U.S. Companies Brace for an Exit From the Euro by Greece

Even as Greece desperately tries to avoid defaulting on its debt, American companies are preparing for what was once unthinkable: Greece could soon be forced to leave eurozone. Bank of America Merrill Lynch has looked into filling trucks with cash and sending them over Greek border so clients can continue to pay local employees, suppliers, in the event money is unavailable. Ford has configured its computer systems so they will be able to immediately handle a new Greek currency. No one knows just how broad shock waves from a Greek exit would be, but big American banks and consulting firms have been doing a brisk business advising their corporate clients on how to prepare for a splintering of eurozone. That is a striking contrast to assurances from the European politicians that the crisis is manageable and currency union can be held together. On Thursday, the European Central Bank will consider measures that would ease pressure on Europe’s cash-starved countries. JPMorgan Chase, though, is taking no chances. It has already created new accounts for a handful of American giants that are reserved for a new drachma in Greece or whatever currency might succeed euro in other countries. Stock markets around the world have rallied this summer on hopes European leaders will solve Continent’s debt problems, but the quickening tempo of the preparations by big business for a potential Greek exit this summer suggests investors may be unduly optimistic. Many executives are deeply skeptical that Greece will accede to austere fiscal policies being demanded by Europe in return for the financial assistance. Greece’s abandonment of euro would most likely create turmoil in global markets, which have experienced periodic sell-offs whenever Europe’s debt problems have flared up over last two and a half years. It would also increase pressure on Italy and Spain, larger economic powers that are struggling with debt problems of their own. “It’s safe to say most companies are preparing,” said Paul Dennis, a program manager with Corporate Executive Board, a private advisory firm. In a survey this summer, the firm found 80% of clients polled expected Greece to leave eurozone, and fifth of those expected more countries to follow. “15 months ago when we started looking at this, we said it was unthinkable,” said Heiner Leisten, a partner with Boston Consulting Group in Cologne, Germany, who heads up its global insurance practice. “It’s not impossible or unthinkable now” (…..)

Link: http://www.nytimes.com/2012/09/03/business/economy/us-companies-prepare-in-case-greece-exits-euro.html


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9 Responses to U.S. Companies Brace for an Exit From the Euro by Greece

  1. Lorq: As Nobel laureate Amartya Sen said here back in May (“The Crisis of European Democracy,” 5/23/2012), the Greek economy was actually growing before the 2008 recession hit. The commenters nattering here about government debt and lazy socialists are simply choosing to ignore that the 2008 global financial implosion was the proximate cause of the crisis in Greece. Greece was merely the weakest link in the chain; the crisis is now working its way along the chain to Spain, Italy, and so on. The Greeks have good reason to refuse austerity measures. The loans that would follow from their adoption would go straight into the coffers of the foreign investors, who, once their books were balanced, would pull their capital out of Greece all over again. And it would be a Greece now additionally hamstrung by a weakened, “austerified” government. The Greeks, quite reasonably, object to the prospect of this sort of looting.

    Before screaming Clint-Eastwood-at-empty-chair-style at imaginary lazy workers and wasteful government, talk about the global financial crisis first. Then the conversation will have a chance to be sane. (Unless, of course, a sane conversation is exactly what you don’t want.)


  2. Scott: Growing economy or not, they were cooking the books for years and didn’t feel like paying taxes is their civic duty. Feel free to work as long or short a day as you want, take vacations, and have a strong safety net but at the end of the day you have to figure out how to fund the federal government.


  3. Vietnam2: Amartya Sen is correct! DEREGULATION of US banks in 1999 and derivatives in 2000. (Google both Phil Gramm (R) TX and derivatives) are the cause of the 2008 global financial crisis that affected Greece etc.. The former president of Greece George Papandraeu said the reason his country was in trouble was the purchase of derivatives with money from the Greek treasury. (people’s money). The DEREGULATION by GOP Phil Gramm, former GOP Senate Finance Chairman set up the biggest Ponzi scheme in the history of mankind. Many European countries (and Iceland) purchased derivatives from Wall Street at 40-1 odds. That sounded too good to be true so they insured them with CDS’ which were backed by AIG.

