Bank Shares: UK Banks vs Euro Banks

Introduction – I have seen many worry about the British banks since Brexit. However I still am sticking to this idea of stop worrying about the UK worry about the Eurozone. Using the share prices I want to show how the European banks are really struggling (pre and post-Brexit) and how this is where the main concern should be.
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Warning: An Open Letter to All Private Language Schools in the EU

Dear Private Language Schools in the EU,

  I am writing this because it has recently come to my attention that local and national newspapers (especially in the UK) are reporting on the financial situation in Europe very differently to financial newspapers and banks. Consequently I think many people are not unaware of the real financial situation in Europe or of a new rule from the EU, which could potentially cause some schools to go out of business.
[This article sums up the new rule and a lot of this blog post]

If you are reading this and believe this is all nonsense because you do read the newspapers let me use Tuesday 12th July as a good example. Leading up to this day a lot of financial newspapers and banks have warned the EU that it has a massive financial crisis on its hands and that its rules are hindering rather helping the banks in Italy. Then on Tuesday the IMF made their own official statement with the same warning. While on the same day the Eurozone’s financial ministers met and agreed that the rules introduced are fine and are a good idea. Merkel even said that she couldn’t see a financial crisis within the EU. [There have been several articles and blog posts joking about this – all really worth reading]
Strangely enough from what I have seen (with a couple of exceptions) the national papers seemed to have focussed on what the EU officials have said and not the banks or financial papers have said.

Of course I am sure most reading this by now are wondering how this has got anything to do with language schools in Europe. Well… I don’t know if you already know about this new law and if you have kept up with the news with the Italian banks and the financial situation across Europe. So this will be long but I need to explain the details for you to see the potential problem. It is speculation but there is so much pointing to this happening it is scary.

As of 1st January 2016 a new EU law was introduced that no bank will be able to ask for a bail out from either their country or from the EU without doing a ‘bail-in’ first. This means the banks can take money from any bank account which has more than €100,000 in it (it is supposed to be a loan but with a failing bank that never happens). The EU tested this in Cyprus back in 2013 before introducing it to EU law this year. The consequence was lots of people lost their pensions and small businesses went bust. In Cyprus most only got on average 47.5% of their money bank.

Now this of course €100,000 is a lot of money which very few people have and some schools won’t have enough. And it is only for nearly bankrupt banks. Thus at the moment it will only affect schools in Italy, Romania, Greece and schools with accounts in struggling banks. However it is the timing which is going to be crucial and I think will ruin a few schools.

Despite the EU sweeping it under the carpet there will be another Euro Crisis very soon.
Originally I thought this crash of the Euro would be in 6 months to a year but now I think it will be between October and December.
This is because it is literally a game of who will go bankrupt first: The Italian banks or the Deutsche Bank. Which ever does go first it will bring down the other with it along with the rest of Europe as they are so connected. Also the reason I predict October is because the Deutsche bank has been compared to Lehman Brothers in the US who in 2008 started the crash and led to the first Euro Crisis – Some even suggesting this could be far worse. If they continue to follow in their footsteps as they are doing now they will only last for about 2 to 6 months max!
(This is not to mention that it could be affected by all the political events of elections and referendums across Europe, including a referendum on the political structure in Italy,all set for the same month.)

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(A graph comparing the Deutsche Bank to Lehman Brothers in 2008 to show the time frame – Taken from a recent article)

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(A graph to show how close the Detsche Bank is to bankruptcy – Shares in 2009 were worth €139, now they are worth €13! Taken from a different article)

With the Deutsche Bank making up a massive part of the German economy plus with so many connections and the Italian economy being one of the biggest in Europe this crash will be about 5 times bigger than the crisis with Greece. And like last time it will hit every country in the Eurozone hard (as well affect the world). Consequently there will be a banking crisis across the continent.
[Interestingly even so the Deutsche Bank is also ignoring their situation trying to blame the Italian banks and give financial advice to everyone else]

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(A graph to demonstrate how much more impact issues in Germany and Italy will be compared to Greece)

This is where the schools come in. I am sure many language schools in Europe work the same way where they collect the fees from students for the whole year over the summer and maybe even offer a discount to students who pay for the whole year before the school year starts as an incentive to do so. So if this hits in October a school like this would probably have well over €100,000 in their accounts (depending how big they are). To put it in perspective, if a year’s fees at a school is €1000 then it only needs 100 students to reach this cap. This money is used to cover materials, office rent, salaries, etc throughout the year.

