The pound hit a new record low against the euro today, the official exchange rate dipping to €1.02. In the ‘no commission’ foreign exchange establishments the rate is already €0.99.
Whichever way you choose, you end up with less than a euro for one pound. A year ago the rate was €1.50.
The pound has fallen 13% against the euro in the past month and almost 25% against the dollar this year.
In three days time, the euro celebrates its tenth anniversary and on Thursday, Slovakia will become the 16th of the 27 nations to ‘join the club’. Presumably, as has happened everywhere else with the introduction of the euro, prices will double within a very short period of time. Wages, of course, will not double.
The strength of the euro, or the weakness of other currencies, is not the ideal scenario for countries dependent to a large extent on tourism. Spain, for example, has seen an overall drop in tourist numbers this year and a dramatic fall in the number of UK visitors during the past couple of months.
Ten years ago, Spain could be described as a very cheap holiday destination. Then came the euro, prices rising by 66% almost overnight, with everything that was 100 pesetas suddenly becoming €1.00, or more in some cases.
Still a relatively cheap holiday destination, but nowhere near what it was. Within a year or so, prices doubled as the full impact of the introduction of the euro took effect – rounding up (and up), price hikes throughout the production chain.
No longer cheap for a lot of things, but still good value for the visitor.
Now we have a recession and a strong euro, which is even beginning to challenge the ‘value for money’ concept. The beneficiaries in all this are the countries outside the eurozone, and they are already beginning to see a substantial increase in their tourist trade.
The strong euro is quite likely to encourage people from within the eurozone to choose a holiday destination outside the zone, as they will get more for their money.
The weak pound will also encourage many people to avoid the eurozone and choose cheaper destinations or, as some are predicting, stay at home. However, it is not all bad news for the UK as more ‘eurotourists’ are already opting for a vacation in Britain.
Two groups who are suffering particularly badly at the moment are ex-patriate British citizens dependent upon a UK income or pension and British citizens who own a holiday home abroad.
If the current trend continues, and the predictions for 2009 are not looking hopeful, many will be faced with some very hard decisions indeed.