls or increase the size of the European Financial Stability Facility (EFSF) from the €440 billion that was finally ratified earlier this month.
France has suggested that the EFSF be turned into a bank enabling it to borrow from the European Central Bank (ECB) but Germany disagrees saying that it would affect the ECB’s impartiality.
Germany has also said that it will not allow the liability to the German taxpayer to increase beyond the €211 billion already agreed.
The consensus that an agreement is absolutely vital has been building up in political circles for weeks but it will not be easy to find and it is difficult to call how the big decisions will be arrived at and what they will be over the next week.
But how do the problems in the eurozone affect the UK and our own finances through investments and annuity rates. Here is the lowdown on the current problems facing the UK as a result of the euro debt crisis.
UK Exports
Let’s start with UK exports, of which 40 per cent are to the Eurozone, according to the Prime Minister, David Cameron. With so many of the UK’s key trading relationships in Europe, a failing Euro signals a threat to this stream of business.
The more European economies which go the same way as Greece and Ireland – the fewer opportunities the UK will have to trade. And with such a large bulk of custom and demand disappearing, this could impact greatly on jobs here in the UK.
Experts say this will particularly affect small to medium sized businesses, which are already suffering from the harsh economy. This area is probably the government’s greatest concern when it comes to the affect the Euro debt crisis is having on the UK because so much trading is to the Eurozone.
UK Bank Exposure
European stock markets fell dramatically over the third financial quarter of this year.
French and German stocks have suffered falls of 25 per cent since the beginning of June and the UK’s FTSE has not escaped the downward trend, suffering its worst performance in a quarter since 2002.
How does this affect our banks? For starters, many of our big banks sell shares on the stock markets. So with buyers pulling out, banks are being deprived of funds through investors.
Meanwhile they have also been writing down debts from European countries like Greece. If this continues then these banks will have less money to lend to their customers – in other words individuals and businesses in the UK. This will of course affect mortgages and business loans.
Pension and Annuity Rates
Many of our pension funds are invested in the stock markets, which means anyone with a pension is at risk from the current volatility.
It’s not a total catastrophe. Markets tend to rise over the long term and volatility, such as is being experienced at the moment, tends to be seen as just a blip in the ten to twenty-year period over which pension investments run.
If you are approaching retirement, however, the Eurozone crisis and the market turbulence it is causing may well have an impact on your annuity – this is the product you buy in order to take an income from your pension for your remaining years.
Annuity rates are impacted by the price of gilts (government bonds) and these are currently rising in price as investors turn to them as a safe-haven in times of volatility.
To cut a long story short, the insurance companies which provide annuities are reducing the income paid from these annuities. As such, a person retiring today will receive income which is 14 per cent lower than someone who bought their annuity at the start of the year, according to independent financial adviser, Hargreaves Lansdowne.
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Investment ISA rates
Millions of pounds are also invested in stocks and shares ISAs in the UK. And they are also being affected by the tumbling share prices.
Hargreaves Lansdowne’s figures show an ISA account worth £20,000 at the start of this year, would only be worth £17,556 if it is cashed in today. If you needed any further proof the markets were struggling, you need only look to the company results of some of the big high street names which are FTSE stalwarts.
Tesco, for example, has traditionally been a sterling performer – a relative safe haven in the world of stock market shares. But the supermarket is set to become another retail giant who will announce weaker results.
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