The Eurozone – not a high Standard but definitely Poor

I'd like to think  we've been slightly ahead of the curve here in forecasting doom and gloom for the Euro from before it became quite so obvious that this whole economic - and political - mess can't end well. The Standard and Poor's downgrading on Friday was shocking in some of the language it used but confirmed what many suspected - the chances of Portugal, and quite possibly Italy and Spain, paying back their debts seems questionable, at least before their own people rise up in revolt against externally imposed austerity .

Just think about it in personal terms - what level of interest what you want on your hard earned savings if Portugal knocked on the door and asked you for a loan?

Taking a dispassionate look at matters European from the other side of the Atlantic, Jason Busch at Spend Matters US is half way through an excellent series on "20 Ways the Falling Euro May Impact Sourcing, Procurement and Supply Chain Strategies". It's not something to read if you're feeling a bit down in the mouth, but if you have any interest in currency and commodities it's essential reading.

The Baklava that Broke the Euros Back?

Meanwhile, what happens next? The failure of Greece to agree its debt write-downs with their creditors may be the Baklava that breaks the Euro-camel's back - or maybe it will be the inability of Italy or Portugal to fund itself thought this year. But the odds on at least one country leaving the Euro by the end of 2012 still strike me as better than evens.

And, as an example of the practical consequences of this uncertainty, the FT reported that Tesco "said recently that it would refrain from entering into long-term contracts with European suppliers for the moment."

So, as Jason says, Supply Chain risk analysis and planning should certainly look at the consequences of a Greek default or exit - or worse.

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First Voice

  1. Plan Bee:

    Once Greece can balance its pubic spending (may be sometime away admittedly) it is probably in their best interests to leave the Euro and default on their debt. It is unlikely to have a huge impact on their foreign earnigs as most of this is from tourism; the sea wil still be blue, the sand still golden and the sun still shine. So even if we all despise them for not paying their debts, we’ll all still go on holiday there, especially as it is likely to get cheaper. They get rid of their debt, and the interest burden, and still have a tourism economy

    What impact would a major debt default have on more stable ecomomies such as France whose banks have lent serious amounts of money to Greece. I don’t know, but I dont think it will look pretty.

    Such an approach would not be an option for say Italy, who still needs its Euro partners to buy its products from wine through to Fiats.

    Isnt Baklava Turkish in origin. Bet they are glad they never joined the EU 🙂

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