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I'm a middle-class citizen, currently living in a EU country (Greece in my case). How can I protect my little savings (that I currently have in a Greek bank) against a country default, like the one that is (very) likely to happen in Greece (or other EU countries)?

Should I take my money of the bank? Should I exchange my money for another currency so that I might benefit if the Euro (€) as a whole gets in trouble? And if yes, what's the best way to move them in another country? Should I exchange for gold? Should I split the money into more than one bank? Should I dig a hole in the ground and hide my Euros there? You might laugh with that, but there are many people doing that right now :O

Possibly related question: What happens to my savings if my country defaults or restructures its debt?

Community
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ano
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3 Answers3

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The default of the country will affect the country obligations and what's tied to it. If you have treasury bonds, for example - they'll get hit. If you have cash currency - it will get hit.

If you're invested in the stock market, however, it may plunge, but will recover, and in the long run you won't get hit. If you're invested in foreign countries (through foreign currency or foreign stocks that you hold), then the default of your local government may have less affect there, if at all.

What you should not, in my humble opinion, be doing is digging holes in the ground or probably not exchange all your cash for gold (although it is considered a safe anchor in case of monetary crisis, so may be worth considering some diversifying your portfolio with some gold). Splitting between banks might not make any difference at all because the value won't change, unless you think that one of the banks will fail (then just close the account there).

The bottom line is that the key is diversifying, and you don't have to be a seasoned investor for that. I'm sure there are mutual funds in Greece, just pick several different funds (from several different companies) that provide diversified investment, and put your money there.

littleadv
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These have the potential to become "end-of-the-world" scenarios, so I'll keep this very clear. If you start to feel that any particular investment may suddenly become worthless then it is wise to liquidate that asset and transfer your wealth somewhere else.

If your wealth happens to be invested in cash then transferring that wealth into something else is still valid. Digging a hole in the ground isn't useful and running for the border probably won't be necessary.

Consider countries that have suffered actual currency collapse and debt default. Take Zimbabwe, for example. Even as inflation went into the millions of percent, the Zimbabwe stock exchange soared as investors were prepared to spend ever-more of their devaluing currency to buy stable stocks in a small number of locally listed companies.

Even if the Euro were to suffer a critical fall, European companies would probably be ok. If you didn't panic and dig caches in the back garden over the fall of dotcom, there is no need to panic over the decline of certain currencies. Just diversify your risk and buy non-cash (or euro) assets.

Update:

A few ideas re diversification:

  • You specifically mention a fear that the Euro will be devalued; there are no exchange controls in Europe so it is straightforward to purchase alternative currencies (dollar, pound, yen, etc.) if you want to hedge in cash, although I don't think that is particularly appropriate (or safe - a Euro default is probably such calamitous that these associated currencies will take it in the neck as well);
  • Alternatively, buy things that have value (depending on how much you have): property, stocks, ETFs, that sort of thing - even a company listed in the Euro-zone (and which is structurally sound) should ride out any Euro devaluation - if it exports its products it could even benefit from a cheaper euro;

The problem for Greece isn't really a euro problem; it is local. Local property, local companies ... these can be affected by default because no-one believes in the entirety of the Greek economy, not just the currency it happens to be using - so diversification really means buying things that are outside Greece.

Turukawa
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Since you are going to be experiencing a liquidity crisis that even owning physical gold wouldn't solve, may I suggest bitcoins?

You will still be liquid and people anywhere will be able to trade it. This is different from precious metals, whereas even if you "invested" in gold you would waste considerable resources on storage, security and actually making it divisible for trade. You would be illiquid.

Do note that the bitcoin currency is currently more volatile than a Greek government bond.

RD.
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