Move out of sterling?

trenchwars

withnell wrote: »

Are you planning to remain living in Britain? If Sterling devalues, inflation will increase, but so will savings rates - so you'll still be in the same position as you started!

No that's not true. Savings rates will increase but they will not keep up with inflation. The reality is that if we get high inflation then holders of Sterling will basically be robbed of their savings.

On the subject of currencies, it's a shame the Deutchmark doesn't exist any more.

gozomark

trenchwars wrote: »

No that's not true. Savings rates will increase but they will not keep up with inflation. .

how do you know ?

If anything, the higher inflation is, the better for savers, because the more inflation is above the 2% target, the more interest rates need to be raised above the inflation rate to bring inflation back to target. Anyway, given most savers only seem to care about nominal interest rates, they will probably be ecstatic about all the extra income :rotfl:

sh856531

With sterling on the wobble I would appreciate any comments as to the advisability of moving out of stirling into the euro please. We have about 50k at present in reasonable accounts - shortly coming to an abrupt end. We don't need to live off our interest but are looking to reinvest to draw on in about 10 years time. Our gut feeling is that the euro has more stability than stirling. If we were to set up a european account, how does the tax situation work assuming we wanted to change back to stirling in 10 years time?

It seems to me that you are making a couple of "potentially" unsafe assumptions:-

1. That the UK is in more trouble than the EU - personally I don't believe this is necessarily the case
2. That currency rates will be favourable in ten years time when you want to bring your cash back to the UK. Assuming of course that you are planning on shifting it back later when you retire. Given that we don't really know what exchange rates will be next week, there is a next to 0 percent chance of getting it right in ten years time.

You need to think very carefully about these two things. For what its worth, I think the EU countries could be in just as much !!!!!! as us, albeit for different reasons (e.g. more generous benefits systems and government control of a higher percentage of the economy). This will mean that Sterling will remain static relative to the Euro and may eventually start to rise if we enter the recovery phase sooner than the Euro zone.

I crapped myself when Sterling dropped as well, but when I looked into the relative strengths and weaknesses of the UK and the Eurozone, I became more confident that Sterling was overvalued anyway and was due for a correction. I think I'm right in saying the Sterling has stabilised now as people have come to realise that the US and the Eurozone are in just as much brown stuff as us.

I hope whatever you do works out - but make sure you get as many view points as you can first and don't make a snap decision

Best Regards

S

gozomark

trenchwars wrote: »

On the subject of currencies, it's a shame the Deutchmark doesn't exist any more.

it does - it just changed its name to the Euro, and 15 other countries adopted it.

tradetime

gozomark wrote: »

it does - it just changed its name to the Euro, and 15 other countries adopted it.

:rotfl: :rotfl: :rotfl: that's probably not far off the Mark!

PolishBigSpender

tradetime wrote: »

That's true, to a greater or lesser degree, but alongside that, a bunch of countries with very diverse economic and fiscal needs and attitudes cobbled together under one currency with one central bank trying to meet all those needs is a punch up waiting to happen. Alongside that, the Eurozone has a no bailout policy as part of their mandate, but very soon it is likely they will have to break that to bail out either Ireland, Greece, Italy, Austria, or any combination of those, so it's a bet, I'll grant you that, but far from a "sound" one imho

I agree that it is a 'punch up waiting to happen' - but you should look at the history of why the Euro exists in the first place. In 1990, as a condition of agreeing to German unification, France managed to secure agreement on economic and monetary union. This is what led to Maastricht - essentially, French fears about German power were quelled by the reality that a united Germany would lose the Deutschmark. Without this agreement, it is unlikely that France would have signed the 2+4 Treaty - thus, no German unification.

Hence, it will be both in Germany and France's favour to support the Euro. With their backing, the currency is stable enough - particularly as there's also now becoming more and more reason for the Euro to survive and prosper. For instance, the fact that is the de facto currency in more than just the 15 Eurozone states says a considerable amount.

As resentful as many Italians are towards the Euro - they're not going to want to go back to the days of chaos under the Lira. Likewise, the new members (Malta/Cyprus/Slovenia/Slovakia) are doing fine.

If, and it's a big if - they do not bail out countries in need, then I suspect we will see some countries falling out of the formal Euro system. I suspect (for instance) - you would see Ireland and Portugal move to setting their own interest rates, while continuing to use the Euro as their currency.

gozomark

I did mean it half seriously- the ECB acts very similarly to the old Bundesbank, with an almost obsessive concern of inflation, which lead it to being very late in acting in the last year. The Fed and BoE looked at forward inflation, whereas ECB seemed more concerned with headline inflation.

gozomark

PolishBigSpender wrote: »

I suspect (for instance) - you would see Ireland and Portugal move to setting their own interest rates, while continuing to use the Euro as their currency.

impossible, unless they leave Eurozone. Irish interest rates would have to be higher than now due to the risk - that would kill the economy even more.

Reaper

PolishBigSpender wrote: »

If, and it's a big if - they do not bail out countries in need, then I suspect we will see some countries falling out of the formal Euro system. I suspect (for instance) - you would see Ireland and Portugal move to setting their own interest rates, while continuing to use the Euro as their currency.

They might but that would make things worse. The Euro is already hampered by countries not keeping their deficits within agreed limits and if countries with a joint currency go further their own way on economic policy it is a recipe for chaos.

In the past I have been close to considering Euro membership a good thing but have been put of by the lack of disipline and controls on individual countries. At the moment that seems to be about to get worse so I'm glad we are not in it, but I have to say if the Euro survives this crisis it will have proved itself as a world currency anbd will emerge much stronger. However that is a huge "if", it could just as easily collapse if things get much worse.

trenchwars

gozomark wrote: »

how do you know ?

http://www.lloydsbankinggroup.com/media1/research/economic_factbook.asp

If you look at table 5, column G, you will see that from 1976 to 1980 when RPI was around 15 - 18% per annum, savers were getting a negative real return on their savings.