The Euro and its value

[BensGrandad]

Can somebody who knows about these things give me some answers. It has been said many times that Portugal, Italy, Greece and Spain (PIGS as Radio 2 refers to them) are all in trouble with the Euro. How will this affect us as individuals in this country, obviously the government will give their share to bail them out but how will it affect us.

 

[Lord Bracknell]

The word "obviously" jars a little.

The only "obvious" thing about international financial management at the moment is that no-one has a clue what to do. Asking the bankers seems to be top of most politicians' list of priorities. I have no idea why they should be trusted.

 

[BensGrandad]

As is usual for our government of any party they will poke their nose in an help bail out other countries hence the term obviously.

 

[Bisto]

Without getting too technical three points;
We will ultimately assist in the supporting of fragile economies in Eurozone and this has potential to (but not definately) result in some government monies being paid over.
The UK also invests in other soverign states of Europe and any failure to honour debts will impact on people in this country particulary those with pensions and investments in 'manged' funds. The impact mainly being reduction in returns and profit bonuses
Despite all the discussions the UK trade massively with the Eurozone including Eire. It these customers default or disappear then lay offs and shut downs in this country.

We truely live in a global community these days.

 

[Cian]

I believe the UK is specifically opting out of the EU element future bailouts? Also the exposure to previous ones was lower than, say, Germany's due to not being in the ECB.

However, you've lent us a good few billion directly outside the bailout system, and reduced the interest rate and all, thanks.

 

[clippedgull]

Can somebody who knows about these things give me some answers. It has been said many times that Portugal, Italy, Greece and Spain (PIGS as Radio 2 refers to them) are all in trouble with the Euro. How will this affect us as individuals in this country, obviously the government will give their share to bail them out but how will it affect us.

They seem to have forgotten Southern Ireland.

 

[BensGrandad]

Would it have a direct effect on the prices people pay for goods etc if on holiday in any of these countries, which are all popular tourist areas.

 

[element]

beorthelm is usually clued up on these queries...

 

[SeagullEd]

Would it have a direct effect on the prices people pay for goods etc if on holiday in any of these countries, which are all popular tourist areas.

Yes it would.

Exchange rates are linked to the value of the currency. Problems for eurozone countries affect the value of the currency...

For Example, without getting too heavy:

If these problems were to continue then there is likely to be less demand for the Euro as a currency because investors no longer want to invest in these countries and they are worried about debt spreading etc. Therefore, the currency is likely to depreciate. Note, it's been suggested (with quite a few justifications) that the Euro is overvalued so is likely to start depreciating which may lead to panic-selling.

What does this mean for prices? If the Euro does become less valuable then goods made in the Eurozone are more competitive abroad, this will offset the depreciation to some extent. For countries in the Eurozone, imports will now be more expensive thereby increasing inflation. This MIGHT have knock-on effects for the whole economy as employees seek to protect their real wages.

 

[BensGrandad]

Yes it would.

Exchange rates are linked to the value of the currency. Problems for eurozone countries affect the value of the currency...
.

Does this basically mean that as at the moment a tourist would get approx EU1.09 to the pound they would get less more like a straight pound for a euro.

 

[Lord Bracknell]

Simple question ... Should I pay for my hotel booking in Italy NOW? Or should I wait? The price is quoted in Euros and I'm booking through the Hotel's own website, using a UK debit card.

 

[BensGrandad]

Thanks Lord B I think that is the basic type of advice people need not too technical and full of jargon.

 

[Notters' Dad]

To BG: the position quoted, taken on its own, would mean more euros to the pound not less.

To LB: depends whether you think it will happen or not, and also whether or not there would be corresponding impacts on sterling ompacting in the reverse direction! One advantage of paying now would be the certainty of knowing what you are paying; you may or may not get a better deal later. Then again, if the putative problems were to materialise the Italian hotel might not later be around to take you (a case for holiday insurance and using a credit card for its recovery options).

 

[Chicken Runner61]

The truth is no knows what is going to happen.

We could end up with 2 Euro currencies - one for northern eurozone and one for Southern including Ireland.

