Traveling in an Economic Crisis
Source: jonrawlinson at flickr
Iceland’s economy was the first to fall. All three of the country’s banks collapsed, and the stock market fell 96% from it’s high in a matter of days.
Greece is grabbing headlines now for its financial problems, needing a record $150 billion bailout from other European governments and the IMF. Greece currently has an annual government deficit of 13% of GDP, meaning the government has to borrow one-eighth of the size of their entire economy this year. There’s a very interesting article on how it all started.
And those might only be the first two European countries to be in trouble. Ireland’s deficit is 14% of GDP, and economists are worried that it could be next. Spain has had troubles for years (mostly relating to its real estate collapse) and is running an 11% deficit. Portugal is also under the microscope with 9% deficit. Besides the level of government spending, these countries have high unemployment rates, increasing debt service obligations, and falling credit worthiness making it more difficult for their governments to borrow.
I don’t mean to make light of their problems, and the long term solutions to the world’s financial crisis aren’t clear. But the thought did occur to me…
I wonder if this is a good time to move to Greece? Or Spain?
The Euro is actually at a historic low against the Canadian dollar – and has fallen 15% in the past year. (The US to Euro exchange has been about break even in the past year although very volatile, given America’s deep financial crisis as well.) But against Canada, Australia, India, Indonesia, Sweden, and other countries that have not had as deep an economic crisis, the Euro is 10% down from year ago levels.
So to start, the (non-US) dollar goes farther anywhere in Europe. You can expect 10% to 20% cheaper prices just from the changing exchange rate.
But perhaps more importantly is the deals. Inflation is expected to fall when economies stall, although if the government is forced to print money to pay its bills it can cause inflation. But in the simplest sense, when the economy gets tight, people are more careful about what they spend their money on. More unemployed means less people with disposable income. Prices fall. Can you find a cheaper place to rent in Spain than in years past? Why yes! Are restaurants offering coupons and more specials to bring you in? Yes. Are the locals less likely to travel and spend, and so the foreign tourist becomes even more valuable and prized? Possibly yes too.
In countries outside the Euro zone, the deals might even be better. The Icelandic Kronur has dropped by half in the past 3 years since their crisis began. Even accepting a certain amount of inflation, the foreign tourist can live there for half the price as he once did. The British Pound has dropped by a third in that time. Heck, even the US Dollar itself has become at par with the Canadian, which could be seen as a 30% drop in a mere 2 years. To countries whose currencies have remained steady, the world is having a 10%-50% off sale, for a limited time only.
The biggest appeal from the travelers point of view has to be how happy these countries now are to have outside tourists spending money there, how desperate they are for outside funds to fuel their faltering economic engines. The opportunity for deals is there. In fact it’s a win-win – they need your money, and in return you get a great deal on a long-term vacation.
It would be even better if Greece and Spain hadn’t adopted the Euro, as their independent currencies would have fallen even more by now. But it’s quite a feat when someone can marvel at how cheap Europe is getting.
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