Political factors hampering reform in eurozone

UNCERTAINTY will continue to be the watchword this year until the eurozone crisis is resolved, according to wealth manager Cheviot Asset Management.

The firm believes investors will give Europe a wide berth while the economic outlook of low-growth/no-growth persists.

The International Monetary Fund’s gloomy warning last week that the global economy is “deeply into the danger zone” because of risks from the eurozone, merely re-inforces this view.

Despite the magnitude of the problem, Cheviot senior partner Simon Walker believes some European leaders are almost in denial over just how bad it is.

He says: “It has been in crisis phase for a number of months and there is a lack of urgency in the process to generate a solution. The leaders need to provide reassurance to the rest of the world quickly. There is turmoil in the markets as there is no sensible conclusion to calm nerves.”

Part of the reason for this, Mr Walker believes, maybe the forthcoming elections in both Germany and France, with domestic issues weighing-heavily on the agenda of both Chancellor Merkel and President Sarkozy.

He says: “France and Germany are not doing enough – Sarkozy is staying close to Merkel so whatever she decides on will be palatable to the French. Their agenda is different to the rest of the market.”

While a break up of the eurozone is not anticipated, economists say there needs to be a fundamental reform of the way the euro zone members behave regarding their financial structures.

Ismail Ertürk, senior lecturer in banking, at Manchester Business School says: “What is needed now is decisive reform of the eurozone financial system so it serves the needs of the single currency.”

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