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How Would A Euro Collapse Effect You?

How Would A Euro Collapse Effect You?

by Mr. Moneysaver · Jun 12, 2012

The plight of the euro continues to dominate the financial headlines – and the situation for the single currency doesn’t look like getting better any time soon.

With European leaders now anxiously making efforts to keep the currency afloat it may be worth planning ahead for a potential worst-case scenario which could cause problems for everyone – with public sector wages likely to be threatened; while savings values could fall; and mortgage rates could increase.

What happens if the euro collapses?

One possibility if the euro were to collapse would be the reintroduction of the Irish punt – but with time needed to get enough currency into the system there could be stock market turmoil. With ATMs needing to be restocked; cash tills recalibrated; and all banking systems, payroll and transaction systems undergoing similar transformations; there could be significant problems, although Ireland would not default because of a four-year deal it has with the International Monetary Fund, the European Union and the European Central Bank to provide funding for the state.     

For individuals with savings, the Government has recently renewed its €100,000 bank guarantee – but money in savings account would likely be transferred into the Irish punt at whatever the exchange rate may be. It’s difficult to judge how the banks would handle mortgages too, with house prices likely to be re-valued in punts even though consumers could still be obliged to repay their original euro loan. House prices would also be likely to fall in the short term because of economic pressures. 

In addition, consumers could be hit by a rise in prices of foreign imports if a new Irish currency were valued below the euro. While the cost of locally produced goods should remain the same, the likes of: foreign fruit and vegetables; wine; shoes; and clothing; may all increase in price. However, on the flip side, the Irish economy could be boosted by the fact that its goods should be cheaper to export.

How to prepare for the worst

There are very few actions that can be taken to prepare for a euro collapse – and indeed Ireland is not about to suddenly exit the euro. If the currency were to collapse it would more than likely be a Europe-wide problem affecting each nation.

The only action that consumers can take is to be as frugal as possible with their finances. Look for the best deals on financial products by using comparison websites – particularly when looking at interest rates on mortgages; and your rate of return on a savings account. Also try to save money wherever possible in case a euro collapse forces you to tighten your purse strings in the future – get into the habit of looking for the best deals on all basic items, including food and clothing, by shopping online and searching for voucher codes.

Filed Under: Personal Finance

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