Exchange rate if Euro collapses

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06 Jul 2012 14:07 by johnzx Star rating in Spain. 5241 posts Send private message

I just heard on the BCC a quote from one who should know about these things, that if the Drachma replaces the Euros it should do so at parity:  1 for 1.

 

If that happened in Spain maybe the Euro would be replaced with a New Peseta (NP) which also could have the same value as 1 euro at the moment of changed, which would be say at midnight one night,  No transition period.  

Thus all mortgages, bank loans etc. owed to enties within Spain would become NP debts. That would avoid all currency conversions.  Eg a 100,000 euro debt (mortgage) would become a 100,000 NP debt.

The NP could then float immediately and find its own level against other currencies

 I do not anticipate the demise of the Euro in Spain in the future but I think Greece cannot be that far off.

What do you guys thinks of that ?





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06 Jul 2012 14:22 by Sanchez1 Star rating. 853 posts Send private message

The value of the new peseta would then plunge massively against the euro, so why would the Spanish banks convert their assets (ie. mortgages) into worthless new pesetas? 

If you have a mortgage in euros and the euro continues to exist in the stronger EZ countries, then your mortgage will still be in euros, as per your contract.  Presumably this will mean that monthly mortgage payments become variable, depending on the euro v new peseta exchange rate each month?

If the euro completely disintegrates, well, that's a different matter.  In that case, the mortgage would have to then be converted to new pesetas.



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06 Jul 2012 14:37 by bobaol Star rating. 2257 posts Send private message

bobaol´s avatar

   then your mortgage will still be in euros, as per your contract.

???? What about the original contracts that were in pesetas?  These did not stay in pesetas "as per the contract".  I still have friends in France whose mortgage was originally in francs, these did not stay in francs but were converted to euros.  Again, you say that 

"monthly mortgage payments become variable, depending on the euro v new peseta exchange rate each month"

I can't see that happening, either.  Will one section of the community (Spanish as well as expats) be on a variable payment each month whilst another section, those taking out mortgages in the new peseta, not be?  Will banks actually work on two different currencies, a domestic one and a foreign one, depending on the customer and when he took out the mortgage?  It's only been 12 years or so since the euro came into general currency so lots of people with 25 or 35 year mortgages will still have original mortgages in pesetas (or francs, or marks, or schillings or whatever) but were changed to the euro.

No, I can't see it happening. 





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06 Jul 2012 14:38 by johnzx Star rating in Spain. 5241 posts Send private message

 

Sanchez,
 
I did not anticipate that Spanish banks would be given a choice.  When they lent the money, it was in the currency of Spain.  Thus, when the Euro was introduced all peseta loans were converted into Euros.  People did not continue to pay those loans in the Euro equivalent each month when they made their monthly payments.

 

(Bobaol. I was posting my reply at the same time as yours, thus the over-lap)


This message was last edited by johnzx on 06/07/2012.



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06 Jul 2012 15:03 by GuyT Star rating. 487 posts Send private message

Yeah, it would be absurd to think that a zillion Spaniards - having had their bank accounts, savings, pensions, wages, etc all suddenly conveted into ever devaluing New Pesetas - would be expected to buy Euros to service their mortgages. I'm sure it would be done by decree - along the lines of "all debts, instruments, balances etc currently denominated in Euros are converted into NP at a rate of whatever with immediate effect".

But as I have said before, I wouldn't put it past Spanish banks to try and wriggle as regards "foreign" owned/serviced mortgages. There is certainly nothing stopping them inserting a clause into new mortgages making you accept that you agree to pay in Euros no matter what. This isn't so unreasonable. Anyone buying a Spanish govt or bank bond in Euros expects to get paid out in Euros regardless of what currency the Spanish decide to use. This is why bonds, or the ones that trade freely,  are all issued under "English Law". This means the issuing govt can't legislate or otherwise tamper with the wording. Euros means Euros. Not pimenton skins. People learnt their lesson with Greek bonds written under Greek Law which were given No 1 haircuts.  Greek Law? Spanish Law? LOL.

btw, I'm afraid it's called "English Law", not "British Law" for those of you from the provinces who might otherwise object.

 

 


This message was last edited by GuyT on 06/07/2012.


This message was last edited by GuyT on 06/07/2012.



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06 Jul 2012 16:12 by johnzx Star rating in Spain. 5241 posts Send private message

Guy

Anyone buying a Spanish govt or bank bond in Euros expects to get paid out in Euros regardless of what currency the Spanish decide to use.

 

Interesting, But what if the Euro ceased to exist ?





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06 Jul 2012 20:40 by GuyT Star rating. 487 posts Send private message

 hey John, you've got me there. but if we start to think it through, off the cuff, it would seem in that case that those who had invested in a euro product (bond) backed the wrong horse. if the euro collapsed in its entirety and say became worth a penny sterling i think the markets would be ahead of the action and euro bonds would have already become worthless ahead of the event. your point is an interesting one, but i can't see the euro disappearing in a flash, overnight, so to speak. and for as long as there are people trading the market, the likelihood of this event will be priced in. that said, i'm just taking a common sense perspective - i'm not a bond trader. golly, wish i was. wouldn't be living in spain! lol.





