Breaking up the Euro Checklist

The talk around the water cooler lately has been about a Euro break-up and the risks and issues associated with such an extreme scenario. I can think of better water cooler conversation, but in the interest of staying relevant, I thought I’d stick to current events. CFO.com spoke with financial execs from a major European supermarket group to discuss what they were doing to prepare for a potential euro breakup. The full article can be found here and a checklist of things to think about created by Deloitte and ACT found here. Some topics for consideration (in no particular order):

How will the company continue to pay suppliers and employees in light of a banking system disruption? 

  1. Commercial and Business risk (i.e. supply chain impact) - Look at your suppliers.  How are suppliers financed? – how is working capital funded and will they (and you) be able to access banks?
  2. Consider if supplier contracts are priced in euros? Are there currency controls? If a supplier is in a country that exits the euro and devalues, any contracts priced in euros will give that supplier a considerable revenue prop if not recalibrated into a new domestic currency. 
  3. FX and derivatives – possible uplanned gains/losses
  4. Reputational and compliance risks.
  5. Review commercial contracts. If the euro exits in even one country, it is still considered legal tender.  Therefore, the wording of your contracts could still have you paying in euros. 
  6. Consider the timing and resource issues related to the adoption of a new currency; trying to convert systems and processes overnight is virtually impossible.

A WSJ article from June 1st cited that many multinational companies are preparing for a broad array of contingencies and retrieving cash is among the most severe concerns. The fear is that if Greece were to revert to its former currency that any euros left would be converted into drachmas. If that happens, it is expected that Greece would impose capital controls to keep the remaining cash in the country. Some companies such and Heineken and Diageo are moving spare cash out of Greece and the euro zone overall into currencies such as the US Dollar and British pound. Meanwhile, some Greece companies are drawing on credit lines from foreign or local banks in anticipation that they could lose access. Whatever safety measures you choose to put in place, it is always smart to plan for all possible outcomes, no matter how severe they seem.

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