The press has been relatively silent over Greece and Spain over recent weeks. At Belsize we see a major devaluation of the Euro as inevitable. The euro continued to fall against major counterparts on Friday as the formal approval of Spain's bank bailout by Eurozone finance ministers offered it little relief after the Spanish Valencia region said it will seek central government help to repay its debt. The Euro is currently down to £1.28 against the Pound and 0.82 against the US Dollar.
Fears over the end of the Euro or even a major devaluation mean that Greek and Spanish savers continue to rush to withdraw money from their banks. More than €1 billion was withdrawn from Greek and Spanish banks last month.
The recent government bailout of Bankia was the first sign of a major crisis in Spain. The third largest bank was part nationalised earlier in the year as the bank had made huge loans to property developers who are now at risk of default. Developers have been building huge projects in Spain for which there is insufficient demand in a country with record levels of unemployment.
The Spanish government has since requested a €100m bailout to support its remaining banks who are stricken with debts. The ECB has made a surprising move to provide emergency funds direct to the banks rather than take on further sovereign debt. Whether this is a sensible solution remains to be seen.
European ministers have been openly talking about a Greek exit but whether this will take place as an orderly default has been put in doubt due to failed confidence in the global market. The high number of withdrawals from the Greek banks could result in an implosion of the Euro. To date European politicians have been assuring themselves that the Greek economy is not large enough to create major damage. However, the added prospect of bank runs in Spain could be too large to contain.
We watch with interest in the relative safety of the UK. Clients with exposure to the Euro would be advised to take precautionary measures.