Now, if you include a Euro Crisis in October/November and seeing how this will be such a big crisis it ups the chances all banks will suffer and any school with €100,000 it as a major risk.
If it follows what happened in Cyprus in 2013 any school over this threshold could lose 47.5% of all their money before December. Which means there will be not enough money to pay for teachers and resources, and if they aren’t able to pay teachers and lessons are cancelled, then students will demand that they get their money back which the school can’t afford either. This effectively means the school would be bankrupt.

The only way I can see is there are a couple of ways to get around this: Firstly it is to split the money into separate bank accounts at separate banks. This is because then the account won’t have over €100,000 in it. Or secondly as someone else has suggested, take some of the money out and convert it into dollars or gold. So that if there is a crash by the time it is needed it will actually be worth more Euros than it was before.
I am sure though that most schools have an accountant and/or lawyer who will have better ideas than myself.

Yes, I am aware that there has been pressure on the EU regarding the bail-in rule to make exceptions. However based on what the EU have said recently and how Merkel last week said they can’t keep changing the rules every two years I see this as unlikely, a lot of business and financial papers are of the same opinion too. Similarly, I know this is all speculation but I have tried to put in as many links as possible to explain how this is all very possible. What I would like to think is that everyone now will do their own research to understand this bigger picture and make the best decision for themselves. Moreover the question I really hope schools will now ask is: Is it worth the risk?

[I wrote a similar blog post about how for similar reasons I feel that the EU might fall apart and end due to this Euro Crisis, if anyone is interested. It explains some parts that I haven’t gone into too much detail within this letter]

Stop Worrying About The Brexit, Worry About the Eurozone (My personal opinion – A different perspective)

[Note – This is effectively a working document. I will make changes and add links as I find them]

Introduction –
I have noticed that everyone has been worrying about the Brexit and its consequences within the UK that they seem to be blinded to the fact the Eurozone has more serious issues at the moment. I think the reason it is being over looked by the British press is because many are looking at everything the wrong way round: They see the Brexit affecting the Eurozone, not what I believe that the Eurozone will affect the Brexit.
The best person to highlight this point is the Netherlands far right leader who said; “Everyone is worrying about the Brexit and what will happen and how long it will take. Well we know it will be 2 years. The real question is will the EU last that long”.
Let me explain what I everyone else has forgotten…

Brexit vs Eurozone – The Chicken or the Egg
The reason the Brexit fears have taken over is at the present time is because everything looks bleak for the UK at the moment. You will see reports saying the opposite as well of course. There is a reason for this too: it is all speculation! Nobody can possibly know for certain, everyone is making predictions from what they can see and predict will happen. In reality there are still two possibilities, the UK could come out with a great deal from the EU exit or a crippling deal. Yes, currently that seems crippling could be more likely. This is even more so if you look at just the surface. However once you throw a Eurozone Crisis everything changes. And the scariest part is that a serious Eurozone Crisis is now case of ‘when’ not ‘if’.

If you are struggling to believe this and believe that the Brexit is causing the Euro’s current problems like many British newspapers are saying then may I suggest that you go back and look at the news (not in the British newspapers) from the past 6 months. My new favourite impartial website, Geopolitical Futures, has been predicting and talking about the potential of a Eurozone Crisis, mainly due to Italy, since last December. Similarly other press have been talking about the ever concerning problem since April. Yes, of course the Brexit has put even more pressure on the idea but it certainly wasn’t the cause of it.

