THINKING THE UNTHINKABLE

While completely unthinkable only a few months ago there has been much media speculation over the possible demise of the Euro. In fact just before Christmas the Centre for Economics and Business Research said there was, at best, only a one in five chance of the Euro surviving in its current form.

The reason given was the cuts required in consumer spending in some of the countries with weaker currencies would have to be at least 15 per cent. In other words greater than the fall in consumer spending faced by the UK in World War Two and therefore politically unacceptable.

The CEBR also points out that one of the conditions for the Euro to survive would be for the EU to directly control the economic policies of some of the member countries. In other words places such as Greece, Spain, Portugal and Italy would hand their economic policy making over to Brussels - again likely to be politically unacceptable.

Historically when countries like Greece, Spain or Italy faced economic hard times they were able to devalue their currency. Their exports became cheaper while the country also became a more financially attractive destination for overseas tourists.

Since joining the single currency they have been unable to devalue and we all know what the results have been. So say many experts pressure will mount in 2011 to such an extent that the Euro will cease to exist as we know it, and some countries may be forced to leave. One possible scenario doing the rounds is there will shortly be a Greek Euro, Irish Euro and Italian Euro etc. They would be launched at parity with the ‘old Euro’ but would quickly devalue – so one ‘old Euro’ might be worth two Greek or Irish Euros.

What would this mean for the UK’s travel & leisure industry? In recent years the rocketing Euro has been good news as it encouraged people to holiday at home rather than hit the Costa’s. It also made the UK a financially attractive place for people from the Euro zone to visit.

However if Spain for example decided to leave then instead of a pound being worth 1.16 old Euros it might be worth two ‘Spanish Euros’. Overnight Spain or Italy or Portugal might once again become the cheap holiday with guaranteed sun destination that the once were. It could potentially be a cash bonanza for holiday firms who had priced at the old Euro rate and charged customers accordingly well in advance. But when they came to pay the local hotels several months later it might be at the Portuguese Euro rate!

With unemployment at 20 per cent there is little doubt such a move could be seen as good news for Spain. The crash in its construction industry combined with falling tourist numbers has been a double whammy.

But it could be bad news in the UK as cash strapped holidaymakers tend to go where the bargains are. Suddenly £900 for a week in a static caravan or £1500 for a boat on the Norfolk Broads might not seem like too much of a bargain especially if that Spanish Hotel right on the beach is half the price it was last year!