Weak Dirham is one of biggest problems facing Europeans

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This story is sourced from Flight International
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One of the biggest problems facing Europeans working in or considering moving to the Gulf is the slide in the currency. Many of the currencies in the Gulf, including the UAE dirham, are pegged to the US dollar. While this is great for tourists from Europe whose euros or pounds go further than ever, and gives some stability to the region's economies, since oil - their main export - is priced in dollars, it has proved a problem for workers from the eurozone who have seen the value of their earnings in their home currencies fall by as much as 30% over the past few years.

The dollar pegging has not affected Americans and those from other countries with weaker currencies against the euro whose salaries have remained constant. In fact, the Gulf is currently very attractive to those who measure their earnings in greenbacks.

The problem particularly affects European expatriates on salaries fixed in local currency, who are working in the Gulf for a short time with the intention of saving or using part of their tax-free earnings to provide for a pension or pay off a mortgage at home.

"It is okay if you are buying property in Dubai and spending all of your money in Dubai, but if you are planning to send money home or save, then it is something you have to consider," says Ron Baker, an engineer from the UK who has worked in the Gulf for a decade. "Of course it could go up as well as down and with salaries given in dirhams than if you are happy with the deal now, you will be a lot happier when the dollar strengthens."

According to many Europeans who have been based in the region for a while, in the long term the currency peaks and troughs tend to even themselves out. Meanwhile, things could change in the near future as Gulf Cooperation Council is considering a single Gulf currency which will most likely be pegged to a basket of currencies and therefore not so reliant on the wobbly dollar.

The combination of the weak dollar, the rapid influx of people and the shortage of housing has sparked inflation in and beyond the UAE.

Moody's Investor Service warned last year that rising inflation in the UAE was threatening the country's development of a non-oil sector. Merrill Lynch predicts that inflation could reach 12% this year.

Part of the problem, says the finance advisory house, is that monetary policy in the region mirrors that of the Federal Reserve in the USA. But, while the Fed has its sights set on boosting a flagging economy hit by the housing crisis, the governments of the UAE and other GCC countries like Qatar are trying to calm rocketing prices.