Supply Chain News – Greece’s exit from the Eurozone – the affect global on supply chains

Supply Chain News - GreeceThe latest supply chain news of the difficulties that Greece’s inbound supply chains face brings new pressure to bear on an already stressed situation.  The recent result of the referendum to reject another bout of austerity measures has put the rest of Eurozone Europe into a tailspin that could result in Greece leaving the Eurozone altogether, leaving the other European partners facing a massive debt.

Greek importers already feeling the pinch

According to a recent report in the Wall Street Journal, the supply chain news regarding small importers of luxury goods, who were already being put under significant pressure, is not good. Small traders have had to contend with paying money out up front in order to secure their purchases. Many have been forced to rely on letters of credit issued by local banks which then have to be underwritten by the international banking community. But the Greek banking system itself is now under serious threat from the new capital controls, and the imports of crucial goods such as medicines and food, could grind to a halt if the banking system collapses.

Greece in a race to its Euro life

The recent vote means that Greece is now involved in a race for its life in order to somehow come up with a new financing deal before 20th July, which is when the current European Central Bank bond repayment becomes due. If not, Greece’s economic situation will worsen still further.

Currently on the ground in Greece, the latest supply chain news is that there are concerns that both banks and ATMs will run out of cash in a matter of days if a deal cannot be negotiated to repay the country’s €240 billion debt. In an effort to forestall a cash crisis, the Greek government has gone back on its earlier promise to reopen banks today (Tuesday 7th July), now saying they will remain closed until at least Thursday. In the meantime, the maximum ATM withdrawal limit of €60 per day remains in place.

Latest supply chain news is that Emergency Liquidity Assistance remains in place

The only glimmer of light in an otherwise dark tunnel, is that the ECB (European Central Bank) has agreed to maintain the Emergency Liquidity Assistance (ELA) in place for the time being, in order to help keep the Greek banking system afloat. The ECB did however say that it would be adjusting the conditions of the ELA, making it somewhat more difficult for Greek Banks to qualify for financial assistance.

The Greek economy has already diminished by about 25% since 2008. It is conjectured that an exit from the Eurozone now, would bring about a further 25% reduction. This is something that the country can ill afford as it has a 52% unemployment rate in its under 25 population.

The effects on global supply chains

On the global stage, the fact of the matter is that the Euro is now facing a serious threat, and in terms of supply chain news this could have major effects of global supply chains that rely on the Euro for payment. The problem is that Greece is not the only underperformer. It is by far the worst, and the latest crisis has brought matters to a head. But Italy and France are also underperformers, and German Chancellor Angela Merkel is concerned that setting a new precedent by expelling Greece from the Eurozone could result in the Euro becoming overly brittle.

However, the German finance minister Wolfgang Schäuble is of the opinion that Greece should be expelled. He believes that this action might actually put some much needed strength back into the Eurozone, putting pressure on other underperformers like France and Italy to put their economic houses back in order.

There is no taboo subject on restructuring

The problem is that to help Greece through this latest financial crisis is going to require a real act of faith. But recent events have seen Greece’s creditors as being reluctant to make further compromises. French Prime Minister Manuel Carlos Valls Galfetti appears to be one of the few that would be willing to make some compromises. He maintained that Greece leaving the Eurozone could create supply chain news headlines, plunging countries all around the globe into financial chaos. He is reported as saying on French radio, “The basis for a deal exists. There is no taboo subject when it comes to (Greek) debt, on the restructuring.”

Reaction on the world financial stage

World reaction to Greece’s refusal of further austerity measures is already having an adverse effect on global supply chain news. US crude fell nearly 5% down to $54.15; this represents the largest single fall in the past 3-months.

Euro Stoxx dropped more than 2% on opening and lost a further 0.4%, down to 2.4% in the afternoon. Meanwhile in New York, the Dow Jones fell by 0.2%, and the S&P 500 lost 0.3%.

Supply chain news regarding the Euro currency itself was that it fell sharply to $1.098, although it rebounded slightly to $1.1062 amid fears that a weaker Euro would have the effect of making American export prices comparatively more expensive.

Moving into unchartered territory

It remains to be seen what will happen with supply chain news on a global basis, a point hammered out by Jay Bryson, a global economist at Wells Fargo Securities when he maintained that it is impossible to say with any sort of confidence that the situation in Greece (and let’s not forget China too) will not impact on US markets. He went on to say, “If Greece leaves the euro zone and the euro zone starts to wobble a little bit, that’s going to continue to have financial market repercussions around world.  We’re in uncharted territory here. There are lots of unknowns out there, lots of moving pieces.”

Supply chain professionals will have to keep their eyes firmly on supply chain news over the coming days to see how the Greek situation plays out, and be prepared to tweak their supply chains accordingly to weather any storm that might be brewing.

Does your global supply chain rely on the Euro? If so what fears do you have in term of the repercussions if Greece leaves the Eurozone, and how will you mitigate them?

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