2011 has been a year with a lot of news.  From unrest across the Arab world, to the deaths of dictators, it has been all go. The earthquakes and nuclear emergencies in Japan caused major disruption to industry in the region while in the UK cities across the country burned in three nights of rioting. In such a year it would be easy to overlook the great Euro drama that has unfolded/

It is no exaggeration to say that the whole European project has been rocked to its core. The sovereign debt crisis that had been brewing, some would argue for a decade, has come to a head.   The previously unthinkable step of elected leaders being replaced by so-called ‘technocrats’ had to be taken not just once, but twice with both Greece and Italy being judged incapable of managing their own affairs.

There has been talk about the breakup of the single currency, with many doubting whether it would be able to survive the pressures on it. This is clearly being seen very much as a last resort by the key European powers, and a great deal of effort and expense is being put towards keeping the currency afloat. Of course, not every EU member was on board with this…

The great David Cameron summit flounce has opinion divided. To the Eurosceptic wing of his party the use of Britain’s veto was seen as his greatest achievement. To others it was seen as a disaster, as none of the other member states that are outside of the euro joined, and an agreement was made that did not require Britain’s participation. It was seen by some as the EU leaving Britain.

Supposedly Cameron geared up for the tough task of negotiating by making sure that he was desperate for the lavatory. A full bladder is thought to concentrate the mind leading to better decision making processes. Whether this had any part in Cameron effectively running out of discussions will be something that historians may chuckle over in years to come when examining the international relations of this period.

The year end on a high for the eurozone however. The liquidity injected by the European Central Bank has proved to be just the tonic that the bond markets were looking for with investors and hedge funds alike returning. As far as financial planning is concerned it is too early to say what will happen with the euro, but it does look like it is odds on for a bumpy ride in 2012.



The political parties and much of the populace are united in the belief that tough measures must be taken to control spending – but what is this likely to mean?

Austerity is pretty much the only game in town at the moment politically. In Greece and Italy it has been judged to be necessary to install technocrats from the European Central Bank in government in order to bring spending down. There is no danger of that in Britain, but that is not to say that we will not be feeling the pinch of austerity measures.

Rightly or wrongly, reducing the budget deficit has been set as a major priority. Polls indicate that there is a general consensus that this is necessary, and the problem of overspending is one that it is easy to visualise. In life if you are spending more than you are bringing home in earnings, then you are acting irresponsibly and getting yourself into trouble.

The length of time it will take to reduce the budget deficit to the levels deemed acceptable is likely to be longer than was first thought. It could be as long as a decade. Having that as the economic mood for the next ten years will certainly not be easy, and that is why it makes sense to start preparing for it sooner rather than later.

If you are currently in work then it makes sense right now to save absolutely every penny you can manage. This is not the message of ‘consumer confidence’ that the economy needs, but there are a lot of compelling reasons why it could be in your own self-interest.

There have had to be widespread pay cuts, pay freezes and lay-offs in the public sector. Obviously this affects those households where a public sector employee is a bread winner, those certainly need to be putting away all that they can because it certainly isn’t going to get any easier. It also however has implications for those working in the private sector.

Declining levels of real-terms remunerations combined with redundancies means that there will be lots of former public sector employees entering the jobs market. This is yet another way in which downward pressure will be being put on wages. Very few households are likely to see their levels of disposable income rise over the next few years.

Money being tighter is one reason why it makes sense to save now, but there are also others. Reducing public spending means that everybody is going to have to be much more self-reliant than they have grown used to being in the era of untrammelled spending. What this will mean is yet to be seen, but it is a sure bet that having some funds put aside is going to help. Returns on savings accounts are not the highest that they have ever been, but the value of having cash in reserve (in and of itself) is set to increase.

For the time being at least it seems as though ‘getting worse’ is the new normal. Everyone hopes that there will be a brighter future at some point, but in the meantime preparing for tough times ahead seems likely to be prudent.

http://thetrawl.magnify.net/video/OECD-calls-for-urgent-action-to

This video from the OECD looks at the growth prospects for next year. Frankly it does not look good. Depression across Europe looks to be a done deal, and that is without taking into account any worse case scenarios involving the euro.

The OECD has stated that it believes that even a single country leaving the euro would have very serious consequences. These could include any number of bankruptcies. This would be “apocalyptic” according to the Polish foreign minister Radoslaw Sikorski.

Apocalyptic is clearly an exaggeration. For the man and woman in the street how much extra hardship they could be in for if there was a round of debt defaults is debatable. One thing is for certain though, that even the prospect of this happening is not helpful to the recovery of the economy.

Given that there is much riding on the success of the eurozone, the international commitment to the bailout funds has not been outstanding. One of the ongoing debates is whether European debt should be consolidated into one. This could then be sold as a product, a so-called ‘eurobond’.

The bond market looks set to see changes over the next few weeks. For the amateur investor it is a nightmare scenario. There are just to many variables, and on top of that a lot of the latest best assessments of what is happening are not available to ‘civilian’. The best bet is likely to be some form of ‘damage control’. Those with assets sufficient to consider private wealth management may find that expert advice can keep them from getting burnt, but 2012 is going to see a lot more winners than losers, and now is no time to go rushing into any kind of investment without knowing the full facts and having at least the bare bones of a backup plan.