Collapsing Euro and personal debt

Sarn

Lisa2011 wrote: »

I have a current account with BOI. Should I leave my money there but move a savings account if I have one?

It wouldn't make a difference what type of account you had. All money denominated in Euro in your account would be changed to the new currency.

mad m

If you had a chunk of money in a savings account, how would you go about changing it into Dollars? Or would it be better to lob it off your mortage.

JaneyMacker

mad m wrote: »

If you had a chunk of money in a savings account, how would you go about changing it into Dollars? Or would it be better to lob it off your mortage.

Well dont take them out in cash whatever you do.
I put most of my savings in various funds.
They are not protected from market volatility and not immune to a euro collapse but it is more attractive than a euro collapse on money sitting in a deposit account.

Fr Tod Umptious

seamus wrote: »

Just to break it down very simply, imagine that Ireland pulled out of the euro and back to the punt.

A 1:1 switch, 1 euro == 1 punt. The actual rate is irrelevant, the economics are the same.

The banks do the same, your €200,000 mortgage now becomes a £200,000 mortgage, so too all your loans, overdrafts, credit cards, your salary, etc.

So theoretically nothing changes for you, the figures are identical, the symbol has changed.

Now imagine that once we disconnect, the value of the punt drops, as it would. By 40%, as is possible. On the face of it, nothing changes for you, right? You're paying in punts, you still draw the same salary, pay the same punts for bread, etc. It's an issue for you if you're ordering stuff online in euros, but outside of that you're OK, right?

Wrong, unfortunately. The problem occurs higher up the chain. Although you are paying your mortgage to the bank in punts, the bank is paying your mortgage to another bank, in euros. From the bank's point of view, you are paying them 40% less for your mortgage than you were the day before. That is, where on Monday they were receiving €1 from you and giving that to another bank further up the chain, they are now receiving 60c from you, but the bank further up the chain is looking for €1.
Your bank isn't going to cover the other 40c, and the bank further up the chain isn't going to voluntarily reduce the debt by 40c.

So you are the one who gets squeezed for more money, by the bank increasing your interest rate, probably into the teens.

What if you're on a tracker? Well considering that Ireland would be not part of the eurozone anymore, ECB rates would be irrelevant for a mortgage in punts.
There would be 3 possible options for tracker holders in this scenario:

1. Hold onto your tracker and keep repaying your mortgage in euros.
2. Change to a standard variable and start repaying in punts.
3. (Possible, if the regulator decided) Change to a tracker which tracked ICB rates rather than ECB rates.

Option 1 would leave a person at the mercy of daily changes in the currency markets. If the euro strengthens, your mortgage repayments instantly rise. If the euro weakens, they instantly drop. There's also an obvious flaw in that your home will still be valued in punts. So, regardless of how much you've repayed the bank in euros, if/when you sell the property you will get punts for it, not euros.

Option 2 would mean much higher interest rates, but much more stability when it comes to your repayments. You wouldn't see your repayments change on a daily basis and the actual cost of your mortgage would be rationalised over its lifetime.

Option 3 probably wouldn't be a whole lot better than Option 2, just might be marginally more stable. ICB rates would probably be in the teens too, since the Government aren't exactly finding it easy to borrow money either.

In the event of a collapse of the euro, the above would hold true. Just replace "euro" with whatever currency your bank has borrowed your mortgage in (probably USD, GBP or DM).

Good analysis there.

One point though.
Since interest rates will be controlled by the Irish central bank (ICB) would we not expect them to be very low, as we would be in a recession and thus would need low interest rates to try and drive investment and growth.
Or is it a case that they would be high because the banks would have to pay higher for credit further up the 'chain', and thus the ICB would have very little control whne it comes to setting the rate

mad m

JaneyMacker wrote: »

Well dont take them out in cash whatever you do.
I put most of my savings in various funds.
They are not protected from market volatility and not immune to a euro collapse but it is more attractive than a euro collapse on money sitting in a deposit account.

Funds like what?

Thanks...

JaneyMacker

mad m wrote: »

Funds like what?

Thanks...

If I knew the answer to that one id be very rich

But for just trying to protect your savings I would start at rabodirect.ie
Have a look at their funds.
Go for the ones that are low risk and steady.
Go for low entry and exit charges.
Choose funds that are in STG, USD as well as Euro.
Invest in different geographic locations.
Indian, emerging markets, russian etc
Invest in different classes like mining, energy etc

Take a nice basket across different locations and asset classes.

Make sure to diversify. YThats key. You'll find good stuff on the net about diversifying your portfolio.

Bullseye1

Thanks for your post Seamus. It strikes me that if the Euro does collapse (hopefully not) then banks will struggle more and interest rates will rise substantially which will be another disaster for this country.

squeaky crank

I wonder will Berties face be on the new 1 *punt coin - (*c)

squeaky crank

At the moment it all seems like a gamble
Ive a few quid saved and will probably need it to live on if the Euro goes or splits as my ability to make money from my business will be severely damaged for a time so Im trying to figure the percentages on where or what is the best way to protect it for the next few months.

