No real danger in sight for the Euro…at least for expats in France

Almost 40% of expats participating in research believe Euro will not collapse

40% expats living in France sure they will never see the euro collapsing

It may not be common knowledge but France is the most popular tourist destination in Europe and as a consequence it is also very popular with expats looking for a new place to live. It has much to offer and has cleverly positioned itself at the centre of the European project having insured it is a very strong supporter of Germany, the most influential member of the EU.

The very fact that France is only a hop skip and a jump across the English Channel makes it a very popular destination for UK expats. There is no doubt that a significant number of expats in France who joined our online poll regarding the euro will have some direct contact with the UK. So, are expats in France worried about the euro collapsing?

Eager to find out what’s the vision of average expat located in France, Expat Forum conducted a research in conjunction with Barclays Wealth and Investment Management to see whether the international community in France is concerned or not about a potential European currency collapse.

It is interesting to see that despite nearly the 40% of participants in our research are not worried about the possibility of euro to fail, a good fifth of them see how the struggles of the common currency will be affecting their purchase power, where another 12% believe their savings back home will be suffering.

No, it would never happen (37.50%)

Before we look at the relatively high percentages who believe that the euro will never collapse, we need to appreciate the position of France within the European Union. It is one of the founding members and indeed it is one of the more proactive members with regards to the euro and a federal Europe. There has been relatively little in the way of negative comments emanating from France regarding the euro potentially collapsing and this very upbeat and very positive outlook is something which has been injected into the expat community. In simple terms, the media and the press in France are very often influenced by the government and on this particular subject the government is adamant that the euro will survive.

This vote of 37.50% is significantly higher than the average for the overall vote and is probably just the kind of figure that the European Union would be looking for. Whether or not the Euro collapses, even if it did this would be some way down the line, the initial issue will be with regards to confidence in Europe and confidence in the euro. The more countries and the more politicians who talk up the euro, offering support at every opportunity, the more impact this will have on the investment markets. Whether or not this impact will be long-term remains to be seen because these bullish comments need to be backed up by action as well as words.

It is interesting to see that those who are more confident about the future of the euro far outweigh those who have any concerns regarding savings back home or purchasing power. These are issues which have been very prevalent in other country specific votes but appear to be fairly insignificant within France. It would be interesting to have taken a similar vote six months ago and six months prior to that to see what kind of confidence expats had in the euro. There is a general feeling that confidence may well have dipped a few months ago but is slowly but surely starting to pick up again.

Yes, it would affect my savings back home (12.50%)

The figure of 12.50% who are concerned about the impact which a collapse in the euro may have on their savings is one of the lowest in the specific country polls we have covered. It would seem that hardly any people are concerned about the collapse of the euro having a direct impact upon their savings “back home” but then again we need to ask ourselves where “back home” is. If back home is in Europe, i.e. a country which is currently using the euro, then it goes without saying that a collapse in the euro would have little impact upon savings, at least initially.

However, as savers across Europe have seen over the last few months, and indeed some people over the last few years, interest rates are now literally rock bottom as governments across Europe look to inject confidence and liquidity into the financial markets. Therefore, a collapse in the euro would see further reductions in European interest rates and would effectively see savers having their relative purchasing power reduced on an ongoing basis. If inflation is higher than the savings rate available in any one country then in effect your purchasing power is reduced on an ongoing basis and your savings are falling in value in real terms. It is sometimes difficult to get his point across because with zero interest rates many people automatically assume that this savings will stay stable, which in real terms they will, but in relative terms they will be going backwards.

It is almost impossible to contemplate a collapse of the euro because this would ruin the European market and would have a knock-on impact not only to countries such as the UK, which have yet to adopt the euro, but America, China, Australia, South America, etc. There is an assumption on behalf of some people that if the European market was to collapse then American, Asian and South American countries would step in and fill the breach. The reality of this is very different because unemployment would mushroom, tax income would collapse and indeed governments within Europe would likely need to default on their debt. This is the horrible reality facing many people if the euro was to collapse and fail although very few of them are even contemplating such an event. Is it better to be forearmed or will scare stories and scare tactics bring about a self fulfilling prophecy?

No, I use a FX tool of any kind to make the most of currency volatility (8.33%)

In years gone by there were very few private investors who even took the remotest bit of interest in currency markets because compared to stock markets they were often seen as damp squids. However, over the last two years we have seen major volatility in major currencies such as the dollar and the euro and indeed a number of financial experts are now championing the cause of foreign exchange investment tools which although seen by many as a way to “play the markets” also have other uses.

While just 8.33% of expats living in France have admitted to using a foreign exchange tool to make the most of currency volatility it should very much be a tool of choice for expats. The vast majority of expats will at some stage sell their assets lock stock and barrel and may well transfer part or all of their assets into their new local currency else leave it in their former homeland currency. Obviously, if you are moving from a country which has the euro to another country which has adopted the euro then there is no initial need to hedge your position. However, if you’re moving from a country outside of the euro zone then there are options available.

The idea of taking risks on the foreign exchange market does seem rather bizarre when you are looking for a settled new life overseas. Why would you risk your future wealth and your future income at a time when even some of the most experienced investors are struggling to make ends meet? We need to ensure that more and more people see foreign exchange tools as a means of insuring their finances and their income going forward rather than speculating on the markets.

