US companies conduct fire drills in case Greece exits euro
By Nelson D. Schwartz
Even as Greece desperately tries to avoid defaulting on its debt,
American companies are preparing for what was once unthinkable: that
Greece could soon be forced to leave the euro zone.
Bank of America Merrill Lynch has looked into filling trucks with cash
and sending them over the Greek border so clients can continue to pay
local employees and 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 the shock waves from a Greek exit would be,
but big American banks and consulting firms have also been doing a brisk
business advising their corporate clients on how to prepare for a
splintering of the euro zone.
That is a striking contrast to the assurances from European politicians
that the crisis is manageable and that the 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 the euro
in other countries.
Stock markets around the world have rallied this summer on hopes that
European leaders will solve the Continent’s debt problems, but the
quickening tempo of preparations by big business for a potential Greek
exit this summer suggests that investors may be unduly optimistic. Many
executives are deeply skeptical that Greece will accede to the austere
fiscal policies being demanded by Europe in return for financial
Greece’s abandonment of the euro would most likely create turmoil in
global markets, which have experienced periodic sell-offs whenever
Europe’s debt problems have flared up over the last two and a half
years. It would also increase the pressure on Italy and Spain, much
larger economic powers that are struggling with debt problems of their
“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 that 80 percent of clients
polled expected Greece to leave the euro zone, and a fifth of those
expected more countries to follow. “Fifteen months ago when we started looking at this, we said it was
unthinkable,” said Heiner Leisten, a partner with the Boston Consulting
Group in Cologne, Germany, who heads up its global insurance practice.
“It’s not impossible or unthinkable now.”
Mr. Leisten’s firm, as well as PricewaterhouseCoopers, has already
considered the timing of a Greek withdrawal — for example, the news
might hit on a Friday night, when global markets are closed. A bank holiday could quickly follow, with the stock market and most
local financial institutions shutting down, while new capital controls
make it hard to move money in and out of the country.
“We’ve had conversations with several dozen companies and we’re doing
work for a number of these,” said Peter Frank, who advises corporate
treasurers as a principal at Pricewaterhouse. “Almost all of that has
come in over the transom in the last 90 days.” He added: “Companies are asking some very granular questions, like ‘If a
news release comes out on a Friday night announcing that Greece has
pulled out of the euro, what do we do?’ In some cases, companies have
contingency plans in place, such as having someone take a train to
Athens with 50,000 euros to pay employees.”
The recent wave of preparations by American companies for a Greek exit
from the euro signals a stark switch from their stance in the past, said
Carole Berndt, head of global transaction services in Europe, the
Middle East and Africa for Bank of America Merrill Lynch.
“When we started giving advice, they came for the free sandwiches and
chocolate cookies,” she said jokingly. “Now that has changed, and
contingency planning is focused on three primary scenarios — a
single-country exit, a multicountry exit and a breakup of the euro zone
in its entirety.”
Banks and consulting firms are reluctant to name clients, and many
big companies also declined to discuss their contingency plans, fearing
it could anger customers in Europe if it became known they were
contemplating the euro’s demise.
Central banks, as well as Germany’s finance ministry, have also been
considering the implications of a Greek exit but have been even more
secretive about specific plans.
But some corporations are beginning to acknowledge they are ready if
Greece or even additional countries leave the euro zone, making sure
systems can handle a quick transition to a new currency.
Business leaders must be realists, since they are held responsible for being prepared for what will really happen, as distinguished from what politicians wish might happen or might be avoided.
European politicians are reluctant to admit that the EU is approaching dissolution. They are concerned that there will be public unrest and a variety of social problems if their constituents realize what is almost certainly coming. So there are continued meetings of national leaders, finance ministers and central bank officials desperately seeking to postpone the inevitable and to appear to be doing everything possible to rescue the rapidly crumbling Eurozone.
Meanwhile those who must be ready are preparing for unexpected events that may come swiftly, far too rapidly to avoid financial chaos unless detailed plans are made and precautions are taken well in advance.
Many financial and political experts without the responsibilities of public office anticipate that when Greece returns to the drachma, there will be a succession of sovereign debt financing crises in Spain, Italy, and France which will place intolerable strains upon the budgets of these nations. The result would be forced return to national currencies unless EU bailout funding on an unprecedented scale can be arranged, which is thought to be unlikely considering the much greater size of their economies and debts compared to Greece.
Those who are concerned about the utopian system of compulsory state custody of antiquities which presently prevails in these nations now wonder when reality will be recognized, and efforts to secure the repatriation of exported antiquities will be abandoned since these governments are unable to cope with their present custodial responsibilities.