Eurozone troubles

No-one in the financial world can have escaped the excitement (if that is the right word) of the eurozone crisis. It seems that the markets have forced the bailout of Greece and now Ireland and will probably now head off for Portugal. What exactly is going on and more importantly what should treasurers do about it.
There were fault lines in the euro from day one. The euro was both a domestic currency (in that national banks issued notes and coins and these notes and coins are honoured everywhere in the eurozone) and a foreign currency (central banks could not print euros). The market assumed greater inter governmental support than was actually built in and markets being markets, manage to find the fault lines and expose them for profit. The same thing happens in equities, if the market senses trouble in a company, they sell.
While commentators differ on the outcome, the treasurer has to consider the issues that face his firm. Some say the euro cannot die and we will go to political unity, others say there was life with separate currencies and there can be life with them again. Some of the scenarios and issues the treasurer might face include:

- How will cash management work if a country leaves the euro

• How will we be paid?
• How will we pay?
• How will we manage accounting (introduction of the euro had a fixed FX rate for some time to allow administration to work)

• What happens about notes and coins?
• What will happen to pooling arrangements?
• What happens to euro investments in domestic banks if a country leaves the euro?
• What happens to euro debt if a host country leaves the euro?
• What happens to euro instruments such as guarantees and letters of credit if a country leaves the euro?
• What happens to share capital if a host country leaves the euro?
• What might happen to exchange rates if one country leaves the euro?

The tools of scenario analysis and stress testing are useful in cases such as these. Make sure your company will stand out above others and gain competitive advantage in such a situation.

http://www.lyddonconsulting.com/newsletter/herman-van-rompuy.pdf?utm_med...
http://www.gtnews.com/feature/423.cfm
http://www.gtnews.com/article/8108.cfm
http://www.ft.com/cms/s/0/49a36f94-fb23-11df-b576-00144feab49a.html#axzz...

By Will Spinney