Expats in the UK aren’t concerned for a potential euro fall…

Expats in the UK have concerns over impact of Euro crisis on the Pound

But hope to see their pound going further.

Expat Forum on behalf of Barclays Wealth and Investment Management recently ran a poll on the expat forum website in relation to the troubled Euro and what impact this might have within the expat community. Voters were given a variety of different options and asked how they feel about the potential collapse of the euro and what impact this may or may not have on their lives. Some of the answers are very interesting because it seems that many expats have not even contemplated a number of outcomes which may or may not occur.

Of those expats living in the UK many believe that there is no chance of a Euro collapse with 35.63% of those who voted confirming this. This seems to be a general pattern across-the-board with more and more people, and businesses, automatically assuming that the euro is too big to collapse and countries within Europe, and indeed around the world, could not afford to see this happen. However, there are more and more experts coming out of the woodwork to suggest that the euro is flawed and has been for some time.

If there is one concern which is coming out on the online vote is the fact that so many people appear to have not even contemplated the European currency collapse or any other related challenges faced by the euro and therefore they would be wholly unprepared if it were to happen. The reality of any financial arrangement is the fact that no matter how small a chance there is a chance that it could all go wrong, you need to be prepared. The European Union is in a very difficult situation because even the merest suggestion from officials that the euro is in trouble would have investors running for the exit doors and lead to a major sell-off for the currency itself. The potential problems of a major sell-off are not even worth contemplating because they could literally lead to a doomsday scenario.

Therefore, whether or not you believe that the euro is flawed, will survive or it is in a very difficult position, you do need to be prepared for the unexpected especially where finances are concerned. The fact that the UK has not embraced the euro is a small consolation because business connections within Europe via the UK are immense, not to mention the massive trade figures. If the euro was to collapse then this would have a knock-on effect around the rest of Europe and indeed around the world. Even though the euro is relatively young in currency terms it is backed by some of the largest and most developed countries in the world many of whom have literally staked their future on its success.

Yes, it would affect my savings back home (24.14%)

The UK has long been a magnet for expats and has a very strong relationship with a whole host of other countries around the world. As a consequence the UK houses expats from as far afield as South America to Asia, from Australia to Canada and everywhere else in between. Of those who voted in the online poll 24.14% are concerned about the potential demise of the euro and the impact this would have upon their savings back home. In reality, whether “back home” is Europe or further afield there is no doubt that the consequences of a collapse in the Euro would be felt around the world.

As we saw during the recent worldwide economic downturn, which hit especially hard in Europe, interest rates were slashed to just above 0% as governments looked to inject confidence and capital into their economies. This was perhaps the most direct and most heartfelt impact upon savers around the world who instantly saw a reduction in interest earned. When you also take into account the impact of inflation the situation is even worse because in real terms many savers are today seeing a reduction in the “real value” of their nest eggs.

On top of the actual reduction in the real spending power of your money many savers are in a position where they need to withdraw more and more of their capital to get by as opposed to drawing down any interest from years gone by. Interest rates in Europe and many other areas of the world are unlikely to move significantly higher in the short to medium term thereby this horrible financial quirk of fate means that those who have put money aside for their future are the ones who will be hit hardest, and those in most financial trouble (in many cases businesses) will be bailed out by the authorities. This is going to have a major impact upon the UK expat market and indeed many other countries around the world which attract significant interest from their overseas counterparts.

No, I use an FX tool of any kind to make the most of currency volatility (8.05%)

This answer received the least number of votes in the UK vote with just 8.05% suggesting that they used a foreign-exchange tool of some kind to make the most of currency volatility. It is interesting that we saw some people voting in this particular manner because the use of foreign exchange currency tools is becoming more commonplace and more accessible to the masses. However, it would be interesting to see whether those who use some form of foreign-exchange tool do so via a professional financial adviser or off their own backs?

When you are dealing with currencies and other complicated financial arrangements it is vital that you take professional financial advice, especially to get started with your personal financial planning. True, there are significant dangers with regards to the potential collapse of the euro in the short to medium term but sometimes we need to look beyond this and take a long-term approach. Putting all of your eggs into one basket because of the potential demise of the euro may well work to your benefit or you may be left to lick your wounds with major financial losses. There are few financial advisers who would even contemplate giving advice on a short-term basis because what is correct today may well turn out to be the wrong decision tomorrow. It is highly inadvisable to use short-term financial instruments to gamble on future events!

However, the subject of currency exchange tools is an interesting one because if executed correctly they can be used as a form of insurance to guarantee and protect the value of your funds going forward. The answer in this particular section seems to indicate a form of financial risk such as “playing the market” when in reality that may not always be the case. Again, if you’re looking to use foreign exchange instruments to protect or try to enhance the value of your savings you will need to take professional financial advice going forward.

It is interesting to see that more and more people are becoming aware of the idea of “hedging” there savings and investments with the use of, on the surface, complicated financial instruments. There are ways and means to protect your savings and your investments and depending upon the figures in question this may or may not be feasible from a financial point of view. Using such instruments to “insure” your assets is something to consider because while many people are scared off by the idea of “risk”, if used correctly, some financial tools can strengthen your position and limit your downside.

