The Eurozone Effect – Will Britain Suffer?

Posted on 19 November, 2011 by MOVEHUT

With Europe quaking over the recent eurozone crisis, many small businesses may be feeling the pinch, especially those with clients and trading partners in countries using the Euro as currency. Warnings by Prime Minister David Cameron that Britain will be ‘hit hard’ do little to alleviate these fears.

The main worry property lenders cite with regards to the eurozone is the likelihood of a second recession, due to the mounting debts of countries such as Greece and Italy. With both of these countries currently undergoing parliamentary upheavals and changes, the question must be raised whether replacing current political players will have a positive or negative effect upon, firstly, the respective nations, and secondly, the eurozone as a whole. Problems arising from these changes could include the collapse of the Euro as voters in snap elections force their Governments’ hands in the issue of the economy.

Considering the debt issues facing both Italy and Greece currently, their exit from the Euro, with no financial recompense available for the member nations, would have a significant impact on Europe as a whole. Unable to ‘buy’ their way out, these countries would have no option but to become indebted to the eurozone, thus meaning Euro member states themselves would be plunged into financial difficulties. International trading with European countries would become something of a risk, given the probability of currency inflation as Euro member states struggled to adjust to the debts incurred by ex-member states reverting back to their pre-Euro currencies. This, in turn, would affect Britain significantly, as the value of the pound could no longer be evaluated against the inflated eurozone prices. Transatlantic relations would also suffer as American trading markets collapsed, the knock on effect causing the dollar to suffer accordingly.

Yet the appointments of new leaders in Athens and Rome could put an end to the crisis, claims European Commission President Jose Barroso. He believes that Greek Prime Minister Lucas Papademos, a former central banker, and Italian Prime Minister-designate Mario Monti will be able to reform parliaments formerly divided on the grounds of political views. “They’re there not just because they’re technocrats, but because it was easier to ask independent personalities to construct political consensus.

“The level of hostility between different political forces is enormous.”

Unfortunately, the eurozone crisis has also had an effect upon the commercial property industry in the UK. Reports indicate that investors are beginning to move towards the prime end of the market, which means that, although average deal sizes have almost doubled in the past quarter, the majority of these cases tend to be in London and its surrounding areas. Activity across the remainder of the country continues to be restrained due to a lack of investor confidence in the current market.

Adam Ramshaw, associate director of Lambert Smith Hampton (LSH)’s office in Birmingham, says “While the market is subdued, a lasting solution to the eurozone debt crisis would provide a much needed fillip, increasing confidence and acting to reduce some of the negative sentiment.”

It appears, then, that until a resolution is found in the European markets, British commercial property will continue to struggle. But with new appointments made to the governments of Italy and Greece, the turnaround may come sooner than originally expected.

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