    Over $645 TRILLION in derivatives traded between 2000 and June 2008.

    The crisis hit Sept 8, 2008 because AIG defaulted on a hugh payment in the summer of 08. The house of cards started falling and is still falling.

    $645 TRILLION is the combined total of the US, China and Japan GDP for the next 30 years.

    Some people do NOt have a clue why the US and Europe are in a financial crisis. IT IS NOT OVER! read what some economist are telling you. This is WHY!


  4. GeniusIQ179: Scott, “at the end of the day you have to figure out how to fund the federal government” Let the Governments, all of them, issue Bonds to their citizens. For each and every program. Fund them, but do not allow them to borrow elsewhere. Markets, and Central Banks are the death of Nations.


  5. Professor Uziel Nogueira says: A good point in the first paragraph. Greece was the WEAKEST link in the euro zone chain when the Wall Street financial meltdown of 2008 reached Europe. The financial shock from the US was exacerbated by a public debt getting out of control. Financial investors became risk averse after 2008 and the era of cheap credit was over.

    However, the problems in the euro zone are more serious than financial shocks.

    The fundamentals of the Greek, Spanish, Portuguese and Italian economies are NOT compatible with the euro. They were not in 1999, they will not be in the near future. Clearly, the euro presents a design flaw that cannot be easily fixed. Germany’s elite made a HUGE political mistake in 1999 when accepted economies not apt to share a common currency. The initial admission mistake was compounded by not insisting in a workable fiscal integration. Ms. Merkel faces a conundrum.

    How to reform the euro zone without causing a major political upheaval in the European integration process.

    A strong euro is incompatible with the economic fundamentals of some member countries. Greece’s departure of the common currency will be messy a la Argentina 2001 style. Nonetheless, the Hellenic country’s departure opens the opportunity for further downsizing of the euro zone. For the highly indebted countries, the euro is now a problem and not a solution for the construction of a welfare state.


  6. Enea Gjoni is sitting silently with some of his friends at an outdoor cafe that has become a gathering place for the Greek capital’s unemployed youth. No one is talking. They have been here for hours, as they have every other day for the past few months, and have pretty much run out of things to say. A year ago, Gjoni, 19, graduated from a technical high school in the city with modest life goals: He wanted to be an auto mechanic. But in a country that is entering its fifth year of recession, he has been unable to find any work. “There’s no future here”, he said as he idly stirred his coffee. More than 5.5 million young people across Europe are unemployed, the European Commission reports, part of what scholars are dubbing a lost generation. The youth unemployment rate in Greece and Spain has climbed to a staggering 53 percent. That rate is 36 percent in Portugal, 34 percent in Italy and 23 percent in France, according to the Organization for Economic Cooperation and Development. That compares with 15 percent in the United States. Globally, one in eight people under the age of 25 is unemployed. In the euro zone, the unemployment rate is 26 percent — the highest since the creation of the common currency. In a report in July, the OECD, a group made up of 34 democratic countries, warned that youths are bearing the burden of the economic crisis in Europe. While many of these young people have their families to fall back on and can often live at home for free, the OECD warned of the lifetime damage — or “scarring effect” — that comes with derailing career plans and earnings potential at such an early age. And the problem isn’t confined to those who lack education or skills. Even those with college degrees are finding themselves stuck without work or in temporary, dead-end jobs. The situation is chipping away at the foundation of European societies. The high unemployment rate has been linked to rising crime among young people and a higher incidence of depression. Joblessness is bringing down birth rates as these young adults put off starting families. Many youths are leaving their home countries to seek jobs, while others have given up (…..)