We could end up with everyone going back to their own lira mark punt etc etc

We could end up with no currencies and going back to silver and gold and that might include a complete collapse of the banking system.

What we do know is that both Europe and Usa will undoubtably print and borrow more money to avoid default.

On a more local level The Uk banks will be stuffed if Italy goes the way of Greece. We will have to bail them out if they need it.

Dont believe that all will be okay - its not like they are going to tell you that a complete collapse of the system is going to happen they will just print more money and throw it at the banks in the countries that need it.

Take Greece - the likelyhood if the crisis continues is that the greeks who can get hold of all their cash and some of that Euro cash loan and instead of spending it in Greece simply put it back / into the banks of strong countries like Germany and await the collapse and return of a `Greek devalued Euro say two Greek Euros now only equal 1 Euro Euro. They then bring all the savings back to greece doubling their money. Where would that leave everyone - Its a nightmare!

When we did the last bailout a week or so ago - Merkle told the Germans the French paid for it and Sarcozy told the French the Germans copped the bill!

I would hurry up go on holiday and enjoy it and see what happens.

 

[Notters' Dad]

How true that is CR61 !

 

[beorhthelm]

What we do know is that both Europe and Usa will undoubtably print and borrow more money to avoid default.

do we? Euro cant print money as it has no method to do so, and can only borrow as much as the bail out funds permit. as it is some Germans are challenging the legality of existing bail out arrangments. USA cant borrow more money because the debt limit says they cant, the whole reason there is a problem. They could print but its not going to go down too wel in the market and maybe considered as worthy of a rating downgrade if they did devalue their currency so blantantly.

 

[SeagullEd]

Simple question ... Should I pay for my hotel booking in Italy NOW? Or should I wait? The price is quoted in Euros and I'm booking through the Hotel's own website, using a UK debit card.

Personally I would wait (if the price is already confirmed in Euros so you're not risking inflation - if not, I will have another think).

Why?
1) As I say, many analysts think the Euro is overvalued at the moment, just as a really easy example I was reading today in the Economist that their Big Mac Index (measures the price of a Big Mac in dollars in each country and has been a very reliable indicator or purchasing power) suggests the Euro is overvalued (just one of man analysis)
2) Given what I have read, the pound is going to strengthen as growth forecasts are probably to be revised upwards for the last quarter just gone
3) Germany in particular is having a lot of political problems and I wouldn't be surprised to see more demonstrations and uproar as this saga continues and it seems countries such as Portugal may begin to come in to the limelight.

I'm going to Spain late this summer and I am also holding off on buying Euros as long as I can.
BBC NEWS | Business | Market Data | Currencies | Sterling GBP v Euro EUR

 

[Chicken Runner61]

Its a really complex Global problem.

Europe has an ok housing situation (because many rent) and can and has increased interest rates to control inflation but the piggs keep the crisis going.

Here we have a housing situation ready to collapse so we can't increase interest rates and our growth is pathetic.

In the usa they have growth but the housing market is still collapsing forcing thousand on to social benefits and reducing tax revenue which is fueling the crisis. They have borrowed too much money and now their solution is another loan!!!!


The Libyian crisis is affecting oil production causing high prices and no tax revenue from British companies there and Osbourne has stopped (through taxation) oil companies from drilling in the British North Sea.

Japan is stuffed coz of the earthquake.

Its a right mess

 

[SeagullEd]

do we? Euro cant print money as it has no method to do so, and can only borrow as much as the bail out funds permit. as it is some Germans are challenging the legality of existing bail out arrangments. USA cant borrow more money because the debt limit says they cant, the whole reason there is a problem. They could print but its not going to go down too wel in the market and maybe considered as worthy of a rating downgrade if they did devalue their currency so blantantly.

Personally I think all this 'USA may default' is a load of rubbish... it is THEIR debt limit and they could definetly roll over their debt. The day the USA thinks realistically about defaulting is a day I don't believe I will ever see. The political as well as the economic consequences are far too great.

 

[SeagullEd]

Just to add, I can't see the interest rate increasing again either in the Eurozone so doubt that'll cause any kind of upward movement in the value of the Euro...and QE has stopped I believe so less necessary to increase intersest rates anyway.