What would happen to a Euro mortgage, if Spain dropped the Euro?

So the 120,000 euro debt owed to me, would become almost 20 million Pesatas?

Sounds good, but a pity I will never see any of it, in Euros, Pesatas, Brass Farthings or Washers !

A couple of points to clarify with respect to some of the earlier posts:

1.  If a Spanish bank collapses and you have a mortgage with them it is not a problem.  A mortgage is not "repayable on demand" therefore you will have no reason to panic.  Contrastingly, if you have savings with a bank that collapses you may well need to worry.

2.  Argentina defaulted and then its currency dropped in value.  I do not understand those that do not think it can happen or those that do not seem to grasp what the implications are if it does happen.

Regards

J

 i'm about to jump in with 90% financed bank repo, with a view to renting it out for the next decade at least. the mortgage will be in Euro's. Its obviously a bit difficult trying to work out what may happen in the next few years but here are a couple of very possible scenario's.

Euro Liabilities - Euro Asset - No problem

Peseta Liabilities - Peseta assets - No problem

Euro Liabilities - Peseta assets - eeeek! problem

At some point Greece WILL leave the euro, there's no one who can count to five or more who would disagree. The question for the rest of the eurozone is what happens next, does contagion cause other countries to blow out of teh zone as well, or has there been enough time to plug the gap.

My personal view is that Spain is too big and too integral to leave the euro, so I'm not sure it happens, or basically if it does then the euro is more or less finished as a currency. In which case euro mortgages will almost certainly be transferred to the country currency.

Can't help being nervous that my mortgage may remain denominated in Euro's if the rest of the zone remains in place whilst the method of payment and valuation of the assets  would be in peseta's.

 There is another possibility which is perhaps the most likely.

German taxpayers unwilling and unable to fund the PIGS force Merkel to pull out of the Euro and reinstate the Dmark.

Its widely agreed that the PIGS countries need a devaluation of atleast 30% to get competative again relative to the solvent northern core and to devalue their debt obligations. This would happen under this scenario of the German exit.

It would be much the simplest arrangement because perhaps all the PIGS would then be able to stay in the Euro, with some further debt forgiveness for Greece. Can you imagine the chaos of multiple defections from the euro and currency changes and the effects? This is the reason why Greece is still in, because of the fears of contagion and hyperinflationary depression for those leaving.

They may try massive money printing first in the form of QE or suchlike, but this may just speed the exit of germany as it picks up the bill in inflationary terms. Unless Germany exits it will pay one way or the other, of that much is certain. Of course it will take a hit on exit on its various loans and in currency appreciation hurting exports, but the alternative is decades of being bled to death by the PIGS and their un closeable budget deficits.

DonLochnagar

explain why its best to keep cash in Sterling when the government have a policy which devalues Stg against other currencies?

David

£1 buys 1.26 €uros today and nothing has actualy happened yet!

Regardless of whether Germany leaves the €uro and it devalues as a result - or the PIGS leave and devalue on exit those of us with assets in Spain are looking at a substantial devaluation. Thus DonLochnagar's advice to borrow as much in Spain as possible makes sense.

It may make sense for risk takers to invest in other currencies as D_B _S suggests but no one can be sure where this is going to end so it will always be a gamble.

 @D_B_S wrote:

"explain why its best to keep cash in Sterling when the government have a policy which devalues Stg against other currencies?"

Most western governments have a policy of devaluing their currency at the moment. The UK government happened to be quicker off the mark in slashing interest rates and QE, but the eurozone will soon catch up.

CHOPERA

'Most' is not all. What about the USD, AUD, CHF I could go on.

The UK may have been quicker off the mark but don't see Stg as a good bet for investment. Does anyone else?

David

The governments of the USA and Switzerland have also taken various measures to devalue their respective currencies (not sure about Australia) although perhaps not as drastic as the UK. I'm not particularly recommending sterling, in fact I wouldn't recommend that people play the currency markets at all, since nobody really knows what is already "priced in", and it can take time to "get out" of a falling currency. You could use the argument that the UK has already used up most of its firepower in devaluing its currency, while the others have greater scope to devalue their currencuies further, but that would be speculating and as I said, speculating on the currency markets isn't for most people. For most people on this forum sterling is convenient and also a currency they can use as legal tender if they go back to the UK. All things being equal, it does have a certain advantage.

This message was last edited by Chopera on 11/07/2012.

Dear All,

the northern dissidents have just stumped up another 30 billion plus austerity extension to Spain so nothing immediate then?

without these dissidents generousity, with new politicos in control, a 30% devalue of the euro sounds good for Brits with Spanish mortgages, that could help the housing bubble.

would there be even further devaluation of the euro to follow without those grumpy northerners????

Perhaps it is time for the Spainards to get there next Mercedes????

Regards

Norman

Chopera, as you say trading currencies is not for the faint of heart or thin of wallet and I guess most members of the forum are from the UK so Stg is of most interest.

I guess in some way not being a native of Europe although I lived there for sometime working in Investment Banking and Hedge Fund Management I see the global market rather than the local one.

Also I was in the position of planning my move back 'home' for the past 5-years, so moved most of my liquid cash into AUD in 2007/8 was left with Euros from the sales of 2 properties in Spain in 2010/11 which I moved into USD and CHF. Was stuck with Stg from the sale of my London and Chiltern Hills homes. That was more of a problem so have purchased a house in Oxford as I went to college there and love the English Summer for sports. this year has been great with Cricket, Tennis and am staying for The Olympics before returning to Oz to sail my boat.

Australia has been trying to devalue as the high AUD is hurting some of the industries such as tourism and food exports, but is great for us in WA where the 'thirst' for the output of the mines has never been higher with China and now India competing for output. the other problem has been the cost of living especially housing is now out of reach for those coming from Europe and the cheaper Eastern States. The government will pay 9K AUD for someone to move from the Eastern States and setlle in WA. Not many are taking it up hence we have over 1000 vacancies for graduates in the mining industry. We need people to come to help us grow, but fell the exchange rate is doing us no favors.

So a strong currency can work against you as well as in your favour. I guess the balance has to be right. I'm sure the UK and most of the Eurozone will get it right - not so sure about Spain.

David

David

Aussie visitors say ordinary joe there is hurting badly with very high cost of living and house prices. Some even moving to less desirable areas close to mines and jobs to cut commuting costs.

So why does the strong currency bring such inflation to hurt Joe????

Norman

Norman, don't think anyone in Oz is moving closer to mines as it's cheaper - the opposite is true rents near mines are astronomical. Don't know what Ozzies you have been talking too but they don't know the local market that for sure.

Good thing is there are many more quality German cars than a few years ago as they are more afordable.

David

The visitors were buying not renting......

the point is they were complaining of the high cost of living hurting the workers

the question remains why the high inflation with the strength of the currency?

Norman

Norman,

Who would want to buy in mining areas? They are the pits an my point is the same -- expensive.

High inflation -- circa 2% -- is that high?

Certainly homes in Perth ARE expensive by UK standards, but most buying earn a WA salary or like me brought sub divisions in the 70's for dirt money and are now worth millions.

David