Mark Dampier: Markets losing patience with eurozone crisis

The Analyst

It has become impossible to look at the prospects for stock markets now without considering some kind of resolution to the euro crisis. Across the pond the Americans have problems as well, but at least they have a currency that they are able to readily devalue. European politicians seem content to kick the can further down the road and, in the absence of firm action, investors remain nervous about equities, and in particular European equities, which have fallen particularly heavily. Political commentators generally seem to think the sticking plaster policies will continue. But the markets are in an impatient mood and I think we are nearing the point where they force politicians' hands.

The increase in Spanish and Italian bond yields now seems to be driving the crisis at a faster pace. With 10-year bond yields at around 5.5 per cent, an increase of 1 per cent or so might just push the whole thing over the edge. To me it is eerily reminiscent of September 1992, when the UK was ejected from the European Exchange Rate Mechanism. We have Greek politicians still, on the whole, denying any great problems exist and rushing to push through asset sales to pay back an amount of debt which appears unpayable. For Greece we need to see debt forgiveness, probably of at least half the debt. While this would solve Greece's problems, at least in the short term, it wouldn't necessarily be a resolution to the crisis. Banks would crystallise heavy losses on their bond holdings and the spotlight would turn to other indebted countries. The crux of the problem for the markets is that investors can see no clear way through this crisis, and it is even difficult to see what options are left. Will the Germans ultimately leave and go their own way? Will the Greeks leave and return to the Drachma? And where is the line in the sand drawn? Does the entire Southern Europe bloc end up leaving? None of these are palatable options. They will all be hugely disruptive and expensive. Unfortunately the more you look at the numbers the more impossible it all looks, not only in Greece but elsewhere. According to Chris Rice of Cazenove, Italy must refinance £300bn of debt a year for the next few years. As he says in a recent newsletter: "With nominal GDP barely growing it's a non-starter as a policy."

Given the impossibility of the situation, an answer for the Germans might be to just let Southern Europe go. The Germans have been huge winners from the single currency. As one of the world's major exporters the currency level they are enjoying is probably 40 or 50 per cent lower than if they still had the Deutschemark. It has made German companies exceptionally competitive. You just have to look at the Swiss Franc to have some idea of what might happen if the Germans went it alone. What would be the impact? A German recession, but quite possibly a big buying opportunity for European equities outside Germany.

So what do investors do? Remember with the ERM ejection in 1992 the markets fell precipitously initially, but then rebounded strongly. The whole episode was a golden buying opportunity for UK equities. My feeling is still that you should ensure you have cash in your portfolio to give you the option to buy more equities and corporate bonds if markets fall. If there is a large fall, I think it will herald a major buying opportunity.

My suspicion is the markets will at some stage lose patience with the European crisis. Muddled promises of austerity measures and fiscal integration will no longer cut the mustard. I may be wrong, but I think the volatility we are seeing suggests otherwise.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Software Developer / C# Developer

    £40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

    Neil Pavier: Management Accountant

    £45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

    Sheridan Maine: Commercial Accountant

    £45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

    Laura Norton: Project Accountant

    £50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

    Day In a Page

    Abuse - and the hell that came afterwards

    Abuse - and the hell that follows

    James Rhodes on the extraordinary legal battle to publish his memoir
    Why we need a 'tranquility map' of England, according to campaigners

    It's oh so quiet!

    The case for a 'tranquility map' of England
    'Timeless fashion': It may be a paradox, but the industry loves it

    'Timeless fashion'

    It may be a paradox, but the industry loves it
    If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

    Could have done with Osama bin Laden staying alive?

    Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
    New exhibition celebrates the evolution of swimwear

    Evolution of swimwear

    From bathing dresses in the twenties to modern bikinis
    Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

    Sun, sex and an anthropological study

    One academic’s summer of hell in Magaluf
    From Shakespeare to Rising Damp... to Vicious

    Frances de la Tour's 50-year triumph

    'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
    'That Whitsun, I was late getting away...'

    Ian McMillan on the Whitsun Weddings

    This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
    Kathryn Williams explores the works and influences of Sylvia Plath in a new light

    Songs from the bell jar

    Kathryn Williams explores the works and influences of Sylvia Plath
    How one man's day in high heels showed him that Cannes must change its 'no flats' policy

    One man's day in high heels

    ...showed him that Cannes must change its 'flats' policy
    Is a quiet crusade to reform executive pay bearing fruit?

    Is a quiet crusade to reform executive pay bearing fruit?

    Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
    The King David Hotel gives precious work to Palestinians - unless peace talks are on

    King David Hotel: Palestinians not included

    The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
    More people moving from Australia to New Zealand than in the other direction for first time in 24 years

    End of the Aussie brain drain

    More people moving from Australia to New Zealand than in the other direction for first time in 24 years
    Meditation is touted as a cure for mental instability but can it actually be bad for you?

    Can meditation be bad for you?

    Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
    Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

    Australia's first-ever Eurovision entrant

    Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine