Seven crucial ways a Grexit could impact on business
17 June 2015 -
We explore the likely consequences of the Greek economy leaving the Euro, in fields from virtual currencies and precious metals to property and tourism
As it gears up for crunch meetings with EU officials in Luxembourg tomorrow, Greece has just 13 days to come to a deal with creditors before its bailout programme expires. The Mediterranean nation is required to repay €1.6bn (£1.14bn) to the IMF by 30 June, as part of its cash-for-reforms agreement that has underwritten the economic assistance it has received.
But reports suggest that the country is struggling to recoup the sum – and on top of the repayment, the Greek government needs to find another €2.2bn (£1.75bn) this month for public sector salaries, pensions and social security payments. Behind the scenes, officials have been desperately urging public sector bodies – including hospitals – to surrender their cash reserves.
As if that were not enough of a headache recipe, Greek Prime Minister Alexis Tsipras’ resistance to implementing further austerity measures continues to be a major bone of contention between his government and German Chancellor Angela Merkel, sparking widespread fears that Greece may be nearing the EU’s exit door.
A Grexit would case profound economic ripples across Europe and the world. Here are seven ways a Greek tragedy could affect business…
1. Alternative currencies will thrive
The growing legitimacy of the Bitcoin and other cryptocurrencies since the turn of the year has attracted the attentions of speculators hoping to find a profitable alternative to the Euro, which is expected to depreciate due to the Grexit. A lack of confidence in the Eurozone – combined with Bitcoin’s ascendancy from a highly volatile asset to one that has earned respect from the business community – has already boosted its value by as much as 7%. Paul Gordon, founder of Bitcoin trading firm Quantave and board member of the UK Digital Currency Association, said that, given the prevailing worries about Greece, Bitcoin “could provide an alternative outlet for some people who are concerned about capital controls, along with more traditional methods.”
2. British exporters will face higher costs
An almost inevitable strengthening of the Pound against the Euro, thanks to the UK being seen as a safe haven for investors, will have a negative impact on exporters. Britain makes sales worth around £211 billion to its EU trade partners – but a weakening of the Euro will leave many exporting companies struggling to maintain their sales abroad, or find new markets during a delicate period for the world economy. Adam Smith Institute head researcher ben Southwood said: “If a stronger pound happened because of a weakening of the Euro and the money is flooding out of Europe, then that would be good in the short term for consumers, but it would be bad for exporters. Our exports will be more expensive in European money. That means hard times for businesses.” (Source)
3. Precious metals will get even more so
Similarly to the boost for alternative currency, commodities such as gold and silver are expected to spike if the Grexit triggers a falling Euro and uncertain drachma. Investors are likely to use precious metals as a safe haven to invest monies against the volatility of the Greek economy. Independent research house Capital Economics predicts safe-haven demand will lead gold to rise from around $1100 per ounce to $1,400 by the end of 2015 and $2,000 in the coming years.
4. Banks will have another wobble
Exposure to the economic fallout of a Grexit will have a knock-on effect on British banks. HSBC, for example, has some 22 top-service branches involved with commercial customers in Greece, representing a small but significant risk as that part of the business is currently banked in Euros – which, as we’ve seen, are set to sink following a Grexit. French bank Credit Agricole has the greatest exposure to Greece of any bank in Europe, with between 0.1% and 0.9% of their loans book tied up there, according to a recent report by JP Morgan. Other affected banks include BNP Paribas SA, Natixis, Societe Generale, Deutsche Bank and Commerzbank.
5. Greek holidays will be cheaper
British travel agents could profit from a Grexit – indeed, Thomas Cook has already confirmed that the ongoing crisis has failed to trigger a drop in holidaymaking to the islands, and Greece still ranks as one of its Top Five travel destinations. Around two million British tourists head to Greece each year, and UK officials have held talks with tour operators, who would be responsible for flying home any stranded British tourists in the event of a large, social crisis. A company spokesman added: “The likely devaluation of the Greek currency could make Greece an even more attractive, great value destination for our customers.” (Source)
6. London’s property market may boom
Experts are confident that fear of other nations leaving the Euro would drive more foreign investors to buy real estate in the capital instead of parking money across the Channel. That’s despite the Office for National Statistics reporting yesterday that there is a record slowdown in the pace of house-price growth in London and the wider UK. “Europe’s loss would be London’s gain,” said Craig Hughes of PwC. “It would boost its potential as a safe haven.” (Source)
7. An isolated Greece could ally with Russia
At a time of political uncertainty in the Balkans and Ukraine, the isolation of Greece could have major implications for Europe’s geo-political structure. Earlier this year, reports showed that Russian and Chinese buyers were keen to buy up the Greek state’s infrastructure assets – including airports, seaports, motorways and utilities. With EU sanctions against Russia extended until the start of next year, Russian and Greek officials have also reportedly promised a swift return of Greek fish, dairy and meat products to the Russian market, when Moscow lifts its ban on imports of EU food that was imposed in response to Western sanctions.
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