Euro: What we expect next and how you can profit from it

The Euro, a great idea if you are one of the few beneficiary's. The main beneficiary are the countries like Germany and to a much lesser extent France that benefit from a level playing field in terms of trade with other countries that usually devalue in order to make their products, be it property, cars, debt or olive oil, cheaper.

Lets take a brief look at Spain, a country I have lived in for many years and have a huge fondness for. This country has unemployment well above twenty per cent and youth unemployment above 50%. It as a property market that has crashed due to several reasons. Over development is of course a key factor, but so is the global downturn and a recession that few economies have failed to avoid.  Spain has a currency that does not reflect its economy, its plain and simple and this can never be good in periods of weakness. With the cost of exports fixed across euro members, it was always going to be the strongest exporters, especially those graced by generally high quality products, that reap the benefits. So you can see why Germany is prepared to do as much as it can to keep the Euro together.

So what happens next?. There are several possibilities. The least likely and credible is the Euro carries on in its current state. The markets, as in stock and currency markets, are rarely wrong and incredibly strong. Look at the failed Exchange Rate Mechanism (ERM). The strength of the markets and speculators forced the break of this ill thought out system. In this crazy world, when a system with some variance is proven not to work they still go ahead with a fixed system, in the form of  a single currency!. Look at the basics. A single currency cannot work when you have different economies in different stages of economic strength and weakness. How can economies with a high dependence on tourism like Spain and Greece have the same currency as strong export based manufacturing economies like Germany? Simple answer, they cant. Well they can, but then every business cycle we will get a situation like we have now. The situation was only made worse by a series of non truths along the way, and some shoddy economy management by countries wanting to get in.

Another way of sorting out this problem is a two tier Euro, where the strong economies use Euro A and the weaker ones Euro B. However, we believe this is unlikely to happen as the weaker countries wanted the strength of the euro which they will not get and Germany and France will not be able to export to the weaker Euro users as their products will be too expensive.

What we think will happen is this. There are certain countries that will drop out of the Euro. Probably some or most members of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) will leave the currency. First we, and many others, think that Greece will leave very soon. We think within the next six months. This gives opportunity, great opportunity which will be explained later. There will be big write offs by private and public lenders probably in excess of 50% by bond holders. The Drachma will replace the Euro in Greece and it will probably halve in value comparably. Greece will then be in charge of its own destiny. Its exports, albeit not extensive, will be very cheap for Europe and tourism will take off as it will be so much cheaper than other Mediterranean countries. The value of Greek property will be half what it was when it was in the Euro and the savvy investor will be snapping up property in the country buoyed not only by the value that they will see but also a burst of tourism and in turn opportunity to rent out in this now great value market. With the surge of tourism and property buyers, the economy will recover much quicker than it would be able to within the Euro. Spain will see what has happened and also bail out, and its back to the Peseta. Another great buying opportunity in property arises. The taxes bought in from the surge of property buyers in Spain would be significant before the long term effect of all the other added benefits kick in.

Ok, so it may not be that simple, but plodding through really isn't an option. S&P downgraded these countries because they were going no where. The scare mongers claim a break up of the Euro will be catastrophic for the UK. We doubt it, if it happens as suggested above and not just a break up of the whole thing. Our exports to the PIIGS isn't extensive and will have limited damage.. We managed before the Euro was with us, we will manage again.

What if I want to buy property now.? Our view is not set in stone and may not be correct,. We may have rose tinted glasses on as a break up of the euro in the way explained would be greatly beneficial to our business in overseas property as some of our most buoyant market places suddenly become much cheaper and attractive to buyers. However, remember that these falls in value are currency related. If you have already purchased make sure you have a mortgage. The reason is two fold. Firstly, mortgages are really cheap, and effectively free if you take into account the effect of inflation. Secondly, you reduce the currency risk if you have borrowings in the country that is or isn't in the Euro, assuming that the conversion rate out of the Euro is realistic. All mortgage payments after this event are then a fraction of what they were when it was in Euros, assuming you are paying for the mortgage in sterling. If these countries stay in the Euro as it is, you have neither gained or lost anything.
It should also be remembered that recent weakness in the Euro could be an excellent opportunity to gain entry into the countries that are likely to remain within the Euro such as France and Germany


These views are our own, and are not guaranteed. We will advise you on your property purchase in any way we can and we have have range of repossessed property and great deals. Just CLICK HERE to see a selection and contact us at info@lydnemproperty.co.uk and tell us what you are looking for if you do not initially see it. We will find it for you at the right price,