Market update

The euro zone debt crisis started in Greece nearly three years ago. Two bailouts later,Europe must decide whether to give the country yet more help or cut it loose. Logic would suggest that Greece must go but this crisis has shown politics trumps maths and economics. That is why analysts say a muddle through scenario is the most likely outcome. The critical question is whether Greek debts as a proportion of gross domestic product can be brought below 120% by 2020, from around 160% now - the IMF has identified 120% as the upper limit for Greece's debt mountain, saying anything above that is unsustainable.

Plans are currently afoot for the euro zone rescue funds to protect Spain and Italy by intervening to lower their borrowing costs. Therefore it would defeat the object to let Greece crash out of Euro now, unleashing a wave of contagion that would take the crisis to even higher levels. Instead, there is likely to be a scramble to find a
way to give Greece more help which does not look like it is landing the bill with the German taxpayer!

Against this continuing backdrop, caution must still be the order of the day for investors.