Euro Zone Crisis

I

It's started here - the tax guys have set on extra 25 staff - and sent out 200,000 demands to ex pats for

the ''rental income''  on their  villa/ apts. This MUST be paid even if NO RENTAL income has been received  !!!!!

If  the  tax is not paid on this non existant income you are threatened with bank / villa embargos. 

Have a great day. 

Don't we already pay a tax like that anyway or am I confusing my taxes?

sorry this is 'off thread' but a reply to the previous post and all part of the bigger picture of spain looking to recover monies either through reducing public spending, hitting an easy target like ex-pats (although claiming unpaid taxes is legitimate) etc

The quesion for anyone renting out is have you declared your rental income under the the non resident tax return? If the answer is no then this is what I think the spainsh tax office is chasing.

They have had information from the electricity companies on usage and anyone showing,I guess intermittant usage is assumed to be renting out.

I suspect it is a 'presumed guilty unless you prove innocent' scenario here and yes usage by owners periodically can be misconstrued as rental use but that is what I understand The Spanish tax office is basing its assumptions on.

Paul

 I think I've come to the conclusion that the euro is dead (certainly for Spain) and we are either about to get a full eurozone breakup or the weaker PIIGS kicked out of the euro.

This will have serious consequences for us owners and depending or whether and where you have a mortgage these consequences may be good or bad.

When Spain exits the euro and returns to the Peseta it will devalue very quickly.  The value of the apartments in £ terms will go down initially.  The good news part is that if you have a Euro mortgage (from a spanish bank) this should be redominated into Pesatas and therefore the £ amount you owe will reduce significantly.  (My biggest concern here is that the banks are allowed to redominate for resident borrowers while sticking to euros for non-residents to benefit their banks)

I have looked at what happened when Argentina removed its $ peg and their currency depreciated by a factor of 4.  I.e if you currently own 75k euros this is today £65k and post conversion you may owe less than £20k.

Now for the bad news - inflation in Spain will go through the roof due to the weak currency (Argentina went to 50% inflation) and therefore interest rates will follow (Argentina went to 40%).  This means that the mortgage payments in £ may go up even though the amount has gone down (40% interest on say £20k is £8k per year which is four times more than 3.5% interest on £65k).  If this situation plays out some may be in a position to pay the mortgage off immediately which is more doable if the £ equivalent amount has fallen.  Property prices will also rise significantly in this period due to the high inflation.

The really dire consequences are if you haven't borrowed in euros or you have borrowed in euros from a non-spanish bank.  I know a lot of the British banks were lending euros from the channel islands.  These loans would be unlikely to redenominate into Pesatas.  If you are in this situation you need to take proper financial advice now.

I am with you on this Mr YOUNGERS . I think it's not IF Spain is made to leave the euro but WHEN.

 I think its noticeable that nothing is being done right now.  We have gone from one summit to another where we have been promised a solution (which all ended up failing) but right now there is nothing?

There is no proposed summit, there is no new idea for a bailout and the EFSF leveraging has been scrapped.  I think right now they are playing for time while preparing for the breakup.

The FSA told our banks this week to be prepared for breakup.

The only possible solution would have been the issue of a EUROBOND underwritten by ALL the member states.

As this was a NO go solution with many members, the German people being the main ones against it.

The end  of the euro is a done deed.

Where did I put my tin hat ?  

Spain had/still has very low debt to GDP as a Government ................ Italy, Greece didn't ............... .......... because all its infrastructure (motorways etc) were built with our (European) money.

Spain as a country however is now borrowing heavily due to loss of taxes from lost employment and having to pay out more in unemployment benefits. It has to address this and fast otherwise it will catch up with Greece, Italy etc

The quicker it gets out of the Euro then the better for Spain, as it can recover far quicker than Greece, Italy et al.

The Euro does not work on such a vast scale - it never has. The North/South divide is on a bigger scale than the UK where the South should have a different economic policy to the North ......... but it doesn't, so we all get lumbered with economic policies geared to the South (and in Europe to the North) as they contribute the most and have the bigger economic effect.

However the problem with consecutive Spanish governments is that they all go ''la la la not listening, not listening'' when someone is trying to tell them something, and then some unbelievable lengthy flowery statement comes out which could have been said in 1 sentence and ultimately says nothing .............. lets kick the can down the road and worry about it another day .... manana 

For us lot, then yes we'll lose some money on paper, but for those who bought to use it, then you'll still get to use it and when the peseta comes back you'll have more bang for your buck when out in Spain.

The people here who will really lose out on paper are those who sold up in the UK and moved to Spain at the height of the market, but again if they have a sterling pension/income then their incomes should rise - maybe a good thing, as we all remember when Spain was cheap to eat and drink out compared to the UK.

Swings and roundabouts, with the odd slide and climbing frame to get over 

Some good stuff on this thread which was my intention when I set it up. The latest comments from Shampers make complete sense to me and are interesting in terms of those who have mortgages and the likely value falls for the properties if we see a devalued Peseta return. Good news is that overall I think the above would be better than where we are now.