  7. Italy’s weak economy is visible to all, but there is a parallel crack in the system which is at least as dangerous to the country’s wellbeing and stability, undermining its very structures. It is a clash between the powers of the state; the law on one side and the executive and legislature (usually referred to as la politica) on the other. Both crises have been a long time brewing. The material hardships are due to a declining economy over the last twenty years combined with an uncontrolled growth of public spending. The crunch came when the waves from the US and then European bubbles hit Italy. The institutional crisis also goes back a long way; thirty years when Bettino Craxi first bridled at magistrates investigating corruption in his Socialist Party in Genoa; twenty years ago when the Milan magistrates began prosecuting the kickback system used by all the parties. The conflict between “the judges” and la politica has rumbled on since then with occasional squalls; the final storm has now broken and is likely to be a very rough and dangerous one for the ship of state. The opening lightening strike was an appeal by President Napolitano to the Constitutional Court. He is asking the Court to declare that the calls made to him by a former minister under investigation (and now charged with perjury) should be destroyed. The former minister is Nicola Mancino (above, with Napolitano) who was Minister of the Interior between 1992 and 1994 when there were secret negotiations between elements of Cosa Nostra and politicians and law enforcement officers apparently to alleviate prison treatment of convicted Mafiosi in exchange for stopping the mafia bombs. Mancino is not accused of complicity in the deal but he swore that as minister he knew nothing of the negotiations; this turned out to be untrue, hence his indictment for perjury. While Palermo prosecutors were preparing their case on these negotiations last year, they obtained judicial permission to intercept Mancino’s phone. He made a number of calls to the Quirinale seeking Napolitano’s intercession in the case. Most of the these calls were to the president’s legal advisor, Loris D’Ambrosio. These have been published and are part of the court records; in them Mancino pleads with D’Ambrosio to ask the President to move his case from one court to another where he thought his position would be improved. D’Ambrosio for the most part stalls (and between the lines, it is clear that he is trying to get Mancino off his own and Napolitano’s backs) but he does give a generic assurance that “the President is looking into the case”. Later, it came out that Mancino had spoken directly with Napolitano. The Palermo prosecutors have already said that the conversations were not relevant to their case and the recordings would be destroyed as soon as the investigating judge orders it (and after the defence had been heard) (…..)


  8. It is, Julio Vildosola concedes, a very big bet. After working six years as a senior executive for a multinational payroll-processing company in Barcelona, Spain, Mr. Vildosola is cutting his professional and financial ties with his troubled homeland. He has moved his family to a village near Cambridge, England, where he will take the reins at a small software company, and he has transferred his savings from Spanish banks to British banks. “The macro situation in Spain is getting worse and worse,” Mr. Vildosola, 38, said last week just hours before boarding a plane to London with his wife and two small children. “There is just too much risk. Spain is going to be next after Greece, and I just don’t want to end up holding devalued pesetas.” Mr. Vildosola is among many who worry that Spain’s economic tailspin could eventually force the country’s withdrawal from the euro and a return to its former currency, the peseta. That dire outcome is still considered a long shot, even if Spain might eventually require a Greek-style bailout. But there is no doubt that many of those in a position to do so are taking their money — and in some cases themselves — out of Spain. In July, Spaniards withdrew a record 75 billion euros, or $94 billion, from their banks — an amount equal to 7 percent of the country’s overall economic output — as doubts grew about the durability of Spain’s financial system (…..)


  9. (NYT GOLDEN PICK) Professor Uziel Nogueira says: As expected, the Greek financial crisis is spreading to neighboring euro zone countries. Now is Spain’s turn to be hit by the domino effect. Despite the bad news, young, well trained and ambitious Spaniard professionals are luck. They can seek employment in any of the 27 member countries of the EU, particularly Germany, the largest economy in Europe. During the next few years, millions of young professionals will be moving from their Southern country of origin to more prosperous Northern ones.

    Even though things are bad today in Greece, Spain, Portugal and Italy, they could have been worse without the European Union.



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