The EURO is in it´s worst crisis with Greece and Portugal as the worst affected countries close followed by Spain, Italy and Ireland. Some sources suggests a melt down of the EURO with nearly unthinkable consequences.
Ole Hamre, GM at SEB Private Banking Singapore tells that this is the worst financial crisis in Europe since the oil crisis in the 1970s and he adds that it is premature to guess about the outcome. It is all about political leadership at this stage, according to Mr. Hamre.
The main question seems to be how Germany will respond to the rapidly growing crisis. Will the shoulders be broad enough to carry the burden or will it leave the single currency and return to the Deutsche Mark leaving the indebted countries on their own? The answer to the question varies to who you ask and there seems to be no consensus at the moment.
ScandAsia asked Nordea Singapore´s Head of Private Banking & Funds, Mr. Eric Christian Pedersen.
”A scenario where Germany is leaving the EURO is very unlikely, I would personally estimate the probability to be less than 5 percent” as German exporters would be hit very hard by the rise that we would in any “New D-Mark” and many people in Germany know this, says Mr. Pedersen.
Mr. Hamre from SEB Bank agrees with his collegue that the scenario is quite unlikely to happen, but he is reluctant to put percentages on the probability of such a scenario.
But if Germany give up and return to the D-mark, the situation in Europe is a real doomsday scenario, according to Mr. Pedersen. The probability that one or more of the troubled countries are leaving the EURO is higher, but still Mr. Pedersen estimates the probability to be maybe 10 percent or less.
Despite the dark clouds, Mr. Ole Hamre points out that he sees some light on the horizon.
”The economic picture in Asia provides hope, and American economic growth is actually beginning to provide upside surprises, such as last weekends US Thanksgiving retail sales”, says Mr. Hamre but adds that this may of course be temporary, but it is still a bright spot. He also suggest to consult a private banker to get more personalised advise reflecting a persons underlying investment strategy in this highly volatile market.
What can a Scandinavian expat do?
What to do as a Scandinavian banking costumer should be based on how comfortable you are with risk, and in what currency you “think” as nobody can know for sure what will happen. If you think in EURO or Danish Kroner (which is tied to EURO), meaning that EURO/DKK is the currency you want to be able to spend someday, a low-risk strategy is to stay in EURO. If you plan to spend in another currency when you retire, and you want to know what you will have in that currency, you should not be holding a lot of EURO. But this would be the case anyhow, EURO crisis or not.
Those who are afraid that the EURO will fall further and have a savings account full of EURO, can transferred e.g. into Singapore Dollar or Norwegian Kroner (or US Dollar, but these days the situation there can be scary too). Remember, though, that you are then taking a bet against EURO and that a situation where Greece and/or Portugal drops out could cause the “Rest-EURO” to rise.
”If you have stocks in European businesses, I trust that you have picked the companies, that you like and trust. But I will recommend to look at the geographic area where each company do business. It is often more interesting if the company do business in Europe or Asia than on which stock exchange the stock is registered”, says Mr. Pedersen.
Assuming you do have the right stocks, but you are worried about the EURO as a currency, Mr. Eric Christian Pedersen suggest to consider making a currency forward deal to minimize any loss due to fall in the currency. This way, you make sure that the currency element will not destroy your returns and hedging like this will normally cost you less than selling your stocks and buying new ones.
SEB Bank´s Mr. Hamre points out that bonds related to either Swedish -, Norwegian – or Danish kroner are currently worth considering given the regions solid and well capitalized banking sector, in addition to the Nordic countries relative strong financial situation.
Prepare for Riots in EURO Collapse
Even that the worst case scenario is considered unlikely to happen the British newspaper, The Telegraph, told on 25 November 2011 that British embassies in the euro zone have been told to draw up plans to help British expats through the collapse of the EURO including both a banking collapse and riots arising from the debt crisis.
According to the newspaper some economists believe that at worst, the outright collapse of the euro could reduce GDP in its member-states by up to half and trigger mass unemployment, include risks to basic property rights and the threat of civil disorder.