How Companies Are Preparing for a Possible Future without the Euro

The abandonment of the euro as a national currency by one or more countries is among the most dire of the possible outcomes of the economic crisis that threatens the solvency of European nations such as Greece, Portugal and Ireland -- and even of major economies like Italy and Spain. In a survey conducted by Reuters before the end of 2011, 14 out of 20 economists queried predicted that the “single currency” was not going to survive in its current form, and noted that companies are beginning to prepare themselves for the worst-case scenario.
Joan Carles Amaro, a professor of financial management at ESADE in Barcelona, outlines some of the consequences that the abandonment of the euro would have for companies. “Corporate financing would be more difficult and more expensive because of the loss of confidence in the markets of the country [leaving the euro zone],” he notes. Eventually, this credit crunch “would dry up possibilities for business growth and endanger the solvency of companies that have a great deal of short-term debt and few liquid assets.”
He warns also that there could be damaging consequences for the public finances of any country opting to give up on the euro. “Its public-sector debt would become more expensive, which would force it to cut spending and public-sector investments, which would significantly diminish its sources of demand.” Along with this, Amaro says, prices would drop for shares of those companies that depend on any market that suffers after abandoning the euro. That, in turn, would increase the perceived risk for investors in the economy of the country.
According to Reuters, some of the companies with the most active contingency plans are based in European countries outside the eurozone. However, these countries, including Denmark and the United Kingdom, have strong commercial ties inside the zone. Of the 33 companies outside the eurozone that have the largest exposure to the zone in terms of sales, five are based in the U.K., according to Reuters. Among the most exposed industries are health care, energy and consumer goods, Reuters reported.

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