Sunday, February 24, 2013

Lean times

Those expats who live in Spain well remember the dark days when the exchange rate dropped to 1 euro to the pound. For years the rate had been stable at about 1.5 euros to the pound. Then, within just a few months, we lost one third of our income. People asked if we were affected. Of course were were!

Since then the rate has improved and steadily climbed back to 1.25 euros to the pound. That was not as good as before but at least we were starting to feel better with more money in our pockets. The economic crisis in Europe had forced the value of the euro down for a while. However, that has now changed; the euro has strengthened in the market as the eurozone has stabilised and the pound has weakened.

In the last six weeks or so, the rate has slipped back down. I have a widget that sits permanently on my desktop computer reminding me of the current exchange rate. This morning it says 1.147 which means we will have 10% fewer euros to spend each month. If you want to know how that feels, just try living on 90% of your income, better than 66% but still not good.

That weakening of the pound will not be helped by Moody’s down rating of the UK from AAA to AA1. It may be good for Britain’s exports to have a weak pound but it will increase energy and food bills and could increase inflation which will harm growth in the UK. Like Mariano Rajoy has had to do in Spain, the British  government will have to ramp up its austerity packages and reduce public spending to stop the spiralling debt of the country. I hope they do it sooner rather than later and that the pound quickly regains its strength against the euro. 

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