Greek debt crisis: What it means for British businesses
A closer look at how Greece's Eurozone crisis will play out for British importers and exporters
The Greek debt crisis was tempered for another month as investors finally agreed a deal to provide the Greek government with another raft of bail-out funds. While this was good news for the Eurozone in the short term, the issue is far from resolved and will certainly rear its head again.
The International Monetary Fund report that said Greece has no room for error with the second aid package is enough to keep the threat of a Euro exit a very real and present danger.
British businesses are already being affected by the crisis across the channel. Should current trends continue, what impact will this have on organisations here in Britain?
The debt crisis in the Eurozone has resulted in a change of sentiment in the financial markets. The result is a weaker Euro. Negative trading has pushed the Euro to 52-week lows against the Pound and all-time lows against the Japanese Yen. This is having a significant impact on UK importers and exporters.
The pros and cons of a weak Euro
Those companies that are bringing products into the UK from the Eurozone are benefiting greatly from cheap imports. With the Euro available at such low prices, these companies are being afforded the opportunity to discount their goods in order to increase competitiveness, or to widen their profit margins.
On the flip side, UK exporters are being hit by the Euro weakness. British products are becoming more and more expensive to European buyers. Considering that over 50% of UK exports are purchased by European customers, this is concerning indeed. Even more so when we consider the potential impact on George Osborne’s aggressive and ambitious export plans.
Osborne has set a target of 100,000 businesses to enter the export market by the end of 2017. If these businesses intend to target the European market then they would be wise to keep a keen eye on the crisis that is continuing to unfold in Greece.
Where next? The likely outcomes
There are an infinite number of potential outcomes to the Greek problem, but one of three possibilities is likely – full resolution and the maintenance of the Eurozone Status Quo; a default leading to a two tier Euro; or a full default leading to a Greece’s exit from the Euro.
Each of these possible outcomes will have an impact on the price of the Euro. A Greek exit or a restructure of the Eurozone would undoubtedly weaken the single currency further in the short term, but could potentially have a positive impact in the longer term as the Eurozone cuts away some dead wood.
A Greek exit from the Euro would have a deep impact. Greece currently supplies 2% of the Eurozone’s GDP. Therefore, 2% of the European market will be lost to the UK exporter. Of course Greece will continue to import, but it is likely that their government would push domestic buying hard in order to boost their organic growth (much like the UK coalition is doing at the moment).
Combined with the Euro weakness that is likely to follow any sort of Eurozone shake up – continued woe in Greece is certain to make life tough for the British exporter.
Contrarily, import prices will be negatively affected should Greece manage to a find long term resolution. The Euro would likely regain some of the strength lost in the latter parts of 2011, which would need to be reflected in the price of goods to the end user. This would mean that, in order to protect profit margins, importers would need to increase their prices which could hinder those in a competitive marketplace.
Whatever the outcome, the Greek debt crisis has and will continue to impact British business. Only one thing is for sure, the crisis is not over. UK companies must stay vigilant and plan a currency/pricing strategy accordingly.