Expats take pounding in Britain
Karla Keating and her husband already had retirement on their minds in May when he got an offer that sounded too good to refuse: a three-year stint in London.
Coming from North Carolina, they knew it was going to be a bit of a financial leap. But the major U.S. bank where her husband is an executive lured him with a substantial increase in pay. Within weeks, they had crossed the pond and found a nice flat near Marylebone for 1,820 pounds, about $3,750.
“The estate agent told me the price, and I said OK, I guess that’s kind of comparable to prices around Europe. And he said, ‘That’s the price per week,’ ” Keating recalled. They gulped and signed the lease. Since then, the price jolts haven’t let up.
The iPod Nanos for the kids were 99 pounds apiece (about $204), compared with $149 in the United States. Keating’s six-Diet Cokes-a-day habit got shaved quickly to one, at up to $2 a can. They sit in the evenings on their small balcony overlooking Great Portland Street and her husband smiles (sort of) and says, “Here’s your $12 glass of wine.”
“When I got here I was like a deer in headlights. I was just, ‘Oh my God,’ about everything,” Keating said. “We figured out that with the increasingly weakening dollar, in reality he is making less than he was making 20 years ago.”
The falling dollar has been a boon to U.S. manufacturers, and a windfall for the American tourism and retail industries, as Europeans flock to the United States for cheap holidays and shopping. But it has been an exercise in 24/7 sticker shock for Americans living abroad.
Here in London, a pound that was worth $1.58 in 1995 was up to $2 last spring. In early November, it hit a 26-year high of $2.10, having risen 10% over the previous 12 months. For Americans and other expatriates paid in dollars, it makes for a simple yet painful mental arithmetic whose solution is reached by silently doubling the price of everything.
Comparisons
A Lands’ End cashmere cardigan that is priced $139.50 in the U.S. catalog is 129 pounds ($266) in the British version. A Starbucks latte that costs $3.10 in the U.S. is 2.05 pounds ($4.22). A PlayStation 3 game console is $399.99 in New York, 299.99 pounds ($617.98) in London. Gasoline? About $7.80 a gallon.
Britain’s 17.5% value-added tax accounts for some of the difference, but increasingly, a wallet full of dollars feels like scant armament on a continent packing powerful pounds and euros.
“A lot of our students -- the first thing they do every day is they pick up the Herald Tribune and look at what the exchange rate is. Because a lot of these kids, even if they come from around the world, their incomes are pegged to the dollar,” said Mark Kopenski, dean of enrollment at the American University in London, which has a large population of Americans studying abroad.
To continue to recruit U.S. students, the university still accepts dollars for tuition and housing pegged to a long-ago exchange rate, meaning those able to pay in sterling are charged 20,000 pounds a year while dollar-holders pay $36,000 -- most of which the university must convert painfully back into pounds at the going rate.
“In fact if you did the exact exchange on that now, it’d be over $40,000. But we would be very hard pressed to stay in business if we were totally pegged to that exchange, and it was changing constantly. Our students would be just paying more, more, more the whole time they were here,” Kopenski said. “At some point, we could actually lose money by having American students, which would be a shame.”
Amanda Owen, a 19-year-old international relations student from Seattle, said she holds herself to a draconian budget: She has dinner out only every other month; she bought her iPod online in the U.S. and had her parents mail it to her; she weaned herself off lattes, organic food and, though she is a vegetarian, cheese.
“I’ve been to the movie theater twice since I came here: once with my friends and once when I was baby-sitting,” she said (a mid-level seat at the Odeon goes for $25.75). “I’ve come to look at entertainment in different ways.”
The majority of Americans working in Europe get by because they work for European companies that pay in the local currency, or for U.S. companies that pay a cost-of-living differential, some of whom have adjusted it every few weeks as the dollar has continued to go south.
“Typically, companies have provisions which say if the exchange rate fluctuates 3% over four weeks or 6% over two weeks, then the [differential] will be readjusted,” said Achim Mossmann, director of international executive services practices for KPMG International, which advises U.S. companies on placements abroad.
Though overseas deployments have become significantly more expensive for U.S. employers, most have seen them as a necessary cost of doing business, said Allyson Stewart-Allen, director of International Marketing Partners, a London-based company that specializes in transatlantic business connections.
“It would be a travesty if an American company stopped sending its people internationally -- partly because the business is increasingly international and American business is already profoundly insular -- and it would make American companies even less competitive in global markets than they are today,” she said.
Strong talent pool
The increasing mobility of labor -- particularly in capitals such as London, Paris and Berlin -- has enabled many companies, including U.S. firms, to hire talent locally and, when possible, pay in the local currency.
“We’re not paying people, with very few exceptions, in dollars. And that’s going to be the same in most companies these days,” said David Campbell, president and CEO of Anschutz Entertainment Europe, a business unit of the Los Angeles-based Anschutz Entertainment Group, which recently built The O2, a major new sports and music arena in London that will be a venue for the 2012 Olympics.
“In a city like London at the moment,” Campbell said, “the talent pool at every level of business is pretty strong, so why would you go to the expense of shifting people across the Atlantic?”
His company was forced to meet its sterling-based payroll with funds brought in from the U.S. during the construction phase. Having locked in development costs at 3-year-old exchange rates, the company was able to stave off disaster until The O2 opened and nirvana -- ticket buyers paying in pounds -- arrived.
London’s financial center will see many executives at U.S.-based banks nervously calculating their bonuses this year in dollars. Recent chaos in the financial markets probably will make many of those bonuses smaller than in past years anyway, financial analysts say.
For those who don’t have a million-dollar bonus to tide them over into the new year, there is the option of slinking back across the Atlantic. And even for those who have managed to gain a foothold in the European economy, that idea is looking more attractive than ever.
Walter Wentz, a 77-year-old retired pilot and police officer, moved from South Pasadena to a village just south of Shakespeare’s birthplace in 1992, bought a 400-year-old cottage and went native. He bought a Morgan, started complaining about tourists and launched a blog (“God Save the Queen and vote the straight Republican ticket,” he advises his readers).
Lately, though, the queen’s domain is getting pricey -- aviation fuel is so expensive that he can’t afford to fly -- and a person can’t own handguns anymore either. Wentz is shopping for property in the San Juan Islands in Washington state, and the good news is that he’ll have a wad of cash to take with him.
The British currency was at about $1.80 when he bought his house for 140,000 pounds. Now, he’s getting ready to sell it for 550,000.
“Basically, if I sell this house, I can take the money, turn it into U.S. dollars at 2 for 1 and go back to the States with a million dollars in my pocket,” Wentz said. “So I’m getting restless. I’m just getting a bit restless.”
