Is there any concern across The Pond for the euro to collapse?

Over 30% of expats living in the US believe the euro is safe

Over 30% of US-based expats trust on euro’s strength

The United States of America has been a popular expat destination for some time now even if it is a little more difficult today to gain entry than it was just a few years ago. Despite this there is no doubt that the so-called “land of opportunity” still attracts more than its fair share of attention from the expat market and a number of these individuals have joined in our online poll at the expat forum. We have been asking forum members about their opinions in relation to the euro and a potential collapse as some experts have predicted.

Aimed to find out how the euro’s roller coast has been seen from the other sore of the Atlantic, Expat Forum has run a poll on behalf of Barclays Wealth and Investment Management. We will now take a look at the opinions of US expats and see exactly what is concerning them, what they have discounted and what they believe will happen in the future. This gives an interesting indication of the general expat market although it has to be noted that a number of expats living in the US are likely to be from outside of Europe with South America a popular supply route.

It is interesting to see that 31.58% of expats living in the US believe that the euro is safe and is not going to collapse. It is unclear as to whether this particular opinion is in any way influenced by the local media and the local press which have been very negative on the euro as the US itself fights to escape the recession. However, when you consider the issues still facing the US economy perhaps expats in the region would be better off considering their own local positions rather than the European and the euro issue. However, perhaps not if they have direct exposure to the euro itself!

The official line coming out of Europe and indeed America to a certain extent is that the euro will survive and whatever funding is required will be thrown at the issue. The US government also has a vested interest in ensuring that the euro survives because any serious issues with the currency will have a knock-on effect throughout the world. During the last two recessions we have seen a significant increase in financial pressure on both European and American banks with funding lines cut short and many banks struggling to raise the capital required under new banking regulations.

Depending upon which side of the fence you are sitting, you could argue that US counterparts are assisting their European counterparts in defending the currency and trying to inject confidence into financial markets. On the other side of the fence there are some who believe that with an almost inevitable Greek debt default at some point in the future the euro will come under further pressure and heads will roll. Blind faith or blind panic?

Yes, it would affect my savings back home (15.79%)

It is interesting to see that US expats appear relatively unconcerned about the impact upon savings back home which could indicate, again, blind faith in the European Union or indeed the fact that many expats in America do not have direct exposure to the euro. If you were expecting weakness in the euro this issue could be further compounded by the potential strength of the dollar as the US economy begins at last to show some flickering of life. However, the additional debt taken on to fund fiscal stimulus in America is absolutely enormous and a number of changes to the welfare state and healthcare service will also add billions of dollars to the country’s debt pile.

It would be interesting to see how many of the expats who responded to the online poll and who live in America have significant euro exposure via savings or investments. The European economy as a whole is under significant pressure and just when we thought the Greek debt debacle has been resolved up pops another question to undermine confidence. There is even a suggestion that Greece may already technically have defaulted on its debts despite the fact that the credit rating agencies employee legal and economic experts to rule on these issues. If a debt default was to occur we can only imagine the damage this would do to the euro, Europe as a whole and the worldwide financial industry. So as a consequence of upset within the Eurozone there is no doubt that exchange-rate fluctuations in the event of further weakness would impact on the downside in relation to existing euro savings and euro investments.

This then brings us back to the old question as to whether you should convert all of your savings and all of your investments into your new local currency or indeed have you really let go of your ties to your former homeland?

No, I use a FX tool of any kind to make the most of currency volatility (7.89%)

The world of finance has certainly expanded over the last few years and much of this has the Internet to thank with information and tools now readily available across the board. If we take a look back over the last 20 years it is unlikely that the vast majority of people would have had access to foreign exchange currency tools and indeed even fewer would have known what to do with them. However, a growing number of expats are now looking towards these particular financial instruments to both protect their wealth and to speculate on the future.

If you asked the person on the street what was the most volatile financial market in the world, stock markets or currency markets, the vast majority would quite correctly have said stock markets. However, over the last four years or so we have seen enormous swings in currency exchange rates the likes of which we have never seen before. These enormous swings have given people the potential to “play” the currency exchange markets and to potentially increase their wealth. However, if you are an expat looking to move to a new country it does not make sense to use foreign exchange tools to “play” the markets?

Like the vast majority of financial tools available today, foreign exchange currency tools also offer you the chance to protect your investments and to protect your savings from damaging currency swings. An easy start to get yourself updated on currency fluctuations is to take a look at Barclays iAlert service. If you think of the foreign exchange markets as an insurance policy, protecting you from adverse swings in the currency markets, then perhaps you are starting to understand the real potential of these tools. True, there will be a cost to using and activating these tools but there will also be potential peace of mind and protection for your savings and your investments. In reality nobody knows which way the euro will go although at this moment in time the jury is still out as to whether it will even survive long term. So if you yourself are unsure then it is vital that you take professional financial advice which may well incorporate various financial tools.

Yes, it would affect my purchasing power (30.26%)

As we mentioned above, the vast majority of European expats who now live in the US will have some exposure to the euro via savings, investments or perhaps some form of pension plan. If, as some experts still believe will happen, the euro was to fall significantly from current levels then this would impact upon the value of the euro compared to the dollar for example. If you are talking about swings of anywhere up to 30% then for every US$100,000 you would effectively see your purchasing power reduced to just US$70,000. This is a major problem in anybody’s book!

