Supply Chain risk management – the outlook for Greece

So, supply chain risk management time.

- Do you have any critical suppliers in Greece?

- What happens if Greece defaults and withdraws / is thrown out of the Euro? Are your contracts still valid? What happens to pricing and payments?

- What about if their economy goes into freefall, and we see civil unrest?

- And how about if the military in Greece, who were in charge between  1967-74, for those of us with long memories, step in to prevent unrest? (Or to fight against what the Greek people may well see as the loss of Greek sovereignty to the ECB, Brussels, or Berlin).

Being rational, in probabilistic terms, the market now sees a default as almost inevitable – 98% probability.  It was interesting just this weekend to see how even the public debate seems to have shifted from "whether" to "when and how".

In terms of alternatives, I suspect some sort of Euro-bond underwritten by the whole EU is a non-starter. The probability of the cautious, hard-working, German populace agreeing to open-ended bail-outs, so that Southern Europeans can retire at 50 and evade tax is approximately 0.01% I would suggest. That’s not my view of our Southern European friends,  by the way, just how many Germans and indeed others see it.

Then, what happens next? It’s hard to see then how Greece could stay in the Euro after such a default, although nothing is impossible. So the creation of the “New Drachma” is perhaps a 70% probability?

What are the chances of major civil unrest in the country?  That may even be independent of the default issue.  If a way round default is found, then I suspect at some stage the Greek people, who were, at least once upon a time, “proud”, may eventually rebel against austerity measures and selling their souls and actual assets to a bunch of banks and foreign Governments. If they do default, who knows what that means, but riots at least seems a quite likely scenario.

So the odds of real unrest?  Perhaps 50:50.

A military coup? Obviously less probable, but tnot out of the question. They’ve done it before.  (By the way, here’s an interesting after-4-pints-on a Friday-night question.  If the Queen asked the Armed Forces in the UK to run the country, and displace the elected Government, for some reasonable cause of course, what do you think they would do?)

Anyway...  that’s enough on Greece, and let’s not even think about Italy or Spain for now.

And on a related note, Jason wrote last week about currency issues and risks – there’s some great stuff here and here. Those issues are important, and we’d suggest you look at currency as part of this wider risk context. And that applies whether you're buying from, or selling to, these countries.

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