Prepare for the worst - if euro goes pop

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How do you prepare for a euro armageddon? It was unthinkable even at the start of October. But increasingly some consumers and business - especially big business - are considering escape routes, should the euro break up.

Andrew Bailey of the Prudential Business Unit at the Financial Services Authority, has warned banks they should prepare for the worst case scenario.


Forearmed

"We cannot be, and are not, complacent on this front. As you would expect, as supervisors we are very keen to see the banks plan for any disorderly consequence of the euro area crisis," said Bailey. Elsewhere though, the contingency planning response varies hugely.

The CBI says they have nothing "in writing" for contingency planning for its members. The Federation of Small Businesses said 24% of their members export overseas, but that includes non-eurozone areas. "Quite difficult to send out blanket advice, each business will be affected differently," it said.

The British Retail Consortium was also muted, claiming it was their job to advise more on public policy and the Institute of Directors told us that their "Chief Economist... is in the process of producing some work on this, but unfortunately at the moment we do not have an established viewpoint."

Public vs Private words

A lack of willingness, then, to engage actively with this particular risk management issue - or at least, be seen making escape plans! Vince Cable has acknowledged the Treasury is on the case. "We have a plan ... there's a lot of scenario planning, thinking about all possible outcomes. We have to deal with the world as it is," the Guardian reported this month.

What about consumers? Financial adviser Michael Bakowski from financial advisers Chamberlain De Broe is concerned. "There's absolutely no way to protect yourself. The only solution, it seems, is Federal Europe, but that's unacceptable to many. Imagine Greeks being told what they can and can't spend by Germans. The break-up of Euro is, probably, on the cards."

"But the whole thing is so huge," he goes on. "Remember the crash in 1987, when James Goldsmith put money into gilts, selling equities?" He says, "the best place is to sit tight. It [the market] won't go down to zero, but there are companies like Vodafone, paying a chunk of dividends." So your choice is floating - or being swept along in the back-wash with everyone else, given current rubbish interest rates.

Big beasts prepare

But big business is making plans. Andrew Morgan, president of Diageo Europe, told the FT yesterday "We've started thinking what [a break-up] might look like". He added: "With countries coming out of the euro, you've got massive devaluation that makes imported brands very, very expensive."

Other multinationals are looking at cash reserves in safe investments and being careful with non-essential expenditure. The FT claims engineering giant Siemens has "even established its own bank in order to deposit funds with the European Central Bank." And German travel company Tui has reportedly asked Greek hotel owners to sign new contracts based on "new drachmas" should Greece eject from the eurozone.

Given that the eurozone accounts for almost 50% of our exports, a euro break-up would have a devastating impact on British business (and consumers). There are simply no public established procedures within EU law for countries to quit. And as we've shown above, the issue is still taboo for some.

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