NEW YORK (TheStreet) -- After the Greek debt debacle that has wreaked havoc on the eurozone, other countries with large government debt are now also being watched with concern. The U.K. is no exception and many are left wondering if the new coalition government led by Prime Minister David Cameron will be able to reign in the country's government debt.
However, comparing the United Kingdom to Greece is not exactly fair when one takes into account the fact that the U.K. has its own currency. Part of Greece's problem was that it uses the euro, but does not control it. Greece cannot use currency devaluation to ease its debt burden and without aid from other eurozone members, it would be forced to leave the euro or default on its debt. The United Kingdom, on the other hand, can choose to devalue the pound, if necessary.
The pound has lost value against the U.S. dollar since the Greek woes began, but it has gained against the euro, the currency at the center of the current debt crisis. For the moment, investors see the U.K.'s debt as a problem, but not rising to the level of Greece or other European countries.
The election results in England also sent the pound lower against the dollar, as investors question the ability of a coalition government to solve the U.K.'s problems. Lacking the number of seats needed to form a government, the Conservatives invited the smaller Liberal Democrats, who typically side with Labour, into a coalition.The Liberal Democrats and the Conservatives have some principles in common but there is a large amount of disagreement between the two parties. Initial progress is promising though; the coalition government has agreed to cut $9 billion out of the budget for this year. It is expected that an emergency budget will be drafted next month and will seek to tackle the budgetary and economic issues the country faces. Despite this positive first step, the pound has still declined to new 12-month lows against the U.S. dollar. The losses suggest that there is little confidence in the marriage between the Conservative and the Liberal Democrats.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV