If there is one country which reflects the ongoing economic problems facing the Eurozone it has to be Greece which is literally drowning in a sea of debt and on the verge of taking other European economies down as well. The situation in Greece has been very difficult for some time and there are grave concerns about the short, medium and long-term future of the country. Make no mistake; this is a very difficult and very dangerous chapter in the history of Greece!
Aimed to find out how the international community in Greece is living the struggles of the UE currency, Expat Forum has run a poll on behalf of Barclays Wealth and Investment Management to find out until what extent expats in Greece are worried about the euro collapsing.
After we have reviewed the answers we will then fill in the details regarding the crisis gripping Greece, what needs to be done and what can be done.
No, it would never happen (50%)
If there is one country in the world where you would expect scepticism and concern about the short, medium and long-term future of the euro you would have expected that to be Greece. However, expats in Greece seem fairly adamant that the euro will not collapse and the doomsday scenario played out in the press is incorrect. It will be interesting to see how this chapter develops because those looking in from the outside are very concerned about a number of different factors.
Greece has been a very popular tourist destination for some time now and as a consequence it also has a significant number of expats from Europe and outside of Europe. It is seen by many as a place to relax, a place to enjoy the sun and to many a place to retire. However, the events of the last few years have taken people by surprise and we are literally seeing the Greek economy unravel before our very eyes. The level of support or level of optimism, with regards to the future of the euro seems slightly excessive but then again from the inside looking out maybe it looks different?
The Eurozone and the worldwide financial institutions are literally pouring billions upon billions of euros into the country in an attempt to turn the economy around and save the Eurozone. So while many of us outside of Greece are more concerned about the figures involved and where the funds will come from, those in Greece see more and more cash coming towards them and maybe they are of the understanding that the authorities have gone too far to let it fail now?
Whether or not Eurozone members and worldwide financial institutions have gone too far to even contemplate a U-turn is debatable but the Greek economy will take decades to recover from this catastrophe. There is even speculation that the country may well exit Europe and exit the euro at the first opportunity although this has been refuted by leading politicians. However, there is no doubt that the country is struggling, resentment is growing towards Europe and many of the Greek population are adamant that they will not be dictated to by unelected politicians from the EU.
Yes, it would affect my savings back home (25%)
As we touched on above, it is no secret that Greece has attracted more than its fair share of expats from within Europe with many seeing the country as a popular holiday destination. As a consequence, 25% of those who took part in our online poll believe that a collapse in the euro would affect their savings and in reality it matters not whether they are held in euros or they are held in a foreign currency.
If the euro was to take a further lurch downwards we would see the introduction of further fiscal stimulus policies and interest rates would remain at rock bottom for many years to come. This would impact upon not only the actual value of savings but also the relative value which would reduce as inflation eats into capital. So as a consequence, whether savings were held in euros or another currency, the worldwide economy would be impacted and as we have seen over the last few years, governments would need in the main to reduce interest rates. Therefore, even those who potentially hold their savings in US dollars for example would indirectly be impacted and those who hold their savings in euros would see the value of their savings on the worldwide stage reduced dramatically when exchanged into a foreign currency. In reality, any liquid investments and share investments would be impacted by a further demise in the euro and the financial strength of each and every one of us would suffer.
While initially those with savings in a foreign currency would benefit from the exchange rate, which would definitely reduce the power of the euro, the impact upon the worldwide economy would be even greater. We are now entering a situation which nobody has any experience of and all of the theories and strategies which seem to work with traditional economic cycles have gone out of the window. We are literally in no man’s land, uncharted territory and the frightening reality is that nobody has any idea how this will evolve and how the eventual endgame will pan out.
No, I use a FX tool of any kind to make the most of currency volatility (0%)
Greece is one of few countries where expats appear ill-advised regarding foreign exchange tools or else they are more concerned with traditional investment methods. Historically foreign exchange tools have been at the beck and call of professional advisers and professional investors although the ever growing power of the Internet has bought them very much into the fold of the public domain. If we were asked how to use a foreign exchange tool the vast majority of us would associate this with investment speculation. However, that is not always the case! If you feel unsecure or just would like to know better about what’s going on with your finances, experts at Barclays International Banking have compiled a handy guide to banking in Greece.
Foreign exchange tools are just part of an ongoing arsenal which is now available to private investors as well as professional advisers and professional investors. Historically they have been fairly mundane operations because of less volatility in currency markets compared to stock exchanges. However, since the initial worldwide recession we have seen extreme volatility across some of the strongest currencies in the world. The dollar has come under pressure, sterling has come under pressure and now the euro is literally on the verge of collapse. There is money to be made but there is also money to be saved.
Hedging opportunities are perhaps more appropriate for expats who want to protect their savings from further erosion. The exchange rate of the euro against the likes of the dollar and sterling perfectly illustrates the strength of the currency and the strength of the European economy – or the weakness as we are seeing today. So if the euro was to collapse then a hedging mechanism would allow you to introduce a floor for your investments which would then allow you to consider other options.
Those who believe that foreign exchange investment tools are only available for a speculative nature are very much misinformed. True, they can be used as an out and out speculative tool but those who have investments they want to protect can also use foreign exchange instruments to limit their downside. Actually, if you don
Yes, it would affect my purchasing power (16.67%)
When you take into account the fact that the worldwide economy is now one big and very complex market we can only imagine the impact that a collapse in the euro would have on individual wealth. This would initially see a massive reduction in purchasing power for those with assets in euros or those with assets invested in Europe.