The way I see it there is probably a slightly better chance of Merkel using the ECB thus saving the Euro in the short/medium term. Am i deluded??

- Some of the cash Im leaving in my Irish Deposit (protected)
- To hedge a little against a Euro Split Ive a few German Bonds from a few
months ago (anyone have any views on these??)
- Im thinking moving a little cash into Stg thru my Ulster Bank so its still under the deposit guarantee.
Im just really worried im overreacting - or maybe undereacting :eek:

seamus

Fr Tod Umptious wrote: »

One point though.
Since interest rates will be controlled by the Irish central bank (ICB) would we not expect them to be very low, as we would be in a recession and thus would need low interest rates to try and drive investment and growth.
Or is it a case that they would be high because the banks would have to pay higher for credit further up the 'chain', and thus the ICB would have very little control whne it comes to setting the rate

I'll be honest here in that I don't know a whole lot about how the ECB sets their rates. From what I know the ECB rate reflects the cost of borrowing money from the ECB. Presumably the ECB base this rate on economic indicators and so forth rather than on the cost of borrowing (as the ECB shouldn't be borrowing that much money).

The ICB on the other hand would effectively be the Irish Government's bank. I would expect the ICB rate to be dependent on the availability of cash to the ICB, which runs up the line to things like Irish bond rates, Government deficit and so forth, I guess. So higher bond rates == higher ICB rates and so forth.

I could be totally wrong. In any case, the banks won't tie to an ICB rate unless they're forced to by the regulator. When the tracker was conceived, they thought they were onto a winner with which they could gouge unwary consumers. A "fixed variable" rate tied to the ECB rate, which at the time was consistently higher than the standard variable rate.

Now trackers are a millstone around their neck, and if they get an opportunity to break out of the trackers (like the end of the ECB), they'll take it and move everyone to standard variables.

Morrisseeee

seamus wrote: »

From what I recall from a discussion on boards recently enough, virtually every tracker contract includes a get-out clause which allows the bank to move the person onto a standard variable rate in the event of significant economic upheaval or something along those lines. A collapse in the euro would probably fall into that

But but but why the smiley face
Surely only a scenario where my mortgage (or all our mortgages) is wiped out deserves a smiley face :pac:
From a mortgage point of view, I (we) really need the Euro to survive and the ECB rate to stay low

/note to self: must re-read mortgage contract

Oh and:

Morrisseeee

Just thinking out load, and haven't researched it yet, but could I use my Paypal acc to my advantage, ie. savings to paypal in USD/£ ??
hopefully not a silly Q

shangri la

If the euro fails and Ireland reverts to the "punt nua" it is generally accepted that this new currency would be devalued quickly. For arguments sake lets assume the currency is devalued by 40%.

A person has the savings to cover the full cost of a house.

Would it be better in theory to get a mortgage instead of buying outright, putting the cash into a foreign currency savings account/german account and when a new currency is introduced and devalued you pay off the remaining mortgage in a lump sum and effectively get your house for 60% (ignoring fx changes and charges).

Is this correct?

JaneyMacker

Our company brought all the IT managers and Fund accounting managers into a meeting on Friday. They told them to enable currency switching functionality by Dec 24th.
And to inform all staff that emergency protocol will be implemented from Dec 24th to Jan 3. In other words, holidays may be cancelled without notice between those dates.
I only heard about it today because i wasnt in the office on Friday.
A friend in another company had the exact same thing happen. Same dates too.
They are planning for something big to happen over Christmas.
Gee, I wonder what it could be.
I hope its just planning though. Confusing that they have picked exact dates.
Luckily I have moved my savings around, so im not too bothered.

If we leave the Euro im outta this country though. Unless they increase my salary to the equivalent of what it is in Euros now. Why would anyone work here for half what you get abroad if their occupation should easily allow them to move.

I hope it doesnt come to it though.

realitykeeper

The Euro will devalue internationally and inflation will rise if the EU uses seized Russian money for reconstruction in Ukraine. This is because the rest of the world would see such a move as theft and they would understandably question the safety and security of their own euro denominated bond holdings. This may be a bitter pill to swallow for those who fail to understand Russia`s legitimate security concerns and defensive actions in Ukraine but to me it just makes sense.

Furze99

https://www.boards.ie/discussion/comment/120792327#Comment_120792327

The bulk of the financial world looks askance at Russia and their outrageous invasion of their neighbour. They will be destroyed militarily, economically and financially,

nachouser

https://www.boards.ie/discussion/comment/120792327#Comment_120792327

Finding a thread from 2011 to post this nonsense on is something else. Good man!

Panthro

A thread from 2011?!!

That's one hell of a ressurection!

Henry Ford III

Ancient thread. Closing it.