THE last few weeks have seen much volatility in the financial world, with share prices showing dramatic daily movements as markets have fallen from recent highs.
Fears over slowing growth in the developed economies and continuing concerns over the level of sovereign debt have caused uncertainty and fear among investors.
A worrying trend has developed as a crisis of confidence rages over the debt of individual nations and the banks that hold that debt.
As concerns over Greek debt recede following bail-outs and agreement on austerity measures, attention is now focused on Italy and Spain.
To try to calm investors, the European Central Bank has started to buy Italian and Spanish debt, which they hope will instil more confidence in those countries’ ability to service their debts.
France and Germany have been the main contributors to the Greek bailout.
And if they have to give further funds to help Italy and Spain it could hamper growth in their domestic economies. As the level of debt is larger in Spain and Italy, any bailout assistance would have a much larger impact on the balance sheets of France and Germany.
This is likely to be a particularly thorny issue in Germany where there has already been widespread criticism of the government for assisting Greece to the extent it has.
Fear that debt problems could be spreading from the peripheral European nations to the main central nations has also pushed the finances of France into the spotlight.
France has the highest debt ratio of any AAA nation and rumours that credit agencies are monitoring their credit status and that French banks may need assistance have begun to circulate. This led the French president, Nicolas Sarkozy, to return from holiday early to meet with his cabinet to try to head off further potential problems.
The French government then pledged that they would consider fresh tax rises, spending cuts and other budget measures if necessary to ensure the country continues with is deficit reduction plan.
In a bid to reassure nervous markets, all three of the main credit rating agencies have stated that France’s AAA status is stable.
They do not see the country as having the same political policy problems as America, which is a positive. In the US, we have seen the political problems that the country faced in raising the debt ceiling recently. This was one of the factors that led the credit agency Standard & Poors to downgrade America’s credit status to AA+.
These issues may be with us for some time and markets can be affected by uncertainty.
Until the issues are closer to being resolved or there is a clearer economic picture to give an indication of the strength of the global recovery, there may be further volatility in financial markets and we recommend seeking professional advice before undertaking any type of investment to ensure it is suitable for your needs.
