It’s hard to access any news source at the moment and not be overwhelmed with reports on the Euro zone crisis. CNN reports of Greece’s plan to raise 6 billion Euro in short term funds from local banks, while London’s BBC talks about moves by the European Central Bank to stem the credit crunch.
So what’s really going on? How safe is the Euro currency, and what will happen if Greece leaves the Euro monetary zone? How does it affect those that hold their savings in euros and how does it impact on the expat community within Europe?
Greece’s national debt has been singled out by other European Union members as the main burden threatening the stability and strength of the euro, and its continuation as a leading global currency. Current estimates indicate that Greece owes Germany 15.9 billion euros, France 41.4 billion, Portugal 7.6 billion, UK 9.4 billion and the US 6.2 billion.
It doesn’t take an economist to realize something is up. But what can be done about it? Currently there is a lot of talk about Greece leaving the Euro zone, the reintroduction of the Drachma and the increased stability to the Euro currency that this move would bring. But is it really that simple and how would that impact on the rest of Europe?
If you leave aside the mayhem that would occur in Greece as the new currency came into effect, devalued overnight against the euro, and left millions of Greeks with a fraction of their current savings – what would that mean for Greek national debt? Greece would still owe 355 Billion euros in national debt, with no real chance of repayment – in Drachmas, euros or any other currency.
There is also the possibility that Greece leaving the Euro zone would set off a cascade of smaller, debt-ridden countries also reverting back to domestic currencies. And it’s not just the smaller countries that are in trouble. How about Spain, the 4th largest economy in the Euro zone?
While some economists and financial analysts might pass off Greece’s impact on the Euro zone as manageable, no one can downplay the impact that a return by Spain to the Spanish Peseta would have on the Euro. France, Germany and the UK are all highly exposed to the Spanish market through their considerable lending.
The possibility of any current member state leaving the Euro zone is also influenced by other factors - the first of which is Article 50 of the Euro zone Treaty which implies that any country that leaves the Euro zone must also leave the European Union – a move that would reverse decades of European integration and heavily impact on the political landscape in Europe. The second is the administrative and financial cost of recalculating millions of contracts, trade deals and agreements within Greece and between Greece and other countries that are currently denominated in Euros. This would be a huge and costly undertaking for a country such as Greece or Spain already drowning in debt.
Either way the Euro zone situation presents some very interesting challenges and opportunities for expats living in Europe or those thinking of moving there.
A recent survey of expats living in France and Spain, two of the most popular expat destinations in Europe, indicated that only about 40% of expats are totally confident that there is no chance of the Euro zone collapsing, but at the same time, very few are actually taking any measures to protect themselves from over exposure to the Euro.
Those expats with bank accounts in the UK or the US, for example, have a distinct advantage as they have some protection for their Pound Sterling or US Dollar. In real terms, their savings will continue to gain against a falling Euro and provide increased buying power.
For those holding Euro savings, the options are reduced but not non-existent. Foreign currency or multi-currency accounts are becoming more popular with some leading banks, such as HSBC, allowing you to even open your account online. This allows you to keep your savings in multiple global currencies reducing your exposure to a falling Euro. Other savvy expats are turning to foreign currency trading tools to make the most of currency volatility by either securing savings or by playing the markets.
Another recommendation becoming more common, not just for expats but for anyone within Europe, is to keep several thousands of euros on hand, in the event that further defaults, or countries leaving the Euro zone, results in bank runs. These stockpiling recommendations also extend to storing a few months supply of essential foods and medicines, as fears that a deepening of the currency crisis may impact on the short term supplies of essential, continue to grow.
Those expats living in Europe and earning their money from external sources, whether through pensions and investments from their home countries or salaries from foreign companies, are in a better position to capitalize on a falling Euro. The risk of course here is that the financial crisis is not just limited to EU countries, but affects foreign governments providing pensions as well as foreign companies. There are increasing reports of expats being stranded overseas when the company they are working for closes down back home.
As for those living in the US or UK who are currently considering becoming an expat in Europe, if you can stomach the potential for civil unrest and economic turbulence in Europe, falling rental and purchase prices for homes do provide for a buyer’s market in many Euro zone countries.
As an expat living in a foreign, unfamiliar country it’s often very difficult to predict what may happen from one day to the next, let alone in a situation like what is currently happening in Europe – a situation where even the most experienced financial analysts can’t accurately predict what tomorrow will bring. But at a time when the Chief Executive of Lloyd’s of London, Co-chief Executive of Deutsche Bank, and the Swiss Central Bank Chief are all preparing contingency plans for the Euro zones collapse, it certainly pays to keep informed and prepared for the potential fall outs from the debt crisis. Expats in Europe should definitely take some steps to ensure that in the event of further devaluation of the euro, or its potential collapse, that they are secure and provided for while a transition period takes pace.