As Spain falters, steady your own ship of state

As I write, (Friday, June 8) the international news agency Reuters was reporting that the Spanish government would seek EU/IMF/EU assistance regarding its failing banking system.

As I write, (Friday, June 8) the international news agency Reuters was reporting that the Spanish government would seek EU/IMF/EU assistance regarding its failing banking system.

Money Express with Jill Kerby in association with Aviva. Read Jill’ column first every Tuesday in the Offaly Express

Both the Spanish government and EU immediately denied the rumour, but so did our government deny the rumours back in 2010 (and subsequently the Portuguese and Greek governments) before we were forced to joined the Troika club.

If Spain does become the fourth country to exit the global debt markets and seek a bailout due to their banking crisis, how would it affect us?

No one knows for certain, but if the Irish government is unable to borrow on the bond markets in 2014 when our bail-out programme ends, and Spain is now beholden to the Troika for multi-billion loans, we will have to compete with them for what is left of the new €700 billion ESM super loan fund. (It is supposed to be open for business from 2013.)

Will there be any money left for us? From 2014 we will still have a c€20-25 billion budget shortfall to cover between what we raise in taxes and what we spend; Spain’s debt problem (and Italy’s) is sufficiently great already to suck up every penny of that new fund.

Anyway, talk about bailing out failing European banks and failing economies the size of Spain’s is just silly. There isn’t enough ‘real’ money in Europe’s coffers to bail out Spain even if every EU citizen, and especially German citizens, were willing to do so.

A more realistic approach should be to accept that this great debt-fuelled crisis is probably going to run its course and hope that you don’t get run over in its wake.

Last March 14th this column (look it up on www.jillkerby.ie) discussed the merits of concerning yourself less with the EU/ECB/IMF and instead starting a Family Union/ Family Central Bank/Family Monetary Fund that might provide a home made bail-out, lending and borrowing facility for you and your loved ones.

That ‘Build an Ark’ idea has rung a few bells with many of you and some of you tell me that the generations are beginning to talk to each other about the debt, borrowing and spending problems within their family.

They now accept that if taxes go any higher, state services get any thinner, jobs get scarcer and if the euro were to fail and was replaced by a exchange devalued Irish punt, their family, at least, would be better prepared for the consequences than the family down the road that hasn’t taken any action.

Last week, in his Daily Star column Eddie Hobbs (see www.eddiehobbs.com for his wider views on the EU crisis) offered some practical advice to the Ark builders amongst you:

“Do not exceed home regulator deposit guarantee levels for deposits regardless of bank credit rating. Buy some gold, at least equal to 10% of your Euros. Shift some cash out of Ireland and out of Euros. Expect an eventual tax surge on financial assets to finance debt write downs.“

You’ve read it here before, coming from other experienced financial advisors, but when I spoke to Eddie after reading this column he told me that he has never been so pessimistic about the inability of the eurocrats and politicians to stop the debt juggernaut that is now roaring down Europe’s interconnected financial highways.

Why not call a family conference – it’s always worth meeting with grandparents, and sisters and brothers and perhaps those young people in the family who may be out of work or thinking about immigration.

Ask everyone what they think about doing a confidential ‘wealth, skills and resources’ audit. Find out if there’s any interest in making a few preparations to review and safeguard everyone’s savings (and debt), education funds, healthcare, pensions, property resources.

One reader has reported that her entire family is now helping in the ‘family allotment’ which is located at one of her sister’s homes and parents and children are now tending a big collective vegetable garden where they will also raise chickens for the family egg supply.

A good family advisor - a solicitor, accountant or financial advisor can offer advice and practical assistance if you think the ‘build an Ark’ idea has some merit and might work for their family. If financial assistance is part of the Ark, it should be arranged by legal contract and perhaps within a trust arrangement. Savings that move to “safer” offshore destinations (‘safe’ being a moveable feast of a word these days) will need to be declared to the Revenue authorities.

Of course the financial Ark can come in many guises and can draw in family (and friends) who live further afield.

Responding to my March 14th article, a reader wrote to tell me that his older brother, who is now an American citizen “and is very well-off, has agreed to look into legally sponsoring my two eldest who are just finishing college. If they can’t get work here, he will support them for up to three years, which I think is the requirement of the immigration authorities for family sponsored entry to the US.”

Hopefully, a family Ark will help prevent your young people from having to sail off on their own. But it will need time to lay the groundwork, open the lines of communications, work out a strategy of everyone’s needs and concerns and overcome the natural reluctance that we all have to discuss private and intimate financial matters with others, even if they are your closest relations or friends.

Time might be running out, say the financial experts I speak to, though they all hope they’re wrong about that, and wrong about where they think the great debt crisis is going.

jill@jillkerby.ie