[Note about British papers – Personally, and with the exception of The Independant (and sometimes The Telegraph) I have stopped reading the British papers. Usually I can tell what they have to say before I have even read it. Generally they are so biased that they each manipulate the data to fit their view. Ironically they all see it in a different light. Thus the facts don’t feel like the real facts]

What Could Cause the Collapse of the EU?
The big issue for Brexit in particular would be what could cause the collapse of the EU and is it likely? Eurosceptism would be the main cause of the collapse. This is of course what caused the Brexit. If other countries follow the same way there could be a domino effect and no countries would be left in the EU. This has been ever present in the EU but with the issues in the UK, it has been put on the back burner for a bit. However there are so many things which can change this:

1 – More rules and control from the EU than the country itself. As more rules are introduced more fighting back will come with it from countries who want their independance. This will cause political turbulance, in turn this will lead to eurosceptism.

2 – Blaming the Euro for financial issues. Countries within the Eurozone are already having problems. A strain on the Euro will heighten this.

3 – More issues with immigration and refugees. This is really felt in countries such as Hungary where referendums on whether to accept new laws are due soon.

4 – Another terrorist attack. Already there are concerns that the EU is suppose to protect us more so than us being separate countries but that is not felt.

5 – A good deal for the UK in the exit negotiations. As this will lead other countries to think the grass is greener outside of the EU.

Now these seem only a little likely but throw in another Euro Crisis and suddenly they are a lot more certain to happen.

Imagine there is a Eurozone Crisis say next month what would be the cosequences and what would be the EU’s reactions:

– The Euro will crash causing even further problems for Eurozone countries. Probably a severe recession across the continent and maybe the world. Either the same as that in 2008 but probably worse.

– A massive bail out from all EU countries, including those outside of the Euro. This is added to already very weak economies. (Note if the UK has already started Article 50 they will be exempt from this. They will mostly likely help but unlike the other countries they will able to choose their own terms)

– New rules and legislation to prevent it happening again. Most likely this will mean more powers to the EU and European Central Bank and away from individual countries. This has happened after every bail out so far and if you read the EU’s ‘Five Presidents’ Report’ (ironically you can’t download the original as the file is ‘corrupt’) from last year you will see that EU already feels that countries are unable to look after their finances and should all be centralised by the central bank.

– This also will lead to the EU having to be careful in the exit negotiations as with weak economies across the board, countries will need to have good trading deals with the UK. Especially for economies which solely rely on trading such as Germany. This could work in favour for the UK, providing extra bargaining chips.

…now compare this to the list of what could cause euroscepticism and the end of the EU and you can see the other dangers as well. Not saying it is certain but ups the chances.

What countries are the issue in the Eurozone?
The problem with the Eurozone is not just one country but many. Last time it was Greece that was the major issue with five others with concerns. This time it is Italy but there are big cracks else where. The biggest concern of course being that Italy’s economy is bigger than Greece’s the consequence is that a collapse will cause a bigger blow than before with Greece.
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(Eurozone’s total debt over the years)

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(Just to show much bigger a collapse in Italy would be compared to Greece)

Spain Spain has big political issues. With such a divide in votes, even after two elections in six months not only is there no majority government but they are actually struggling to make a coalition with less than three parties. This is not helping the economy and very high unemployment. Spain already has a chance of being sanctioned by the EU later this month for not keeping within quotas.
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(This shows how Spain has one the highest levels of unemployment, closer to that of Greece than the rest of Western Europe)

Portugal Portugal is doing better than Spain but still with high unemployment and possibly to be sanctioned at the end of the month due to not staying within quotas along with Spain. This too could change things due to Portugal’s new left wing government.

GreeceGreece is Greece. It is basically in a vicious circle: Austerity is causing a lack of economic growth and the lack of economic growth is causing more austerity.

Germany
Germany is starting to show its strain. To say that the Deutche Bank is struggling now is an understatement. Many are predicting that it is close to bankruptcy and it is actually in a worse place than Lenham Brothers was in 2008 when it filed for bankruptcy. This too will have a knock on effect due to its connections and could result in a domino effect. Thus we will see a repeat of 2008.
Also there is a feeling in some places that Germany shouldn’t be doing as well as they are but have managed to put off the inevitable for as long as possible. It is quite a long complicated story but Geopolitics Futures have a great downloadable document to explain this all very well.
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(Shows how the stocks for the Deutsche Bank have from fallen from €139 each in 2009 to only €13 each now! Taken from a recent article)
Added since writing: Deutsche bank accounced that it was closing a quarter of its banks and that it its profit have dropped 98% this year this year which is not helping investor’s confidence to help lift share prices. This is on top of that is predicted that there is worse to come. It has also had issues legally because some of its ways of cutting back break German law. On top of the fact before all of this S&P had already downgraded its outlook from ‘stable’ to ‘negative’.

