I know many people are tired of listening to news about Greece, and many just wish Greece would leave the European Union in the hope the daily news cycle would move on to something else.
But as business people we need to be aware of what this saga could mean for our economy and our individual businesses.
While we do have a decent-sized Greek population in Australia, we do not as a nation have a big exposure to the Greek economy in terms of debt or trade, so why worry?
It’s not about Greece! It’s about the contagion effect of the first nation in the European Union exiting in a mess. The fear is that it will lead to the erosion of confidence in Italy and Spain to meet their debt commitments — or if they see Greece getting away with some special treatment on their debt, will they demand equal treatment?
So why does this affect my small Australian business?
Already we are seeing a flight to safety, and at present some of the money is headed our way. This is propping up our Australian dollar and keeping our exports more expensive, while Australia as a tourist destination remains expensive.
Market instability from full-blown crisis could lead to a loss of investor confidence, a plunge in consumer sentiment and a rise in right wing nationalism in Europe. None of these outcomes are good for business and growth in our own economy.
Our banks still rely on offshore funding to help leverage some of their activities, and that normally steady source of finance can dry up overnight if confidence is lost. If that happens, banks will retreat to their core operations, and small business lending is usually one of the first casualties. Rates do not just rise — facilities actually get shut down and liquidity disappears.
As with many drawn out crises, do not expect a long-term disaster on stock markets if Greece exits, as much of the bad news is priced into markets worldwide in the lead-up to a trigger event. Like the second gulf war in March 2003, it was the fear of the unknown and uncertainty that drove markets down. Once a decision was made to go back in to Iraq, the markets actually took confidence from the decision being made as opposed to the uncertainly that had prevailed.
What can you do to protect your business?
- Ensure you have reviewed your sources of short to medium term funding in your business. Look at back up alternatives such as debtor financing, and keep on top of your cash flow.
- If you have financing reviews coming up with your lenders, then get on the front foot and see if you can lock them in.
- If you have foreign currency exposure, then look to add some protection. Speak to a foreign exchange specialist and know your safety margins.
The contagion effect is the one unknown, but I do believe that the global economy is in a much better position to weather a “GREXIT” (Greek Exit of the Euro) than at any time since the GFC.