Fri 18th May 2012
No doubt you’ve seen the headlines this week concerning the existential threat to the euro (The Daily Express, for instance, has run a headline today entitled The Death of the Euro - not scare mongering in the least!) If you’re an expat in Europe, or are even just a UK bank account holder concerned about the potential impact to your savings, this is probably a source of some anxiety. What would happen, at home and on the continent, if the euro collapsed? Is it about to collapse? In this article, I aim to address these questions.
Is the euro about to end?
Right now, economists at Bloomberg and elsewhere put the odds of Greece exiting the euro before 2013 at between 50.0%-56.0%. This suggests that, inside months if not weeks, Greece will default and re-adopt the drachma. That is one thing. Does that automatically signal the death of the euro?
In itself no, but the reason economists are concerned (and the tabloids get to run scandalous headlines) is that the potential fallout from a Greek exit is huge. It would involve Greece defaulting on its debts for instance, which presently stand at around €450bn. That would be a huge shock to its creditors, which include most European governments and the EU.
In addition, to avoid getting stuck with drachma (which would be about 40-60% less valuable than euros) Greeks would withdraw their savings, causing Greece’s banks to collapse and potentially prompting a domino effect across Europe. Because of this, the potential financial fallout of a Greek exit has been put at $1tn. That is the thing that could threaten the survival of the euro.
Of course, for the sake of balance, it’s not as though Europe’s politicians aren’t aware of these risks, and (though we might accuse them of inaction) they don’t have a death wish. The huge stakes at hand mean Greece could remain in the euro yet, if only because of the systemic threat contained in the alternative.
So what should you do?
If you’re a UK bank account holder, you probably don’t need to worry. The UK government guarantees bank account loses of up to £85,000, so in the event that Greece does default, and UK banks are affected, you have some security.
If you have bank accounts in Europe meanwhile, it could be worth diversifying your holdings i.e. putting certain sums into separate banks. This would hopefully limit your exposure (for instance, I personally have one bank account with ING in Spain, and another with Banesto.)
I hope this post has been useful.
If you have an questions not answered here, or would like to repatriate funds from Europe to the UK, don’t hesitate to contact us. One of our specialist dealers would be delighted to provide an in-depth response to your query, free of charge.