03.04.2012

By Simon Miller

Was it really a year ago that Financial Risks Today was first published? In 2011, events in the Middle East were reaching a height and Japan and New Zealand were reeling from being hit by tsunamis. Unfortunately here in Europe we were treated to a never-ending case of déjà vu where Greece struggled with its debt problems and every announcement of an action plan from Europe led to a brief rally in the markets before the inevitability kicked in and shares sunk as reality bit.

So have things changed? The Middle East is still being played out with the added intransigence of Iran and while Japan and New Zealand recover, the
economic affects are still being felt. In this issue, we examine what risks are on the horizon from the political point of view with the help of political analysts and, although there are trigger points, they are cautiously optimistic that there are opportunities for finance houses amid the risks.

Here in Europe, Greece has finally got a debt swap deal in return for bailout money, a deal that many argue should have been done a year ago if not before. However, forecasts suggest that no matter what
austerity measures are enacted in the troubled country, its debt repayment problems will return in a few years time and it is doubtful whether the country has any capacity left to deal with it. To this end, Graham Buck examines what would actually happen if Greece did leave the euro.

Finally, by the time you read this, the Chancellor of the Exchequer George Osborne would have presented his budget to Parliament.

Now there has been a lot of kite-flying and lobbying of potential proposals but one thing that Osborne must remember is that, despite the financial crisis, the financial sector in the UK is an important part of the country’s economic armoury and that includes those that work in the industry.

All this talk of removal of tax breaks on pensions, mansion taxes or wealth taxes directly affects the City and in turn the country. Although these may have come to naught, it is important for all politicians to understand what the effect could be.

By potentially creating a hostile environment, governments can, in turn, put off companies and individuals from working here. Now, it is
fashionable to say “good, we don’t need them”, but without these financial generators where do the shopkeepers, sandwich shop workers, barbers, pubs, restaurants etc. get their income from?

It may be entirely unfashionable to stick up for the financial industry but while critics see fat cats and bonuses, I see the clerks and programers, the cleaners and shop workers and, of course, the income generated for this country. Nearly 15% of the national income comes from the City. It is not a charity with a high mobility and finance houses will leave if it becomes necessary. It may be politically satisfying but, in the long term, hostility could store up trouble for the country down the road.