Prime minister David Cameron has labelled the “paralysis” in Europe as “chilling” and in a sense that is an understatement because the current economic issues in the European economy look likely to get worse before they get better. Consequently, this will have a direct impact on UK businesses both large and small.
Greece And The Eurozone Crisis:
According to analysts Greece owes a total of 490 billion euros to the banks. If they fail to repay their debt and leave the euro, something which is looking increasingly likely, the effect on banks throughout Europe and the UK will be catastrophic.
Because, European and UK banks are linked through insurance sales and debt default guarantees. Greece’s default will initiate a new “credit crunch”, where British banks will have less money for businesses and individuals to borrow, leading to detrimental consequences for the overall economic activity in the country, which will severely damage UK manufacturing and exports, as well as lower GDP growth.
Apart from seeing the UK dive nose-first into the recession, Greece’s default would cause a chain reaction as other Eurozone economies such as Ireland, Italy, Portugal and Spain would find it impossible to assume responsibility for their own debts, and with Fathom Consulting estimating Britain’s exposure to aforesaid countries at £60.2bn, these are worrying times.
Over 50% of trade in the UK is done with the EU. The figure speaks for itself, and although it is impossible to quantify the exact amount of trade which will be lost if the EU collapses, it would be significant.
A Europe completely free of the euro is not likely, but countries departing from the euro would need to find an alternative currency to replace it with. This would be time-consuming and many banks, and consequently businesses, both large and small, would bear the brunt of the transition. Trade would be lost, deals broken and debts unpaid, in short it would be a financial nightmare.
In fact, the UK is already feeling the effects of the Eurozone crisis, with Chancellor George Osborne stating, “There’s no doubt that growth in Britain, jobs in Britain, have been hit by what’s going on in the Eurozone.”
How Your Business Can limit The Impact Of The Euro-Crisis
With two-thirds of the UK’s business leaders believing the Eurozone crisis is our biggest economical challenge of next year and experts such as European economist at Capital Economics, Jonathan Loynes stating, “There still seems to be extraordinary complacency about the effect all this will have on the Eurozone,” you really need to prepare your business for the storm ahead. Here’s a few tips.
Stockpile: If you are able, now is the time to increase your cash reserve and tighten your costs in a bid to have the necessary financial buffer to get you through the downturn.
Make cutbacks: You can save a little extra cash by reducing optional expenditures like advertising and travel and trying to increase your workload/revenue while you can. If you are thinking of expanding your business, moving to bigger premises etc, it might be an idea to stay put until the credit market regains stability. You might even consider negotiating new terms for lease on your business property or even consider switching your staff to homeworking to free yourself from property requirements.
Secure lines of credit: You’ll probably need to tap into your credit supplies when needed so make sure your source is solid and reliable.
Risk Management: For businesses trading internationally you should definitely consider seeking the help of a company who offer currency exchange risk management services to help you control foreign exchange risk and maximise opportunity – once such company is the UK based TorFX.
After The Storm
David Cameron believes the UK is capable of weathering the coming storm. Let us hope he’s right when he says, “I am absolutely clear about the right answer for the UK economy. It can be summed up in one sentence. We need to deal with our debts and go for growth.”