Will a bankrupt Greece affect my marketplace profits?

Paul Plewman, a Director at international payment marketplace CurrencyTransfer gives insights into how the Greek tragedy can affect your profits.

A lot of headlines have been hogged by the Greeks over the last six months, to the point that many have been numbed to the ‘crisis’ element of events. But ‘what if…’ is a good question to ask. And if they do, or if they don’t, how might that affect my online marketplace business?

Yesterday Greece missed their IMF payment deadline for the EUR1.6bn they owed and now we are in uncharted territory. Two key points here are:

1) Greece falls away from their current bail-out programme and this also ends the legal basis that all future bail-outs would rely. So guess what? To get back on the bail-out track, they’d first need to get back to the negotiating table and agree the legal foundations for any new bail-out.

2) Is Greece in default? IMF boss Christine Lagarde says yes (as I would if I’d lent you £100 until Friday and you didn’t pay me), but key players like Germany’s Angela Merkel are keen for this not to be a ‘default’ (as you might be, if agreeing an extension would avoid me ‘sending the boys round’ for my £100!). Also, since Greece played the Referendum card, everything else has been put on pause.

So what does this mean to your business?

At the risk of overly simplifying things, let’s consider ‘your business’ as being UK-based and trading with the EuroZone.

Option 1 Buying from EU suppliers so have EUR exposure, GBP revenues

Option 2 Selling to EU markets where EUR revenues need converting to GBP

This is a zero-sum game – what is good for option 1 is bad for option 2. The one thing we can be certain of is volatility. The market hates uncertainty and pre-referendum we’ll have this by the truck-load.

How should I act to protect my profits?

Monitor the market and check the rates more. You may be well advised to hold your nerve – if you find yourself needing to buy/sell currency and the rate is grotty, maybe delay things and wait for improvement (if you have the flexibility), or suck it up and cover the minimum you need. Chances are it will be a better story for you soon enough.

Alternatively, you could hedge. If you’re comfortable that you have a ‘typical’ monthly exposure, then when the rate spikes in your favour (as it no doubt will) then you can cover some/all of your exposure by booking a forward contract – buy now/pay later. If it’s your first time, I strongly recommend a conservative approach – maybe no more than 50% of your forecasts, just in case any unforeseen circumstances leave you with a smaller order book that month and a forward contract bigger than you need/can afford to settle.

General consensus across the market is for a cheaper Euro as everyone holds their breath pre-referendum. We may see Euro strength delivered with a ‘yes’ vote as the only pain thereafter will be felt by Greece domestically. Following a rather perverse logic, Euro strength may also be delivered with a ‘no’ vote – plenty of commentators believe the EU would be stronger without Greece and expect Greece to devalue, revalue and recover. So once the matter is settled one way or the other, there are plenty of calls for a Euro recovery.

Euro buyers – back up the truck

Euro sellers – bide your time