Dealing with the Eurozone crisis
Key considerations for CFOs
"The biggest concern for UK CFOs in 2012 is the risk of a break-up of the euro. CFOs attach a 37% probability to one or more members of the Single Currency leaving the euro in 2012" - Deloitte CFO Survey.
During recent months, market sentiment on a possible collapse of the Euro has changed from “virtually impossible” to “not inconceivable”.
The impact of uncertainty in Greece and a possible Eurozone collapse on UK corporates could be material yet most organisations do not seem to be prepared for, or fully understand, this impact. Are executives denying the crisis or is the uncertainty simply too great for companies to prepare for the unknown?
Eurozone uncertainty - the ‘New Normal’?
All businesses are being impacted by the current economic uncertainty and many not prepared for, or fully iundertsand the impact of the crisis. This is surprising given that the financial crisis seems to have become the ‘new normal’.
The likely winners in this environment are the businesses that have considered the possible outcomes, have reflected them in their planning and are prepared for operations in the circumstances of a failure of the currency or its new status in a post-crisis world.
At a minimum every company should have a plan in place covering:
- Awareness - understanding what is at stake
- Consider the potential impact on cash, liquidity and financial risk management
- Consider credit risk and foreign exchange risk
- Understand your risks and reduce exposure wherever possible.
- Preparedness - taking the appropriate actions now
- Assess how a collapse of the euro, or an escalating banking crisis, may impact the organisation
- Understand potential outcomes and risks by working through the impacts using carefully designed worst-case scenarios and ‘war gaming’ techniques.
- Resilience - having a contingency plan in place
- Develop scenario-specific contingency plans to help mitigate any significant risks (including severity-dependant actions)
- Consider potential options, obstacles and key assumptions
- Consider practical preparations e.g. resources, policies, processes, systems, cash flow and many other areas - there is often little time to react.
- Readiness testing – see the worst case scenario before it happens
- Subject the plan to a thorough simulation exercise, designed to play through the worst case scenario from beginning to end.
Deloitte has a leading practice in applying exercises, simulations and war games to develop and test scenario based contingency plans – resulting in more resilient plans for Finance and business operations. For more information on how we can help your organisations prepare for the worst, download our “focusing on value protection or value creation?” insight below.
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