Italy and its Banks
Now Italy is the most serious problem with the Eurozone (on a national level and not including the Deutche Bank). Italy’s banks are getting heavily into debt as about 17% of loans aren’t being paid back. The government wants to step in as the banks could easily go bust, but due to EU rules from the last crisis they are technically not allowed to do this. The EU law states that tax payers money cannot help the private banks despite the fact that it is these banks which could cause the ruin of Italian economy. Italy are already starting to ignor the rules and calls from some parties to leave the Euro all together have come about.

The general reaction from the EU seems to be one of: “well don’t look at us, it is your problem and we can’t keep changing the rules for you”. This has even come from Merkel on the subject.

As Italy shares the currency with around 16 other countries in the continent it is unable to steady itself and has to ask help from the European Central Bank. Italy asked for liquidity of about €80billion. The EU parliament said no but when it asked the EU commission it was offered over €150billion instead.
This alone is interesting and raises questions: Firstly it shows that there are genuine fears in the EU and it hasn’t gone completely unnoticed. However it means the EU’s responce as to what to do is what it is usually is like when it comes to problems: They resolve the consequences but not the underlying cause. That to me is like a doctor treating the symptoms individually but not the illness itself.
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(Taken from an article about the crisis in Italy at the moment)

One more thing to note with Italy. Everyone in the UK is worried about the stocks and shares in the UK when the rest of Europe was worse hit. This includes banks’ shares. The UK’s worse hit bank post-Brexit was HSBC with a 20% drop while Italain banks experienced a 35% drop.

While questions about the EU are raised again thanks to Italy with Italy’s tactic of if Mummy says no then ask Daddy begs another question (that many eurosceptics have complained about before): Who really has the power in the EU? The elected European Parliament or the unelected big dogs in the European Commission? And leading on from this who does the EU appear to be protecting; the big companies or the people.

What is the underlying cause of Eurozone’s problems?
Although it seems to take a few people a while to realise the underlying problem with a Eurozone crisis is the Euro itself. Some economical papers have been highlighting this, noting that this is less of a ‘banking crisis’ but a ‘Euro crisis’.

As an overview it is possible to see there would be problems. All different countries with different economies, needs, values and governments all trying to work with the same currency and thus as if they are the same economy as a whole.
When the Euro was introduced it was basically compulsory for everyone. Some didn’t like it but many embraced it. This wasn’t because they thought it was a good idea but more the lesser of two evils. For example living here in Portugal I have found that it was liked but only because the local currency was so weak and fragile. The idea of the Euro would give stability and security at the time (in 2000) which the local Escudo could never do.
Interesting of the only four countries who were allowed to opt out Germany was the only one to take the Euro as it worked in their benefit. However the other three, the UK, Sweden and Denmark all chose to keep their own currencies. There are speeches in the UK which go back as early as 1993 with the likes of Margaret Thatcher who predicted that it would only cause problems.
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(This shows how only Germany is really gaining in the Euro. I can’t find a recent one at the moment but it is much the same and I will change it when I do)

The other fall of the Euro is one of its purposes: To be a strong identity in the world the EU needs to big and act like a country and ever more intergrated Europe would help its place on the world stage. A common currency would help this even more so. As it means more freedom of movement between people and trade. However as someone pointed out in an interesting article by an American who compared the United States of America to the ‘United States of Europe’ noted what is probably obvious but important: These are countries not states! For example if a state has problems other states has no concerns of helping out. Just like if Scotland or Wales has financial issues the rest of the UK would be very happy to help out. That was not the case with the issues with Greece.
First of all it is because people like to help their own. Also while being different countries you don’t know what happens there or how they got to that point. Just like people like to give to charity but not to the homeless as they aren’t sure if they will waste it or if they became homeless by their own fault.
Secondly it comes down to that nobody likes to be told what to do. When the Tsunami hit Asia on Boxing Day (26th Dec) 2004 the UK were delighted to help in every way but not with Greece. The first talks about a referendum were after the bail out in November 2011 when David Cameron vetoed and was asked to leave the room while the EU decided how much the UK gave to Greece. Nobody likes to be forced to give money without a say.
Moreover we, the UK, aren’t the only ones. In these difficult financial times countries such as Germany and France have been asked to give more, but they are refusing. In fact the French and German finance ministers wrote a whole report about this recently.

