Getting The Best Exchange Rate Pound to Euro if The Euro Collapses – Part 2

June 26th, 2012

Best Exchange Rates UK continues its report on how getting the best exchange rate pound to euro could become quite problematic if the euro collapses. In part 1 we discussed the possible short term impact of a euro crash. The result would almost certainly be a credit crunch as UK banks would lose substantial amounts of investment via debt owed by Greece and through insurance losses. The impact to us would not however be as damaging as it would to Germany and France who have significantly larger investments in the Greek economy but perhaps a more robust economy to shoulder the losses.

So what would happen to the EU countries currently using the euro if it collapsed? EU member countries would be issued new currencies, so for instance Greece would go back to the drachma. Some currencies would quickly flourish, like Germany who enjoy a strong economy with high exports; conversely others would very quickly de-value though the competition of other EU states.

Many EU countries would be forced to bail out their own banks to make up for losses crated by the fall of the euro and this in turn would likely decrease exports and lead to EU economies slowing down.

There has been a lot of speculation recently over how the euro’s story might read, here are just a few of the theories that are flying around, maybe there is an element of truth and exaggeration in all of them, either way they will have an impact on the ability of businesses and consumers getting the best exchange rate pound to euro in the future.

Theory 1: UK economic growth will not peak to its pre-recession self until 2014

Theory 2: The euro crash increases our chances of plummeting back into recession by as much as 70%

Theory 3: If Greece, Portugal and Ireland, the most vulnerable and likely to leave the euro, were kicked out, the UK economy could be knocked back by a staggering six years and could cut UK GDP by 4%, this could be positively catastrophic for the UK economy.

Theory 4: On a more positive note, there is a theory that believes a short recession will be followed by a reasonably quick recovery and that the tough austerity budgets that could threaten a counties economic growth, could in fact be relaxed, which could make European currencies become relatively stronger, which in the long term could aid Britain’s export’s markets.

All of the theories and speculation regarding the euro and what may or may not happen to getting the best exchange rate pound to euro or if the euro will even exist are exactly that- just theories and speculation, nobody can really know what will happen to the poor old euro because so many macro and micro factors that are changing on an hourly basis can impact on the final outcome, we can only watch, wait and hope.