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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?

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    Hmmm, maybe we should put the united-states tag on this one. (Hopefully that's just a joke.) – Stainsor Jul 14 '11 at 12:56
  • You don't indicate if the funds are in a bank inside greece, or in another country – Chuck van der Linden Jul 16 '11 at 8:05
  • @Chuck van der Linden It's in a Greek bank. I added it to the question description. – ano Jul 17 '11 at 10:39
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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.

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    Thanks for the answer. By splitting money between banks, I mean having some small amount of money in more than one savings account in different banks. So in case a daily withdraw limit comes in effect (like the one in Argentina if I'm not mistaken), I will be able to withdrew more money? – ano Jul 15 '11 at 6:47
  • In terms of a gold hedge, I'd agree that a portion (like 5-10%) in gold might not be a bad idea. However buying and storing the actual metal is a pain, and there are often pretty high fee's. 'Collectable' gold coins is even worse as the markups can be huge and you end up paying a big cut both buying and selling. An ETF such as GLD is a far better alternative, presuming you can either trade on the american market, or that there is a similar fund in greece. – Chuck van der Linden Jul 16 '11 at 8:12
  • @Chuck van del Linden: ETF is the nest option in a stable economy, what if the bank that owns the ETF go banckrupcy because is packed of Greece sovereign bunds? – Marco Demaio Sep 6 '11 at 11:39
  • @Marco, are you referring to the broker that would have custody of your portfolio, or the org that runs the fund? You may want to look into the regulation when it comes to mutual funds, etc. There's a good number of safeguards since they are holding securities and other assets on behalf of the people who have bought into the fund. And in the case of GLD or IAU, both buy and hold physical gold. Most fund operators are not going to be heavily invested in sovern debt, unless its holdings of a specific fund that invests in such (in which case the impact would be limited to that fund) – Chuck van der Linden Sep 8 '11 at 17:49
  • If your specific bank has a lot of investments in Greek sovern debt, then you might want to find a bank which does not have a lot of such holdings. (which currently have interest rates typical of 'junk bonds') – Chuck van der Linden Sep 8 '11 at 17:51
5

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.

  • Sorry, I made the question a little more detailed. Please, feel free to adjust the answer if you think it's necessary. Thanks. – ano Jul 14 '11 at 13:50
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    Could you please be a bit more specific about ways to mitigate the risk of the default, considering that we are taking about a simple family and not an experienced investor? Ex. you say "transfer your wealth somewhere else" and "diversify your risk and buy non-cash (or euro) assets". What ways can be used to do that? Thanks – ano Jul 14 '11 at 14:55
  • I would just like to add that make sure you keep your cool. Emotional liquidating of investments is what causes stock market crashes. Remeber, that a stock is only worth what someone is willing to pay for it. The fact that people -think- something might fail can actually be what causes it to fail. – user606723 Aug 18 '11 at 14:26
  • @Turukawa: you say stock, ETF, but when somone can not trust its local banks anymore due to the fear of banckrupcy how would you buy those ETFs? – Marco Demaio Sep 6 '11 at 11:45
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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.

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    You're not seriously suggesting a person to put all his savings into an online scam, are you? – littleadv Jul 14 '11 at 23:42
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    All his savings? I advocate diversification, which if he practiced he wouldn't even be in this mess. I'm suggesting cryptocurrencies, bitcoin happens to be the only one with liquidity and no capital controls. Greeks happen to be on the verge of illiquidity. We can have an objective discussion on it – RD. Jul 15 '11 at 3:06
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    Marginal investment with no real value and no clear future to avoid possible temporary devaluation of his cash doesn't seem to be a very "objective" suggestion IMHO. – littleadv Jul 15 '11 at 5:47
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    @littleadv: Your answer above is a good one, and I upvoted it. What I object to is that you equate bitcoins with scam as if it's fact. Now, if you have basis for that claim, then I'll listen. Are bitcoins' prices volatile? Sure. But regardless, using loaded terminology without proof doesn't make it so. – mbhunter Jul 15 '11 at 6:29
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    -1 Possibly the worst answer ever. The continued liquidity of BitCoin is worthy of a healthy suspicion and its ability to hold value is not proven. It has received limited regulatory scrutiny. It is entirely possible that an investment in BitCoin may pay off! but! it is a risky asset class, a speculative investment, and *not an appropriate asset class for a crisis hedge. Come on, people. If you want people to take your precious little BitCoins as a serious alternative asset class, recognize these risks and stop selling it like snake oil. – fennec Jul 18 '11 at 8:37

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