There is also growing concern that if further austerity measures were required, in the event of further weakness in the euro and the European economy, then this could lead to wage stagnation which would effectively see the cost of living rise in line with inflation yet incomes remain constant. This is not a scenario which many people would have envisaged just a few years ago when economies were doing well and inflation was under control. However, we have seen a major turnaround over the last few years and inflation is now dominated by the commodities market, mainly oil and gas, while austerity measures in place across Europe are impacting upon family incomes and family budgets.
In the past when we have seen signs of significant economic stress there have been governments around the world ready and able to jump in with liquidity. However, while many people will see the initial worldwide recession just a few years ago as the turning point in a period of unrelenting growth it is worth noting the credit crunch which followed this. Economies around the world flow in cycles of boom and bust (despite Gordon Brown’s claim to have beaten the cycle) and it is the flow of finance and funding which eventually sees everything come “right”. If this funding was not available, as we saw during credit crunch part one, governments would need to step in to inject major capital into the system. This ensures that the wheels of the worldwide economy remain oiled and while they may creak due to limited fund flow they would not stop.
Credit crunch part two, as many are already calling a possible crash of the European economy, would potentially be far worse than credit crunch part one. Governments and financial institutions around the world have invested major amounts of money over the last few years and many pots are running dry. There is no way that governments can keep on injecting more and more cash into the system because budgets are under pressure, austerity measures are starting to kick in and consumers are just not spending.
Other reasons (8.33%)
In our online polls we always give voters the option to introduce new comments and new arguments into the frame. Some of these arguments are tongue-in-cheek and jovial while some of them are serious and to the point. There was some interest in “other reasons” in the Greek area of our online poll which included: –
No, it would mean I have lots of money
There is a common misunderstanding that the European economy would be the only economy impacted by a collapse of the euro. The reality of this is very different because the worldwide economy is interlinked to all currencies and if one of these parts of the chain was to snap then the rest would collapse. This is the situation with regards to a potential collapse of the euro which would have a major knock-on effect across the financial arena. Credit would dry up, banks would experience funding issues and governments around the world may not be in a position to assist.
We need to get the point across that a collapse in the euro would at least have a short to medium-term impact upon the rest of the world until the situation settled down and was resolved. What would happen to the Euro? Would old Eurozone currencies come back to life? Would the Eurozone survive?
The above answers give a good insight into how expats in Greece view the ongoing problems and challenges within Europe. On the whole it seems that many believe the euro will survive and it may be an idea to poll expat members in the future about how they see the future structure of Europe and the euro. However, at this moment in time the Greek debt problem is uppermost in the minds of European politicians because in many ways this is the firewall between the euro and a total collapse.
Speculators have tried on numerous occasions over the last few years to unhinge the euro and force the authorities to review the currency. So far they have failed to initiate major change in the currency but there are some who believe that ongoing speculative attacks will continue. When this is set against the state of the Greek economy it has to be said that investors need not go very far to find reasons to attack the currency. The Greek authorities are alleged to have placed some of their debt off-balance-sheet and there are rumours and counter rumours regarding uncollected taxes. When you also add in the emergence of major austerity measures this is a tinderbox waiting to ignite.
Riots on the streets
There have literally been riots on the streets of Greece as consumers and businesses attempt to battle back in the fight against over ambitious austerity measures. Like so many European countries the public sector in Greece grew to a level which was unsustainable and now that the authorities have been forced to cut costs and cut jobs this has put them face-to-face with the unions. The unions are literally fighting for the financial lives of their members and we can fully expect more riots in the streets and major conflict.
There is also anger that the European Union is effectively dictating the shape of Greece in the future and the fact that all of these politicians are unelected. The Greek government is in a very difficult situation because on one hand it has to retain the support and trust of the people while on the other it has to go cap in hand to the EU. As a consequence there have been mass resignations from the Greek government, in fighting between political parties and indeed the country’s relationship with the Eurozone and the European Union is stretched to say the least.
The future of Greece
Greek debt is currently off the scale and set to get very much worse before it gets better. Many believe that debt will still be well over 100% of GDP 10 years down the line and the country will need yet more financial assistance from the European Union in the medium term. This is all assuming that the recently agreed bailout package is honoured by all parties and introduced as soon as possible.
The value of goods and assets across Greece has fallen dramatically, household income is just a fraction of what it once was and even pension fund arrangements have been raided. There is no area of Greek life which has stayed constant simply because of the impending financial implosion.
Despite the fact that all of the signs suggest that the Greek economy may never recover from the recent collapse, there is surprising optimism regarding the euro from expats in Greece. Whether this is misplaced remains to be seen because to all intents and purposes Greece is a busted flush and while technically there has been no debt default there are many who believe that morally there has been.
Recently we saw commercial lenders put under severe pressure by the Greek authorities and the European Union to accept major “haircuts” on their outstanding debts. This will result in some lenders writing off 50% of debt owed to them by Greece and having to accept a prolonged payment program for the balance. Despite the fact that we all hope for a quick turnaround and a quick recovery in the Greek economy this is a forlorn hope. There will need to be major structural changes across the Greek economy which will impact upon overseas investment and visitors to the region.