If the euro was to collapse and remain in the doldrums for many years to come then potentially you could have a major problem on your hands and indeed some expats may not be able to afford their new life overseas. Even though swings of 30% are relatively unheard of in the currency markets, if the euro was to collapse then this may actually be a relatively conservative figure and could indeed be even higher. There is a feeling that many investors are literally looking for the next European problem and each issue seems to be a potential nail in the coffin of the euro itself. While this may seem a little pessimistic you just need to scan through the financial press on a daily basis to see what people are thinking, what could happen and what is currently going on. Even though the Greek problem has gone very quiet over the last few weeks there are still major concerns with regards to the economy and the government’s ability to pay back the enormous debt it has taken on. It is actually inconceivable to even contemplate a collapse in the Greek economy because the potential problems it would bring are frightening.

Other reasons (14.47%)

There are also other issues which many expats have taken into account in relation to a potential collapse in the Euro and some of these have been highlighted in the recent poll. They include: –

Problems with the dollar

While much of the focus is upon the euro at the moment we sometimes forget that the dollar has had its fair share of problems in the past. There are some who believe that the US economy is built on a mountain of debt and overseas investment and those living in the country, even with dollar-denominated savings, need not look very far for their own problems.

Lack of information

Again, some expats living in the US have cited a lack of reliable and understandable information with regards to the euro problem as an issue. However, if you are unclear about exactly what is going on within the Eurozone then you need to take this up with your financial advisor so you are fully aware. To be forewarned is to be forearmed and when you’re talking about your future, your savings, your investments and your income, you should at least be aware of any potential problems in the future.

Global havoc

There are some very intelligent comments within this particular poll with one member suggesting there could be global havoc if the Euro collapsed. This is the reality of the European situation, a situation which could certainly drag down the rest of the world and see the worldwide financial system implode. The euro is a vital link in the worldwide financial markets and the consequences of failure are too dangerous to even contemplate for many.

Worldwide monetary system

In tandem with the comment about global havoc one of our forum members also commented about the potential for a collapse of the worldwide monetary system. One thing which many people have already discussed and criticised is the fact that it only took a relatively small number of defaults in the US mortgage market to bring about the first worldwide financial crisis. After this issue became common knowledge we saw investors rein in their cash, banks struggle to raise finance and businesses and consumers starved of additional funding.

The US economy

While this particular poll was focused upon issues within Europe and specifically the problems facing the euro in the short, medium and longer term, it is worth noting that the US economy has shown signs of recovery but is not yet out of the woods. Unemployment is still an issue, government debt is piling up and the Federal Reserve has been fairly busy over the last few years keeping the economic wheels of the country well oiled. In truth those living in the US do not need to go very far to find their own problems which are quite literally on their doorstep.

There is also the potential problem of a further recession in the US which would drag down the rest of the financial world and could be the final nail in the coffin of the euro and European economies. Even though the likes of China and India are very quickly becoming the powerhouses of tomorrow there is no doubt that the US economy does in many ways still dictate the direction of the worldwide economy. So while many of us are highlighting the problems within Europe we must not ignore the problems in America and the political issues which are also coming to the fore. This is a country which is piling debt higher and higher and which many people believe is benefiting from artificial stimulus which cannot last forever.

Conclusion

Compared to the average worldwide voter in our online poll, US expats are less positive about the euro, less bothered about their savings but more concerned about how a collapse in euro would affect their purchasing power. There were also an above-average number of other issues brought to the attention of the expat forum including relatively little use of foreign exchange tools by expats living in the country.

Whether or not US expats are a little more distanced from Europe and a little more upbeat is debatable but perhaps the fact they have their own problems to resolve is playing more heavily on their own minds. The US economy is by no means out of the woods but by the same token the euro is in a much worse situation than the US dollar.

We have covered a number of articles about the US in the past and the fact that expats from all around the world are still very keen to chase the American dream. The relationship between America and Europe is still relatively strong but issues with regards to terrorism and protectionism have certainly made it more difficult for expats to make a new life in America. The visas required to start a new life in the US are often difficult to obtain and with the worldwide arena more open than ever, as a consequence of the Internet, might we now see more people looking elsewhere?

There are also employment issues within America which could impact upon your short to medium term income, spending power and standard of living. Even though on the whole there has been a relative improvement in the employment position compared to just a couple of years ago the levels of employment around the US vary widely. So if you are looking to move to America to begin your life then you really need to do your homework with regards to which area of the country you would like to settle down in. The days of literally sticking a pin in a map of the US and chasing your dream are long gone as is the forlorn hope of full employment across America.

The standard of living and the cost of living in America are again very varied across the country although many people would argue that relatively speaking it is cheaper compared to Europe. This would depend upon your newfound homeland and whereabouts it was located not to mention the whereabouts of your savings and the currency of your future income. If your income is denominated in euros and the euro was to weaken then a conversion into US dollars would be detrimental to your cost of living and your standard of living.