Summary of Chartis Insight Publication, “Greece: A Crisis averted or a crisis delayed?”

Owing to the recent agreement of a second €130 billion bailout, the risk of a Greek default has been averted, but is the relief for the Eurozone only temporary?

The Greek government have undertaken to reduce their national debt from 160% of its GDP, to 120.5% by 2020. The Greek economy has been falling rapidly, and continues to do so, for the last 5 years. This pressure could result in a worsening of the current situation, meaning that cuts may need to be made to this target to avoid further damage. In addition to this, the Greek Government would need to implement a strict programme. However, as shown by recent unrest, this is not popular with the Greek public. With the polls looming, a new Government could soon be elected, a Government with less commitment to the bailout.

And so the European Economic Crisis continues, a recession is imminent, and a Greek default possible, which could have a disastrous effect on other member states. Businesses must be prepared for both of these scenarios, but what are the risks they are facing?

For businesses who supply goods within the Eurozone, the risk of non payment is greatly increased, especially if a Eurozone country, such as Greece, defaults on its payments.

In the event of a default, the country faces potential redenomination of their former currency, which would likely rapidly depreciate against other currencies. This could result in businesses and the general public alike, withdrawing deposits which would then have a negative knock-on effect on the banking system. This then leads to a lack of credit, a lack of funding, and eventually the insolvency of local businesses.

So how can a business prevent these losses and protect themselves against these risks?

Good credit management procedures are vital in the role of reducing the risk of non payment. Such as checking credit worthiness of a buyer, having written contracts with payment terms clearly stated in place, and having a ‘retention of title’ clause in place to ensure ownership of the goods until payment. A Credit Insurance policy encourages these procedures to be followed, as well as enhanced protection should non payment occur.

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