The last major issue with the Eurozone and probably the biggest problem and why it will continue to be a problem is the whole thing is based around countries like Germany.
There are two types of economies I have learnt: Countries who make money from banks and countries who make money from trade. As only one set of rules are needed and economies based on trade gain the most the rules are based on the latter. It means to help the economy austerity and sanctions are used to help. This is fine and generally effective for countries such as Germany, while with countries like Italy who rely on banks these rules just run them into the ground and can never recover from the vicious circle. This is just as I mentioned earlier with Greece. (If you want a better explanation do download and read this about Germany) This is why Germany had done better within the Euro and the south of Europe has gone quite the opposite way.
Personally I think this is all ridiculous. To me it is like having rules for all pets where half are cats and half are dogs but only making the rules to suit the dogs because they are bigger. Then punishing the cats for not acting like dogs.

Remember of course that there was no real solution found from 2008 for the same reasons. Thus, the Euro is surviving but it is more that it is treading water and just hoping to stay afloat for now and likely to continue this attitude.
Unfortunately the conclusion to all of this is; as long as there is a Euro there will always be a Eurozone Crisis lurking around the corner.

Is there a solution to the Eurozone?
Well currently there isn’t and with the EU adament to stick with its rules and the countries suffering rather than prospering and unable to deal with their problems directly. Especially while the whole EU is centred around this ever intergrated Europe the only real recovery is if they follow the Five Presidents Report from last year and put everything in the Central Bank’s hands… However with extreme parties getting more and more popular due to fears of losing their own powers if this happens, I am sure the whole EU will collapse due to Eurosceptism before then. This fear is based on the one fear that the EU currently lacks… democracy ironically.
Lets also go back to the main problem which is Italy is on the verge of a collapse financially and the EU and Central European Bank is finding very little it can do except bail out where needed.

October is the Month to Watch!
With a Euro Crisis on its way very soon and could lead to fall of the EU as a whole, in many respects the month of October could also seem to have a similar effect. If not individually but as a combination.

– Article 50 for the Brexit is predicted to be started in October (assuming the House of Lords doesn’t get in the way). With a stable govenment hopefully sorted and an idea of what to come the markets fears of the unknown should be different.

– 2nd October is the date for the Hungarian referendum about whether to accept new EU laws regarding refugee quotas. Sitting on the edge of the EU and Schengen boarder Hungary is one of the countries struggling the most with this issue. The referendum is getting mixed responces across Europe.
Just to note too that the Hungarian Prime Minister has given similar warnings this week as myself.

– Also interestingly 2nd October is same the date of the re-vote for the Austrian presidencial elections. A few months ago the extreme right party, anti-EU leader lost out by 49.7%, with the pro-EU party leader who got 50.3%. However after an appeal over possible cheating while counting the courts found there to be sloppiness in counting and on 1st July ruled that a re-vote was needed. So far the far right leader is playing his cards right. He says he doesn’t want a referendum but is complaining about the EU. The former part might change if something such as a Euro Crisis hits and euroscepticism dramtically increases. Suggestions have already been made that a referendum could be possible if there is no sign of progress in the EU by next year.

– Some time mid-October (exact date unknown) is when Italy have their own referendum. This on reforms of the Senate and to take some power from them. This may sound like a national problem but it will certainly have major international implications. This is because if the referendum fails (this is what polls predict at the moment) and no change is made the current Prime Minister has said he would resign. This would probably lead to another elections where the front runners are the Five Star Movement. This is the party how has just won the majorship of Rome (plus about 17 other cities in Italy) and wants a referendum on the Euro. As of this week polls have shown that they have just become the most popular party in Italy.

