As the Euro crisis rumbles inexorably on, we lurch from one disaster to the next. Each week brings the worrying news of another protest, strike or even riot from a different corner of the continent. Over the summer, the European Central Bank’s pledge to intervene in bond markets to help troubled eurozone countries was seen as a silver bullet – some diplomats even called it “Mario Draghi’s ice cream”. But by the autumn, it had been exposed by waning enthusiasm in Germany and more challenges in Greece, Spain and, most importantly, Catalonia.
Current odds suggest that a Euro breakup is likely by 2013, which has been mirrored by businesses in Europe preparing for more pain. A combination of terrible public finances and feeble bank lending has had a serious impact on demand, which in turn is affecting revenues and profits. This means that companies are now being forced into decisions that many of them had put off while they waited for an improvement in the economic situation. Surprisingly, a KMPG survey of Fortune 500 firms found that half had done nothing to prepare for a Euro breakup or exit by one or more of its members. From my experience, this is also mirrored in the procurement community.
So what should the well-prepared buyer be doing? The first thing is undoubtedly to ensure that you have a strong relationship with the treasury function so that currency risks can be identified and mitigated in the most appropriate way. The second would be to take a good look at your supplier risk processes to ascertain how well they are coping with a rapidly evolving situation. Finally, work closely with your key suppliers in the region to jointly plan what you would do in certain Euro breakup scenarios.
However, it is important to remember that wherever there is risk there is an opportunity. While only a very brave person would buy property in Spain at the moment, I recently found that there are some excellent deals to be negotiated on renting a holiday villa. This is also likely to be true in the corporate world – if you have done your research and understand the risks then there are some great opportunities out there.
☛ Tom Woodham is director of Crimson & Co