It is possible using very simple financial arrangements to effectively insure your assets and your income from currency fluctuations. If you consider the cost of doing this as a premium, as you would with your home insurance or car insurance, it offers you a failsafe in the event of a collapse of the euro and would to a certain extent protect your income and your wealth. If the worst-case scenario was not to materialise then you may well have spent money on a premium but your finances still remain fairly healthy and intact. However, if you are looking to use foreign exchange tools and other investment tools you should take professional financial advice at the earliest opportunity.

Yes, it would affect my purchasing power (20.83%)

While 20.83% of expats living in France are concerned about the effect that a collapse in the euro would have on their purchasing power we need to understand the intricate detail of their position. If the euro was to collapse then those expats with assets in “other” currencies would likely benefit from an eventual conversion into euros to fund their local expenses and living costs. So this would in effect be a simple benefit although it is difficult to understand the impact that a collapse in the euro would have on local businesses, local services and local products.

The threat of inflation is always in the background and despite the fact that the European economy as a whole is under pressure, and the euro is also suffering, the ever increasing price of oil and other everyday commodities is putting pressure on inflation. When you also take into account the fact that many governments have increased their tax take from individuals and businesses, to fund austerity measures, there is the potential for each and every expat in France to see a reduction in their purchasing power – whether some of this is offset by currency movements is another matter. An easy win for all of those based abroad yet wanting to benefit from a more stable economy than that from their country of adoption is opening an offshore bank account. As the economy and currency of some countries can be unstable, even if it is just for a short period of time, it can be wise to place your wealth in a secure financial haven offshore.

One of many factors becoming self-evident is that the vast majority of expats may be misinformed about how currency fluctuations can affect their finances and their purchasing power. It is all good and well making money on the foreign exchange, in the event of a demise in the euro, but would the goods and services which you need on an everyday basis be available in plentiful supply. Would you even be able to guarantee employment going forward – as the employment markets would come under pressure and your local income may suffer? There are so many ifs and buts with regards to the potential collapse of the euro that it is nigh on impossible to come to a definitive conclusion.

Other reasons (20.83%)

While it is very interesting to see the response to mainstream questions in a poll of this type it is also important to give voters the opportunity to comment on other issues which they are concerned about. As a consequence we saw a number of “other reasons” put forward with regards to concerns about the collapse of the euro which include: –

I am paid in dollars and a euro collapse would be to my financial benefit

This is a similar type of answer to the one covered above in that if the euro was to collapse and you held your assets in a non-euro currency then you would likely make money on the currency exchange. However, the impact on prices for local goods and local services in euros will also be impacted although to what extent we have no idea as yet. So on one hand you may well make on the currency exchange but on the other hand there may not be sufficient goods or services available for you to enjoy your current standard of living?

Not much, although the chances for it happening seem to be increasing rapidly

It was interesting to see that one voter in particular was concerned about the potential short-term demise of the euro despite the fact that if anything we have seen more positive news of late. The Greek debacle continues but while there are some hopes of an end result which would benefit the euro, many experts believe that Greece will eventually leave the euro and possibly default on its sovereign debt. Whether we have seen scare stories in the press hitting home to some expats in France remains a bone of contention but France amongst other euro countries is on the whole giving out a more positive spin on the current situation.

We don’t know

This is perhaps the most honest and the most down-to-earth comment in our overall poll. The truth is that never has a currency been under as much pressure as the euro is under at the moment and never have countries been forced to inject enormous amounts of capital to save a currency. True, we have had dollar scares in the past, we have a yen scares in the past but the situation with regards to the euro is a potential doomsday scenario. Europe has been and continues to be at the centre of the worldwide economy and some of the largest banks in the world have their bases in the Eurozone. A downturn in the financial sector, a downturn in the European economy and a downturn in available liquidity around the world would literally bring the worldwide economy to its knees. Will it happen? Who knows…

The French economy

Over the last few months there has been a very tightknit community pulling together for the good of the euro although over the last couple of weeks we have seen signs of cracks. Only recently, after France was downgraded by the credit rating agencies, we saw the government attempt to shift the focus to the UK economy with many concerned that this was payback time for David Cameron’s recent European campaign. As we all know David Cameron refused to sign up to the new European budget arrangement much to the disdain of France and Germany in particular.

However, the reality is that the French economy has been struggling for some time and indeed we have even seen issues developing in Germany. These are the two main elements of the Eurozone and if France and Germany were to go under in a serious way then the current situation would get very much worse very quickly. Thankfully, there appears to be more common ground today than there ever has been with regards to bailout funds and “firewalls” which are being discussed as a short-term measure and a long-term safety net. As and when the European economy recovers, the French economy will be one of the first to benefit and hopefully help to lead Eurozone members to the Promised Land.

Conclusion

It is interesting to see that the vast majority of expats in France are not even willing to contemplate a collapse in the euro which is exactly the same strategy as that taken by the French government. Whether or not the local media and local press have influenced the expat community and the local community is a point of debate but at least this is effectively injecting some confidence into the euro and the European market.

When you take into account that France is a major player in the Eurozone we can assume that it would benefit more than most from a quick solution to the problem. However, it may well take a significant investment by the French government, along with other Eurozone partners, to put together a bailout fund and a “firewall” large enough to give international investors confidence in the future of the euro. There is some debate as to whether the demise of the euro has gone too far to recover or whether indeed bailout member governments have invested too much money to let the currency fail. Remember what they said in the banking crisis, Oh XYZ is too big to fail – but we lost some of the best names in the financial world!