A business contact of mine posed the following questions on behalf of a client: “I have a client with a large amount of money in Euros in an Irish Bank. He seems to think his money would be better in a German Euro account in case Euros from different countries will soon have different exchange values? Is he right and if so, how can he effect this change from one country’s Euros to another?“
I really thought he should have known better, but was happy to give him the benefit of my opinions, as follows…
A Euro is a Euro is a Euro. There is nothing in the treaty that says what should happen should the Eurozone break up, but the obvious thing would be for all the countries to go back to their former currencies, which would then find their own exchange rates against others as before. If monies were held in an Irish bank when this happened, your client could expect his account to be redenominated in punts. Similarly, if they were in a German bank, he would suddenly find himself with an account full of (a smaller number of) Deutschmarks. On day one, his holding would have the same value, the unanswerable question is: what next? If the punt were to appreciate against all other currencies he’d be doing well. Likewise if he was in Deutschmarks. Which currency does he think is more likely to appreciate? (No prizes!)
The question you should really be asking him is: why are you keeping your money in an Irish bank if you don’t absolutely need to? Irish banks are in trouble. If there was a run on them, they would fold if left to fend for themselves. To restore confidence, the Irish government has promised to stand behind them. That’s the bankrupt Irish government that can’t guarantee to pay its own debts let alone those of its banks. The same thought process would apply were your client to be banking in Greece, Portugal, Italy or Spain.
It’s easy to transfer money from one bank account to another across Europe. There is bureaucracy to overcome of course, when opening a bank in another country, and the banks at both ends will take a fee for the transaction. If he doesn’t need his currency to remain in Euros for some future reason, then he should be aware that they’re likely to devalue one way or another. If Germany agrees to let the ECB print more Euros so that the Eurozone can inflate its way out of debt, then inflation will have its usual effect on his cash pile. If the Eurozone remains in danger of breakup, then the value of the Euro will drift down because no-one will have confidence in it.
The value of the Euro could slump if Italy or Spain default on their debts, because the whole of the rest of Europe doesn’t have enough liquidity to support either of them.
The dollar looks likely to be the safest haven, but that’s a whole other story. I’m not an accountant – just a businessman who happens to think that we should all be paying more attention to this stuff. What’s the point of earning money, only to be blind-sided into losing it by a bunch of useless politicians who are mostly simply following their own interests?