A euro for your thoughts

Q: On July 20, five family members and I are going to the five British island countries, a trip we have planned for two years. After the recent Brexit vote, how are my British pounds sterling (and euros in Ireland) that I bought going to hold up? Also, if England, Wales, Scotland and Northern Ireland use British pounds, why does Ireland use euros? Why don’t all European Union members use the euro? And how will Brexit affect us in the United States? What is going to happen to my grandkids’ 529 plans and my IRAs and SEP plans?

A: If you bought your moola before the British chose to leave the European Union (the so-called “Brexit” vote), your only mistake (and you had no way of knowing) was preparing too early for your grand adventure.

On June 23, the day of the vote, many — perhaps most — experts still expected that the British would choose to remain in the 23-year-old EU. As a result, the British currency remained firm against the dollar. One U.S. buck would have gotten you only .6748 pound. Since then, the English pound has been sinking in value. As of Wednesday, a dollar can be exchanged for .7762 pound — or 15 percent more.

So here’s the good and bad news for your trip: As long as prices haven’t gone up in the past month in England or three of the other four countries you’ll visit, your pounds will buy about the same amount of goods and services as they would have a month ago. But here’s the downside: Had you waited to exchange, say, $500 for British pounds until this week, you would have received 388 pounds instead of 337 (on June 23), so you would have had an extra 50 pounds to spend than you do now. And, if you have to exchange pounds back into dollars when you come home, you’ll likely get less than what you paid for them, so you might consider a final shopping spree at Harrod’s if your fanny-pack is still stuffed with sterling.

It’s a different story in the Republic of Ireland. Despite Britain’s recent political and economic upheaval, the euro has remained relatively flat against the dollar. On June 23, a euro would have set you back $1.13. As of Wednesday, it was $1.11, and it’s been fluctuating up and down within a 4-cent range for a month, so it’s hardly worth talking about.

Why will you have to switch to euros in Ireland? Simple: Unlike its four island neighbors, Ireland is no longer part of the United Kingdom, so it can do what it wants monetarily. After more than a century under British rule, the Irish fought their own civil war before a treaty on Dec. 6, 1922, allowed what is now the Republic of Ireland to become a self-governing dominion. (Northern Ireland opted to remain part of the U.K.) In 1949, it was officially declared a republic and joined the European Economic Community in 1973, the forerunner of the European Union.

Now there are 28 members of the EU (including the United Kingdom). Of those, 19 use the euro (including Ireland) to make up what is known as the Eurozone monetary union. Why don’t the rest? Good question. It certainly would have made my recent Eastern European vacation a lot simpler. Of the five countries I visited — all members of the EU — I had to contend with four currencies. It was easy enough in Poland (four zlotys to the dollar) and the Czech Republic (25 koruna), but Hungary was a real pain. For $50, you get about 15,000 forints. (You feel fabulously wealthy — until you have to fork over 500 forints for a pack of gum.) Fortunately, Austria and Slovakia both use the euro, which is about one-to-one with the dollar.

Others still using their native currencies are Bulgaria, Croatia, Denmark, Romania, Sweden and, of course, the U.K. All but Denmark, which is exempt, and perhaps Sweden (pending a referendum) are obligated to adopt the euro in the future. To do so, they’ll have to meet certain criteria set down by the 1992 Maastricht Treaty. I’ll spare you the details, which could put you to sleep faster than Ambien, but they deal with inflation, budget deficits, debt-to GDP ratios, exchange rate stability and long-term interest rates.

But there’s another side to this equation: These remaining six monetary oddballs have the right to put off meeting these criteria, thus postponing their conversion to the euro. Why would they want to do this? The same type of reasons that lured the majority of British voters to leave the European Union. By keeping their own currencies, they feel they can exercise more control over their individual economies by having more of a say in such matters as fighting inflation, drafting monetary policies and devaluing their currency if needed. As a result, the patchwork of currencies remains.

As for how Brexit will affect the U.S. long-term, I’m not even going to hazard a guess. As you saw immediately after the results were announced, U.S. stock markets tumbled and then recovered almost as quickly. Markets, as it has been drilled into me, hate uncertainty, and until Britain reworks all of its trade agreements and other details during its exit, uncertainty likely will reign, so as Bette Davis might have said in “All About Eve,” “Fasten your seatbelts, it’s going to be a bumpy transition.” It appears, for example, that foreign goods will cost more in Britain, so they may buy fewer of our goods and we’ll buy more of their cheaper products, which may hurt our economy. If more countries join Britain in leaving, it could get worse. Add another Sept. 11-style attack somewhere and who knows. Then again, Britain might decide it made a mistake and change its mind. Already, Scotland is apparently reconsidering its 2014 vote to remain in the U.K.

Stay tuned and hang on may be the best you can do.

Today’s trivia

Although not credited, Thurl Ravenscroft earned fame for singing “You’re a Mean One, Mr. Grinch” in the 1966 TV classic “How the Grinch Stole Christmas.” For what long-running ad campaign is Ravenscroft even better known (at least in Hollywood circles)?

Answer to Friday’s trivia: Four years before he published his first children’s book, Roald Dahl joined the Royal Air Force in 1939, with whom he wound up flying the Gloster Gladiator, the RAF’s last biplane fighter aircraft. After a histotry of severe headaches grounded him, he met English novelist C.S. Forester, who inspired him to start a writing career that would produce such classics as “Charlie and the Chocolate Factory” and “James and the Giant Peach.” He would have a 30-year marriage to actress Patricia Neal, with whom he had five children.

This story was originally published July 8, 2016 at 11:45 AM with the headline "A euro for your thoughts."