Yes, it would affect my purchasing power (20.69%)

This is a very interesting angle to look at because any demise in the euro would have an impact across Europe, across the world and potentially reduce the purchasing power of your savings. As we touched on above, the very fact that the UK is outside of the euro could in some ways insulate the country from a total meltdown of the euro but those with savings in euro denominated bank accounts or euro denominated investments would be affected. However, if you flip over the coin, Europe is a very strong trading partner for the UK and any demise in exports and any impact on imports will affect the UK economy going forward.

Those living in the UK having moved from European countries would instantly see a reduction in their euro savings when converted to sterling if the euro was to collapse. When you bear in mind the recent movements in the euro we can only estimate the enormous impact this would have on millions of people living in Europe and outside of Europe. Financial markets would grind to a halt, European banks would be short of funding and interest rates would remain at near 0% to try and instil some confidence into the European economy. All in all, savers would be the last people on the minds of European governments and they would see a reduction in the value, in real terms, of their savings.

It is also difficult to understand what impact this would have on local inflation because you may see a double-edged sword were UK inflation increases while the value of the euro collapses. This would be a nightmare scenario for those living in the UK with euro savings or euro investments because they would effectively be squeezed from both sides. While there is no doubt that governments around the world will do whatever they can to protect the euro, as far as is financially viable, the reality is that this is a currency which is at the beck and call of the investment markets. European banks, the IMF and the World Bank can throw as much money as they want at the euro but in the end investment markets will get their way, whichever way this is.

Other comments (11.49%)

There were some other interesting comments which included: –

Information about the situation

It seems that despite the fact that the euro crisis has been splashed across newspapers around the world many people are still fairly ill informed about exactly what is going on. The vast majority seem to automatically assume that everything will be okay in the end when in reality we are in a potentially disastrous financial situation.

Austerity measures

There is growing concern that a collapse of the euro would impact upon the UK economy and again lead to an increase in austerity measures which would see services cut and tax demands increasing. This is a situation which is happening across Europe but would obviously get worse in the event of the collapse of the euro.

Civil unrest

Civil unrest is a subject which few people are happy to discuss because but what we are seeing in Greece is the reality of the situation today. There has been enormous unrest across Greece and indeed there are few European countries that have escaped some form of public demonstration about the ongoing austerity measures. This is a situation which is likely to get worse before it gets better and many governments within Europe are literally running scared.

My pound would go further

There was an interesting comment in relation to the UK currency and the potential that “my pound would go further” in the event of a collapse in the euro. While there is no doubt that a weakness in the euro would assist the UK currency the reality is that if Europe was to collapse then this would have a detrimental effect on the UK economy which is a very strong trading partner of mainland Europe.

Compared to the rest of the world

When you look at the overall reporting from other countries it becomes evident that the UK expat community are slightly more confident that the euro will be fine, slightly more concerned of the impact it would have on their savings back home and seem to use currency exchange tools more than the average. There is also lower concern regarding the actual collapse of the euro and the impact this will have upon purchasing power with other comments and suggestions making up the balance.

The comment regarding purchasing power is interesting because the UK has yet to adopt the euro, and indeed is unlikely to do so in the immediate future, therefore there will be swings and roundabouts regarding exchange rates between sterling and the euro. A collapse in the euro would assist those investing in Europe, in sterling, but in reality there would be very little in the way of incentive to invest in a euro country, or region, which was in demise. There are some investors who may well bank upon a return to strength for the euro but if we are talking about a total collapse of the currency then this would be a disaster for not only the European market but also the worldwide financial arena.

The UK economy

The UK economy is in many ways insulated from the immediate fluctuations of the euro but the very fact that Europe is the major trading partner of the UK should not be underestimated. This is the reason why the UK government is very keen to become involved in “saving the euro” despite the fact that David Cameron and his coalition government has been sidelined somewhat by France and Germany. Politicians are well aware of the implications of a collapse of the euro and if you notice, at every opportunity, they will do their bit to try and inject some confidence into the markets and talk up the currency.

It is also worth noting that the UK government has also been forced to introduce major austerity measures even though they are not on the scale of those seen in Greece. However, this is causing something of a political backlash in the UK and David Cameron and his partners are well aware of the dangers.

Conclusion

While the favoured answer for UK expats would seem to indicate an unwillingness to even contemplate the demise of the euro it was interesting to see that 24% were concerned about the impact this would have on their savings. This now prompts the major question as to whether you exchange your currency to your newfound homeland upon moving or whether indeed you continue to hold your savings and investments in your former homeland currency. Some would argue that if you’re moving to a new country for a new life then you should adopt the new currency but sometimes it is not that simple.

The short to medium-term outlook for the UK economy is a little better today than it has been in recent times but there is still a very strong link between the UK economy and its European counterpart. It will be interesting to see how the movement and the mood of expats changes in the weeks and months ahead as EU politicians continue to battle the financial fires currently gripping Greece. There are some who would argue that confidence has been lost in the European Union and the euro itself while others are adamant that the billions upon billions of euros being pumped into the system will eventually work. However, wave after wave after wave of bad news is washing across Europe and it seems in some cases that EU politicians are taking one step forward and two steps backwards. This is having an impact upon the expat sector as the uncertainty is causing more people to reconsider their short-term plans.