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07 Jul 2012 08:40 by icaru Star rating in Kalkan Turkey. 46 posts Send private message

icaru´s avatar

As long as the euro exists, anyone with a euro-denominated mortgage has a fixed or variable rate linked to the Euribor index.  The variable rate would only vary with changes in Euribor regardless of any NP.   In Turkey, due to historical wide currency rate swings, many things including property are denominated in sterling, dollars or euros to avoid huge currency exchange losses.  Due to the same fluctuation, we also get 9.50 - 10% interest on all time deposits in Turkish lira, regardless of the length of time of the deposit.  



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07 Jul 2012 08:42 by icaru Star rating in Kalkan Turkey. 46 posts Send private message

icaru´s avatar

As long as the euro exists, anyone with a euro-denominated mortgage has a fixed or variable rate linked to the Euribor index.  The variable rate would only vary with changes in Euribor regardless of any NP.

In Turkey, due to historical wide currency rate swings, many things including property are denominated in sterling, dollars or euros to avoid huge currency exchange losses. Due to the rate fluctuation, we also get 9.50 - 10% interest on all time deposits in Turkish lira, regardless of the length of time of the deposit.



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07 Jul 2012 09:33 by midasgold Star rating in Mijas.. 91 posts Send private message

The way I see it.

When (not if ) the euro goes in not too distant future, possibly the next couple of years.

During a bank holliday and the banks are closed,the following happen -

1) Your euro bank deposit will be converted to the peseta at the SAME value as at the introduction of the euro.

2) The next day (the banks are still closed ) the peseta will de devalued by 50%.

3) Spanish business will then become ultra competitive. 

4) The tourist will then be offered a 5 star hotel stay at £150 a week.   



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07 Jul 2012 10:28 by acer Star rating. 1365 posts Send private message

Not sure that is possible Midasgold.  As was said before, in that scenario the Spanish banks and other financial institutions would collapse as their assets would be halved overnight and they would be insolvent.  That would resonate across the world...mmm glad I didn't buy some Barclays shares a couple of days ago.





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07 Jul 2012 12:38 by DonLochnagar Star rating in Mazarron. 161 posts Send private message

I think we underestimate the enthusiasm there is for the €uro in countries like Spain, due to problems in their near past with Franco's reign.  They see the €uro as being a stabilising influence on their politics.  The country is crammed with German cars and the Germans have done very well out of the €uro, let them pay the debts of the PIIGS.





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07 Jul 2012 13:18 by finkies Star rating. 44 posts Send private message

Hi all,

I'm not an economist (although even those boyos don't seem to be shining particularly brightly at the moment) just a laptop pundit.

I take on board what you all say, but from what I hear and read,it doesn't sound as though the average "Juan" or "Giorgos" have as much confidence in a seamless transition- or protection.

It would appear that euros are flooding out of both Greece & Spain "just in case".

If I remember correctly, some €65+ Billion exited Stage Left from Spain in May 2012 - as compared with around only €5 Billion on May 2011 - and how much of that went home in the pockets of tourists?

I personally reckon that Juan & Giorgos know what they're doing (or fearing) and there must now be some very thick mattresses in the rest of Europe.  





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09 Jul 2012 00:09 by dbd Star rating. 62 posts Send private message

if in the furture spain does go back to the peseta as per normal the people who will lose out will be the ordinary man in the street. becaude the ones getting their money out of spain ast the moment are the rich.





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09 Jul 2012 08:49 by acer Star rating. 1365 posts Send private message

What do you base that opinion on dbd ?


 


This message was last edited by acer on 09/07/2012.



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09 Jul 2012 10:23 by dbd Star rating. 62 posts Send private message

life............acer





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09 Jul 2012 10:46 by acer Star rating. 1365 posts Send private message

Well dbd, we've all got experience of life and I reckon this affects virtually everyone.  You seem to be basing your comment on the mobility of assets - in reality for most, rich or poor, they are not so transferable as you imply.

If anything the reverse is true - those who own property in Spain without mortgages may end up worst off.





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09 Jul 2012 11:09 by DonLochnagar Star rating in Mazarron. 161 posts Send private message

I think when DBD talks about the rich he means the 1% not the 99% which are the rest of us.  He is right.  Money is flowing out of Spain in the same way as it did in Greece.





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09 Jul 2012 11:25 by acer Star rating. 1365 posts Send private message

If that's what he's saying, he is wrong.  I know it's popular to slag off the banks, estate agents and the rich but everyone loses.  Of course money is flowing out of Spain, that means nothing.  Only a looney keeps more than he needs from day to day in his bank account in euros.

dbd's assertion was that it was the "ordinary man in the street who will suffer most" - which sounded to me like a Billy Bragg lament on behalf of the Socialist party.  But the truth is that there are no winners out of all of this and as I say those who own property and businesses are likely to be hit worse.





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09 Jul 2012 11:49 by DonLochnagar Star rating in Mazarron. 161 posts Send private message

Well I'm either very foolhardy or will make a fortune as I'm moving to Spain shortly and starting a business!  (Not a bar!)





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