Stephen65
Active Member
- Joined
- Jun 20, 2010
- Posts
- 847
Some ramblings follow from a non-economist but someone interested in these subjects so hopefully an educated layman:
An increasingly likely scenario being discussed in the financial papers is the financial crisis causing either a complete collapse of the euro or forcing several countries to exit. In this scenario successor national currencies are created on exit (e.g. a New Drachma, a New Deutsche Mark etc) at an exchange rate to the euros specified at the time of exit. Once the new currencies were created their values would then float against other currencies including the AUD and the euro if it continues in use.
For those planning expenditures in euros this creates an interesting scenario. Should I prepay my expenses now in euros or should I wait to see if the euro collapses and then pay my expenses in the successor currencies? From what I have read in the financial papers the common view is that if the euro collapses then the successor currencies of the strongest euro nations (Germany, Austria, the Netherlands, Finland and maybe one or two others - basically the northern european Germanic bloc) are likely to appreciate in value against third currencies like the AUD while those of the weakest nations (at least Portugal, Italy, Spain and Greece and a few others) are likely to devalue against the AUD.
So costs in those stronger nations are likely to rise against the AUD while those in the smaller are likely to decline. On this theory you should prepay your expenses in euros now if the costs are to be incurred in the stronger nations and wait and see what happens if the costs are to be paid in the weaker countries. Or to put it another way - the northern european area becomes more expensive for Australians but the southern becomes cheaper.
Another scenario is that that the eurozone remains intact but the Germans and the European Central Bank give in and start printing lots of euros to bail out the weakest countries. In this scenario the euro declines in value against third currencies but prices in euros rise due to the resultant inflation inside the eurozone. In this scenario it may be wisest to lock in prices now in euros but wait to pay as late as possible so that you get the benefit of the devaluation of the euro against the AUD but pay in a price set before inflation takes hold.
Any thoughts?
An increasingly likely scenario being discussed in the financial papers is the financial crisis causing either a complete collapse of the euro or forcing several countries to exit. In this scenario successor national currencies are created on exit (e.g. a New Drachma, a New Deutsche Mark etc) at an exchange rate to the euros specified at the time of exit. Once the new currencies were created their values would then float against other currencies including the AUD and the euro if it continues in use.
For those planning expenditures in euros this creates an interesting scenario. Should I prepay my expenses now in euros or should I wait to see if the euro collapses and then pay my expenses in the successor currencies? From what I have read in the financial papers the common view is that if the euro collapses then the successor currencies of the strongest euro nations (Germany, Austria, the Netherlands, Finland and maybe one or two others - basically the northern european Germanic bloc) are likely to appreciate in value against third currencies like the AUD while those of the weakest nations (at least Portugal, Italy, Spain and Greece and a few others) are likely to devalue against the AUD.
So costs in those stronger nations are likely to rise against the AUD while those in the smaller are likely to decline. On this theory you should prepay your expenses in euros now if the costs are to be incurred in the stronger nations and wait and see what happens if the costs are to be paid in the weaker countries. Or to put it another way - the northern european area becomes more expensive for Australians but the southern becomes cheaper.
Another scenario is that that the eurozone remains intact but the Germans and the European Central Bank give in and start printing lots of euros to bail out the weakest countries. In this scenario the euro declines in value against third currencies but prices in euros rise due to the resultant inflation inside the eurozone. In this scenario it may be wisest to lock in prices now in euros but wait to pay as late as possible so that you get the benefit of the devaluation of the euro against the AUD but pay in a price set before inflation takes hold.
Any thoughts?
