There is an adage that says one shouldn’t throw good money after bad. This phrase has become painfully accurate when referring to the numerous bail-outs taking place across Europe. The problem with Europe is that while they share a currency, they are – unlike the US – not part of the same fiscal union. So while investors in US bonds can rely on the fact that surplus taxes from Texas will be used to fund California and New York, investors in Greek bonds have no such comfort and have to rely on the welfare of countries such as Germany for survival.

For too long bail-outs have been about plugging the immediate capital needs of the various countries in trouble, while they in turn agree to cut spending and raise taxes by as much as they can get away with without antagonising protestors too much or destroying their economic growth.

It’s a fine line, and too much austerity medicine too quickly runs the risk of pushing economies back into recession, which will result in taxes falling and austerity becoming even harder to implement. Solutions thus far have been designed to try and plug the hole without anyone having to compromise their lifestyles too much.

Adding more debt to existing debt is not going to remove it and fix problems unless people in the affected countries significantly change their “siesta” lifestyles.

Effectively, everyone has been in denial as to the gravity of the situation and this worries markets. There has been much discussion about Europ’s debt crisis, but very little action. Until there is clear evidence banks will be recapitalised and the European Financial Stability Facility is worth trillions and not millions of euros, things are going to remain bumpy.

Denial finally seemed to make way for reality last weekend when finance ministers largely accepted Greece would default. This means investors in Greek debt stand to lose between 20 percent and 50 percent of their investments.

This could be just the shock Europeans need to get some action going. Up till now they have been indulging in intellectual economic hypothesising while the situation got worse, and markets have had enough. While default will reduce Greece’s debt burden, it will make it very difficult for them to borrow again in future.

Meanwhile, China is sitting on over $3 trillion (R23.6 trillion) of hard-earned reserves. While they are reluctant to get involved, they may have to, as the EU is their biggest trade partner, and if the EU were to collapse and stop buying Chinese goods, the Chinese economy would suffer.

The recent downturn in markets signals further weakness ahead. The global economy is slowing; fundamental issues must be resolved; interest rates are at all-time lows; central bank cash is running out; and the ability to stimulate is limited.

We may see a double-dip recession in several developed-market countries, but it shouldn’t be as severe as in 2008. Though, if European economies start defaulting in quick succession, anything is possible.

So, while the Eurozone’s problems are far from over, reality seems to be dawning and plans are being put in place.

Let’s hope they work, because a world of European countries defaulting like dominoes, followed by a European banking collapse and recession destabilising the global financial system – including China’s growth – is a world too scary to contemplate.

So what should investors be doing?

The simple answer is nothing. You can’t change sails in a hurricane – the time to adjust your portfolio is when markets are calm in anticipation of weather coming ahead, and not when you’re in the eye of the storm.

If you wanted to lighten your equity holdings or switch out of the rand, you should have done it a while ago – not now, after the rand has weakened.

Tinkering with your portfolio at this stage will most likely see you making emotional rather than fundamental decisions.

Yes, the rand has taken a smack, as have markets. And yes, they may still both weaken further. But given this weakness is in reaction to global events, and emerging markets like Brazil and India are being punished just as severely, our currency and market should retrace some of the losses, and you run the risk of being caught on the wrong side.

What you need to do is identify your risk profile (sometimes a financial adviser can do this more accurately than you), create a portfolio appropriate to your risk profile and let it ride out.