However, has anybody got similar views on what the Peseta would mean to investors for a major project like Paramount. My head tells me that it would be disastrous but my heart tells me that it could create attractive conditions in which to invest - in other words you might not need to spend as much hard currency as was previously the case in the Euro.

Bottom line for me, and this applies in the UK as it does in Spain, no spend / investment by Governments and investors will only continue to force people out of work and throttle any economy. If we could secure a project like Paramount it would kick start an upsurge in the regional economy which in turn becomes contagious and spreads elsewhere. It just takes someone with some bottle to make the move which is currently at odds with most people's common sense. But it works and is the only answer the current global economic problem. If you don't believe it have a look at what happened after WW2 when most countries were in a far worse state than they are now.

I hope Mr Samper lives up to his first name and comes up with a miracle as it will make such a difference to Spain and Europe. More comments please.

Jon Faulkner

Dear All

I maybe stating the obvious, yet if you have money in your Spainish Bank account, or as I do every Month have money automatically paid into your Spainish Bank, you may want to think about taking some of those fund out and reduce the amount you have transfered in. Just ensure you have enough to cover all your Bills.

Yes -GILES - did that many months ago,emptied my bank  - leaving enough in to cover  monthly bills only.

You have to be crazy to operate any other way. 

 I agree with this too - normally look to put six months worth over in December but got to be month to month right now.

Faulky - wrt Paramount you would have to be mad to invest in that now - you could end up spending euros and getting back pesetas!  If it all breaks up then there may be an opportunity to build infrastructure on the cheap but you'd have to have balls of steel to invest in that climate (plus lots of the cost would be imported and therefore in hard currencies anyway).

Only way Paramount goes ahead for me right now is if euro is saved - real shame as I was very much in the glass half full catagory on that one.

Sterling is being kept low to encourage foreign investment in the UK, the Spanish are quietly desperate to get out of the euro to encourage similar.

If you owe £100 it's your problem, if you owe £100million it's their problem ......... lender beware (the Germans are kakking it).

If you have funds in a spanish bank account and a mortgage then at worst it'd be offset if the bank went bust, if you have no mortgage then if the bank went bust and the government didn't protect the depositers then yeah you'd lose your money - but that really would be the sh1t hitting the fan, and would deter foreign investors which is the opposite reason for the country getting out of the euro.

When, not if the Spanish pull out of the Euro (the markets are already pricing this in) then -

the euro converts to pesetas and devalues massively overnight

us 'investors' start paying off our mortages quicker as we get more for our £ ......... so what if it devalues, i bought it for 30 years of use and yes i know others didn't and i'm sorry for your loss Darren.

tourists start going to Spain again in droves as its cheap ............. Turkey, Bulgaria, Egypt etc suffer 

Foreign money starts buying up cheap property (exchange rate fall, property crash - double benefit) - see London property sales, especially at the top end - all foreigners.

Employment increases as foreign money pours in as tourism, construction, leisure starts again. Government borrowing decreases as people get jobs, pay taxes and dole falls

Greece and Italy follow suit, but wish they'd done it sooner ..........

The Germans go bust - they may have the strongest economy but they have the weakest and most under capitalised banks and the most foreign exposure to the PIIGS

So what would happen to a Euro mortgage if it went back to pesetas in Spain.

Would they convert the Euro to a pesetas mortgage, ir so how would they work out the exchange rate? 

surely this would benefit us as the pound would be much stronger than the pesetas

The difference between the sterling being kept low and the reintroduction of pesetas into Spain is the degree of "low".

If the Spanish currency devalued massively which would be likely then imports would be hugely expensive.  I'm not sure what Spain imports or if it has its own sources of fuels but that can be a big issue.

Also although personal debt may change in regard to owing spanish banks, national debt would still be denominated in $/£/€ depending on who they borrowed from.

But there are pro's and cons for the "weaker" countries to leave...but for me only cons for the germans so I think they'll play hardball but in the end reach an agreement to save the situation.

and what would be the point of that.  if the stirling is going to be kept low, then spain wouldnt benefit.

surely they need to generate revenue,  if the pound is strong against the pesata then the tourist industy will boom again

If they drop out of the euro the peseta will fall substantially whether spain or any other country want it to or not.  Markets are more powerful than governments (which is being made pretty clear right now) also think back to UK in the ERM - we tried to hold the value of the pound and failed and lost a packet trying.

If you have a euro mortgage (from a spanish bank) and the spanish gov decides to redonominate to pesetas then the sterling equivalent will fall substantially.  The risks are if you have a euro mortgage from a non-spanish bank or if the gov decides to only redonominate for spanish residents.  Then we are stuck with a peseta asset and a euro liability and that wont look pretty by any stretch.

This from Reuters in the last hour!

Don't quite get that Darren.

Is anyone seriously suggesting the Euro will collapse completly and all countries will revert to their original currency??? I doubt very much that would be the case. While it is undoubtedly conceivable that the high debt countries like Greece, Italy, Portugal and Spain may have to leave the Euro-zone I think it's highly unlikely that countries like France, Germany, Belgium and Holland will leave the Euro.  Is that really being touted as a realistic scenario?