– If the Deutsche Bank continues as it is and follows the Lehnam Brothers Bank the same way at the same time scale they are probably due to collapse in 3 to 6 month, so October is a good bet.
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This could lead back to the chicken and the egg scenario. If the Euro Crisis happens before October then eurosceptism will increases and most likely will have an obvious effect on all of the above.

However if it doesn’t these events might lead to the Euro Crisis. Or if even if not causing each other could easily just lead to bigger problems. Imagine that the UK already show signs of a fairly good deal, Hungary votes to ignor EU laws, Austria has its first extreme leader and Italy’s prime minister resigns creating room for another extreme party and a high chance of a referendum on the Euro. This surely will be scarier for the EU and even more so if a Euro Crisis happens soon afterwards. Not to mention it might lead to a knock on effect in general and presidential elections in Germany and especially France where extreme parties are too gaining in popularity.

How Does This Effect the Brexit?
Well current predictions where the UK are expected to come out worse off are based purely on the idea that the EU continues as it is and is a strong identity where the UK is left out in the cold and investors move to other EU countries to keep within the EU’s common market.
However if… I mean when… there is a Euro Crisis confidence will be lost and markets will suffer as they did before. And if Eurosceptism rises and investors even consider the collapse of the EU and subsequent referendums a possibility then it will become less appealing to investors. This will just mean that the EU’s special common market will be less sought after and it won’t matter if the UK are in or out of the EU.

On the other hand it won’t be too positive as it would probably mean that the whole world is in a recession and economic crisis which is bigger than that of 2008.

Also adding to this imagine the very possible suituation of if even some of this is true. Before the UK officially leaves within the next three years there could be at least one other country going through Article 50, econonic and political turmoil every where. Probably another country or so thinking about a referendum (trying to jump ship before it sinks), extreme parties popping up every where and whether the UK gains special rights within the EU could be just a small fish in a big ocean.
…in which case lets just hope the EU just the European example of the League of Nations.

Don’t Blame Older People, Learn From Them – An Open Letter to the Younger People Protesting Brexit

Introduction – This is an open letter I wrote earlier this week after seeing all the hatred on Facebook from both sided and most seems to be quite injustly. It is written specifically to those blaming the older generation, and explaining why I feel we shouldn’t be blaming the older people but we should learning from them and the only people should blame if any is our own generation. This is my personal opinion as a 26 year old teacher who is interested in the political world. I personally believe many major points have been over looked.
[This is also part of a longer blog post which I am currently writing about my opinions on all things Brexit. (I will post a link once I have finished it)]
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My TEFL Mission

Introduction
I am on a mission to help new/ prospective TEFL (Teaching English as a Foreign Language) teachers through the confusing industry of teaching English abroad🙂
When I first started looking into TEFL courses 5 years ago it was very confusing and that doesn’t seem to have changed much over the years. There are so many courses, so much contradicting advice, etc and not really anywhere which is free and impartial in order to ask questions (especially from those who have done it themselves).

[Note – I am not connected to a company in any way. Just a teacher teaching English in Portugal]

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An Open Letter to all TEFL/ESL Teachers

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Dear Fellow TEFL/ESL Teachers,

I am writing this in the hope of support and help from fellow ESL teachers around the world. I am sorry if this becomes longer than I had hoped.

Recently I have been researching TEFL courses for a friend as she can’t afford the CELTA which I did. I realised how little realiable information there is. A lot of it is true but many seem to be written for the benefit for the company, rather than for the person reading it. Thus causing lots of contradictions from post to post and making it very confusing.
So I have started to try and help answer questions and give personal and impartial advice to those who ask for it. A Facebook group seemed a good idea and it was a popular idea. Thus I have just set one up.

I hope that in the future this group can be a great place for those prospective teachers to ask questions and get advice. Plus also those already teaching abroad already can share their stories. More information about the group here.

At the moment it is a bit quiet as it is a new group. There are a few who have posted on there. I hope that other ESL teachers could also get involved by telling your stories and talking about your experiences (both positive or negative) or posting links to either your own blogs or blogs/websites you have seen and you think will be useful to those just starting out in the ESL world or looking for their first job.

Link to the Facebook group here

I am sure that not everyone will be interested but I would be really grateful if anyone could add something.

Thanks and Best Wishes

Carly