The chances of Greece departing the Eurozone are rising sharply so what chances are there that Grece will remain in the Euro as a compromise? Spanish banks are still holding an estimated Euro 600bn of mortgages at full value on their books so Spain will be the next big test for Europe. Spanish and other Eurozone banks are going to require hundreds of billions of Euro recapitalisation in the next 12 months.
On January 2012, Congressional Research Services looked into possible scenarios regarding the Eurozone and their impact on US economy. Latest indicators from the US are mixed and patchy but this economy is out-performing the Eurozone. CEEMEA’s central outlook remains 3-5 years of sub-par economic growth, continuous Eurozone crises and tough global business conditions. PwC also provided four scenarios, including one where Greece would exit the Eurozone.
What does this mean to your business?
The risks for a worse outlook have intensified since March/April and Eurozone restructuring has the potential to create significant change and disruption to the operations of many organisations. Global companies (both headquartered in the Eurozone and ones with extensive links with it) will be impacted across their whole value chain.
There will be:
- Treasury changes (e.g. liquidity and financing, security over banking arrangements);
- Operational changes (e.g. documentation, pricing arrangements, customer payment mechanisms);
- IT changes (e.g. systems configuration, payment and billing systems changes, master data, transaction data migration, package applications and support arrangements);
- Planning, benchmarking and forecasting (e.g. contingencies, restatement of historical data, costs to implement the Eurozone restructuring);
- Challenges in communications to shareholders, stakeholders, customers and suppliers regarding organisational impact and arrangements to manage the impact.
How one can cope with all these challenges? Here are some suggestions:
- Evaluate your supply chain risk, particularly where raw materials become expensive for suppliers no longer in the euro-zone;
- Develope business cases / risk analysis to take advantage of potential new sourcing opportunities and provide delivery support to realise these benefits;
- Run rapid diagnostic tools that can be deployed simultaneously across Finance (EPM Blueprint, Finance Effectiveness);
- The break-up of the Eurozone may even give rise to opportunities from a tax perspective: identify them and work to build them into existing contingency plans should the right commercial fact patterns arise in the future.