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Channel crossing

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In a recent newspaper article on what is happening in markets because of the eurozone crisis, the journalist apologised that his words might have been overtaken by events. He was writing the day before publication. Imagine how I feel. This is a weekly newspaper, so my take on what is going on has to be assembled as much as a week before you read it.

This is not a criticism of the editorial process, merely a statement of how things work. But what is most remarkable in all this is how little things do change.
As I write, we are in the middle of a crisis in the European single-currency zone. We have been for some time. The names in the firing line may alter but the message has changed little. Investors do not trust European politicians to deliver solutions that will keep the eurozone intact.

What does this mean for investors? You might think the uncertainty would send them scurrying for cover and, in some measure, it has. Gold is back in favour and UK gilts have performed remarkably well despite the continuing inflationary pressures at home. But our domestic equity market has held up better than many expected. True, we saw a near 2 per cent fall on the back of Italian bond yields breaching 7 per cent but this was reversed in half a day.

When you look at the growing casualty rate among senior European politicians, you cannot help but wonder why more is not being done. The reason, of course, is that Germany is dragging its feet. If Angela Merkel does not take decisive action, all is in vain. President Sarkozy may consider himself to be at the centre of the discussions taking place but only Germany has the firepower to rescue Italy.

The lack of resolve from Europe’s biggest economy will doubtless be the topic of high-level discussions between the US and China - the biggest economies in the world. Failure to act promptly and decisively would not just mean the end of the euro as we know it but will have a knock-on effect on global economic activity.

With China dependent on a stable global economy and the US concerned its own fragile recovery is in jeopardy, they will probably not stand by idly.

Perhaps this is what is preventing an equity bailout - that and some encouraging results from the latest reporting season.

It is not all joy, of course. The high street continues to suffer. Who could have predicted Comet would be sold for less than the cost of a pack of batteries? But it is clear that the corporate world has cut its cloth according to conditions rather better than Europe’s politicians have been doing.

We remain locked into a period of continuing volatility, fluctuating sentiment and considerable uncertainty.

This is no time to be addressing groups of private investors and independent financial advisers but that is just what I will be doing over the course of the next few days. It will be interesting to learn what people on the ground make of all the shenanigans across the Channel.

Perhaps, as Silvio Berlusconi indicated recently, with the bars full and restaurants doing a good trade, concerns lie more with the media than with the general population.

Sadly, I feel this is too optimistic an approach to maintain. The roller-coaster that is the future of the euro has a few more twists and turns before it returns to base. I hope we all get back safely.

Brian Tora is an associate with investment managers JM Finn & Co

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