While most prudent companies have a plan in place in case Europe goes pear shaped in the coming months, it’s a plan that needs constant maintenance in order to keep up with the mercurial nature of the crisis (i.e., there are so many weak spots it’s hard to know which will break first).
During a round-robin session at a September NeuGroup Global Cash and Banking Peer Group meeting, members shared some of the work they’ve been doing within their wider corporate organizations to address both near- and longer-term risks arising from the eurozone crisis.
Most plans focus on maintaining minimal euro liquidity in affected countries, decreasing the percentage of uncovered euro exposures in general and improving the management of country-, counterparty- and customer-related risks. Other observations from the discussion include:
A lot of news but nothing happening. Comparing results from the March meeting, most members continue to believe Greece will exit the EUR sometime in 2013. The outlook for continued euro bloc membership seems bleak. The good news is that no one believes the EUR will experience a full collapse, although many believe Spain and Italy may soon join the watch list.
Ready for a new (old) currency. Members focused on the relevance of planning for the transition to a new currency (or an old one for that matter; remember the drachma?), including setting up contingency accounts with their banks that could be used in the event of an emergency if current accounts were frozen as part of an overall country exit. Identification of necessary system changes in the event of a new currency appeared to have been addressed by all participants and a few had sought guidance from banks for potential transitional hiccups. Implementation of a new currency in any country would be a slow process full of unknowns, but in general the group thought it could be done in an orderly fashion.
Immediate mitigation. Most participants reported minimal exposure on the ground in Greece itself but do have exposure to Greek customers and distributors, many of which are long-term relationships. Exposures have been reduced and some are doing business on COD only. Importance was placed on establishing a top tier of clients and vendors for more specific risk management. There was discussion of issues of non-payment, the impact on supply chain financing, receivables valuation as well as the effects of potential devaluations on the balance sheet and changes in functional currencies and hedge accounting.
Fear of the unknown. Fear of the unintended consequences of a Greek exit and the pressure it may place on other countries like Spain and Italy continues to be of great concern for the members as they closely monitor the events in the Eurozone. Many believe the crisis will escalate over the course of the next six months or so, with the possibility of contagion to other regions and significant unintended consequences to the outlook for not only EUR growth, but for growth throughout the world.
Although no one expects an outright collapse of the EUR anytime soon, most believe a one- or two- country exit is possible. Treasury groups have been diligent in preparing their contingency plans for such an event and feel confident they can address the most urgent challenges. Since this type of event is unprecedented, many are still concerned about the unintended consequences and the contagion effects on the rest of the world.