Pound Euro exchange rate for expats in Spain

What is parity?

Parity is the expression given to the point when the exchange rate reaches one pound equals just one euro. 

How does this affect me?

Each pound has previously bought up to 1.50 euros. If you have a pound sterling income you will now have less euros when it arrives in Spain.  An example helps to illustrate this point.  As a person paid £1,500 per month  (salary, pension or investment income) at an exchange rate of 1.40€ your euro income was 2,100€.  At parity (£1 = 1€)  your income is only 1,500€.  If you have been spending 2,100€ you now have a problem.

There are also several other effects.  Parity also means that Spanish property appears more expensive to non euro buyers.  Another consequence is that it is more expensive for family and friends to visit you in Barcelona, La Costa Brava and Spain.

And parity is not all bad news.  For people who wish to exchange euros to pounds, current interest rates mean there has not been a better time (at the time of writing) to exchange since the start of the euro. 

How can I deal with it?

There are several practical ways of overcoming the effect of a falling pound.  These include:

 Whilst the exchange rate is so low, only exchange what you need to.

 Get the best possible exchange rate. Seems obvious but many people still use their bank or cash machine to bring money to Spain.  Better rates are often obtained by using the services of an independent financial adviser. The difference can be as high as 10%.

 Earn euro income.  Seek sources of income in euros to supplement your income. A recent example we have come across is a journalist now writing for a European magazine to earn euros as well as an American publication where he earns dollars.

 Align your investment currency to your expenditure currency.  If all your expenditure is in euros you should have your investments predominately in euros. Make sure that you are also getting the best investment return.

What does the future hold?

Exchange rates are fickle and it is very difficult to accurately predict rates.  The rate is not determined by what is happening in one country, but how events in one country compares with another.  The Bank of England (BoE)  has cut interest rates aggressively which has been part of the cause of the weakening of the pound whilst the European Central Bank (ECB) held rates.  Now it is expected that the ECB will reduce rates whilst there will be less rate cuts in the future from the BoE.  It is therefore perfectly possible that Sterling will strengthen again meaning £1 will buy more than 1€.  How much more is the Million Pound (or Euro) question!!

This article was written by Barry Davys of Spectrum IFA Group and featured in the February 2009 editions of the Barcelona Metropolitan magazine, the city's magazine in English and in the Resident magazine for the Costa Brava area. 

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