Does the Sterling Pound Give the UK an Inherent Advantage?

Posted in Debt on Thursday, October 31st, 2013 at 10:39 by eComparison Blogger.

The instability of the Euro has caused many problems for the European Union that the UK has been largely shielded from. The country has its own issues, such as an external debt equivalent to $150,000 per person and a rapidly decreasing GDP. However, the UK has a large financial sector with many capital investments and is generally seen to have high value holdings. It’s ok to have some debt, but as we see with countries like Ireland, overseas debt can be crushing regardless of how active your financial sector is.

The government in the UK has responded with austerity measures aimed at the public sector. Students have seen tuition fees go up, and the government owes hundreds of billions to Spain and Germany.

UK External Debt Numbers

The reason that the UK sees such high numbers has to do with the cost of loans for mortgages, coupled with inflated housing prices. Student loan is a clear example of the trend of shifting costs to the consumer to cover public sector debts, and the public is not happy. The UK is viewed as a low-risk investment, meaning that the country is in fairly good financial standing with the International Monetary Fund.

Perhaps the most troubling risk the UK is open to is Italy, whose leadership seems to be unable to come up with a solution to the growing problem of debt. If Italy or Portugal defaults, the pillar of financial stability the UK has enjoyed may come toppling down.

The UK Currency Advantage

Part of the UK’s stability comes from the fact that it is free from the Eurozone. The value of the euro is reflected in that strength, leaving outliers saddled with debts they can’t pay back. A higher currency value means you charge more for the goods you export, by nature, and that drives investments elsewhere.

In countries like Greece, where the government must unravel a system of mismanagement, it can be difficult to increase GDP. There is no one investing in Greek business, fewer countries are importing Greek goods, and that leads to joblessness.

Joblessness gives way to increased debts, which can’t be paid off until paid work returns.

The result is a population less-able to deal with its debt, which is almost always growing.

Can Countries Settle Debts?

Countries like Spain and Greece may not have the GDP output to grow in time to pay off their debts. Spain’s talent pool is shrinking as younger generations move to countries with more work, which will hurt the region in the long run. Already, Spain’s debt burden is about 65% of GDP, whereas Greece is over 150%.

In drastic situations like Greece, massive government restructuring is necessary to cut the bleeding.

Fortunately the UK does not have these issues yet, but anyone keen to the financial sector is keeping an eye on their holdings as related to Italy and Portugal, which are experiencing similar issues.

Settling Debt in the UK

For the consumer, debt settlement must become a familiar term. How you pay your debts, and the speed in which you are able to do so will determine important milestones like when you buy a home or start a family.

Consolidate your payments wherever possible so you’re making one payment and have a smaller chance of “forgetting” to make a payment elsewhere. Bonds are at an all time low, so borrowing can be considered a sensible solution to grow your money with less risk.

As you age, it becomes more important to grasp money management and learn how to grow your money. CDs, mutual funds and high-interest savings accounts are safe bets with low-risk.


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