Euro Devaluation Expected

Many economists including Belsize Accountancy, expect the most likely solution to the Eurozone crisis is to devalue the Euro. The European banks are in dire straights, especially the banks in Greece, Spain and Cyprus which are technically bankrupt. The banks in Ireland and Portugal are also facing difficulties. The latest €10m Euro bailout of the Spanish banks is simply forestalling the problem until a solution can be reached. The fact of the matter is that the banks have accumulated unsustainable amounts of bad debt and until this is written off and their processes are improved the banks will be in the same position once the bailout funds have been spent. 

It is estimated that it will cost at least €2 trillion to shore up the weaker European banks and quite simply, nobody is willing to pay up and fund these inefficient banks. Germany does not have the will nor the resources to bail out these nations for much longer. Also, given past experiences, the European ministers are unlikely to reach an agreement and implement a clever plan to restore the European financial sector. So far the only solution has been to throw money at the problem in the form of bailouts but this is clearly not sustainable and is not providing a long term solution. 

The most likely alternative therefore is a devaluation of the Euro, possibly in the region of 20%. The would allow the weaker European Nations to export their way out of trouble and will also provide a boost to Germany as a major exporter. 

We would advise businesses to take measures to reduce their exposure to the Euro and to plan for potential business opportunities that may arise following the potential devaluation. If you require expert financial advice, feel free to contact Belsize Accountancy at info@Belsizeaccountancy.co.uk. We are expert advisors for contractors and small businesses.