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Beyond the tipping point - where next ?

By Stephen Ward BA (Econ), ACII, APMI, APFS, AIFP - Fri 2th Dec 2011

Over the last few weeks, have we passed the point of no return down a path which may lead to catastrophe? If this assumption is correct and you agree with this what are the consequences for the expat living in Spain ?

Perhaps the tipping point can be pinpointed ? - Was it the recent statement by Germany and France that Greece had a choice, “accept the austerity measures or leave the Euro”. It was subsequently made clear to the Greeks that the long overdue €8 billion installment of bailout funds will only be released if the new government and the political parties supporting it confirm in writing the country’s commitments arising from the EU summit decisions of October 26. What we are now seeing is a level of interference in the management of independent sovereign States which surely interferes with the democratic process.

Italy remains a huge worry. Italian Government debt amounts to €1.9 trillion. The ECB has made its position clear in that it sees intervention in the bond market as being short-term to stabilise markets rather than systemic.

To accompany all this the so called "bazooka" represented by the European Financial Stability Facility (EFSF), at the moment resembles little more than a water pistol. It simply does not have the funds, or any commitments to secure sufficient funds, to get anywhere near being able to place a firewall around Greece let alone to deal with Italy.

We did not think that it would ever be necessary to consider the consequences of what might happen with a breakup of the Euro. Although the chances of this remain small, the consequences of it, should it occur are such that it would be, in our view, unwise not to have some contingency plans.

If we ended up with a "new peseta", how would it look ?

One could expect a significant devaluation as compared to the value of the Euro. So the value of assets and liabilities would fall as compared to their value in Euros.

From the point of view of the UK expat (bearing in mind that most expats tend to hold most of their cash in pounds sterling, and have their investments denominated in sterling), this could be far from a disaster. So long as it remained possible in the short term to buy sufficient amounts of the new currency then the exchange rate from pounds sterling to "new pesetas", ought to be attractive.

As this continues to unfold you may want to consider the following as a means of protection.

1.) Maintain your cash balances of Euros at a low level, buying Euros as you need them.

2.) Keep a sufficient balance of Euros in cash safely at home, to tide you over a month or two, just in case.

3.) If you're able to do so, consider holding a small amount of physical Gold (perhaps in Krugerrands), as if everything were to get really nasty then this would remain an acceptable means of exchange.

4.) Transfer your UK pension fund into a QROPS to take advantage of greater investment flexibility.

Perhaps it will all come out in the wash, and in the early part of next year we will look back on this particular article and laugh about it. Let’s hope so.

For further information about QROPS, Pension Planning and long term investment opportunities please feel free to contact us by clicking the link (below) and submitting a few basic details.

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