International companies are preparing contingency plans for a possible break-up of the eurozone amid concerns that Europe’s politicians are failing to control Europe’s spreading sovereign debt crisis, according to the Britain’s Financial Times.
“We’ve started thinking what a break-up might look like,” Andrew Morgan, president of Diageo Europe, said on Tuesday. “With countries coming out of the euro, you’ve got massive devaluation that makes imported brands very, very expensive,” he told the Financial Times.
Sources have told The Times Business that certain large Maltese companies, including the banks, as well as business organisations are also looking into the consequences of a possible eurozone break-up and looking into the preparation of contingency plans.
The potential break-up of the eurozone is now a major concern throughout world capitals and observers really started to believe this was possible after German Chancellor Angela Merkel and French President Nicolas Sarkozy remarked last month that Greece’s exit from the single currency was not impossible.
The United States, the IMF and the Organisation for Economic Co-operation and Development have all stated that decisive action is needed by eurozone leaders to prevent a global recession.
Writing in today’s The Times Business, stockbroker Neville Curmi, a director at Curmi & Partners says: “The euro is in grave danger of breaking. I believe it will not, as the results will be grave. But you cannot have Italy on the brink of disaster under Silvio Berlusconi and now on the verge of a risorgimento under Mario Monti all within 15 days. Surely we are clutching at straws and hoping for the best? The indication is that we have not as yet formulated the correct course of action. It is quite clear that there is recognition for some form of closer fiscal integration, but how to get there is still very nebulous”.
Also writing in today’s The Times Business, Kevin-James Fenech, managing director of Fenci Consulting, says: “The European Union project is arguably at a precarious crossroads. I believe that the local business community needs to urgently decide what type of Europe best suits us: a federalist Europe (a United States of Europe) or an inter-governmental Europe where the emphasis is on the strengthening of the single market without the further dilution of national sovereignty.
“In a sense, the EU project today, with all of the political and economic integration of the last 20 years as well as the increase in membership, is perhaps similar to a corporate company that has merged and acquired too many businesses with the typical consequence of losing strategic focus, suffering from diseconomies of scale and having to contend with ‘internal’ competing interests.
“In business, such a situation would require a demerging process to take place so that the business can re-focus on what really matters and sell-off non-core activities. Maybe, just maybe, the EU is about to go through a similar political and economic ‘de-merging’?” Yesterday European Monetary Affairs Commissioner Olli Rehn said the EU had just days to take action to resolve the crisis. Mr Rehn said: “We are now entering the critical period of 10 days to complete and conclude the crisis response”.
On Tuesday eurozone ministers agreed measures to expand the region’s bailout fund and also agreed to release €8 billion in bailout money to Greece. Yesterday the bloc’s 27 finance ministers met for crisis talks and before the meeting European Council President Herman Van Rompuy remarked:
“The trouble has become systemic. We are witnessing a full-blown confidence crisis. Some may blame it on the irrationality of the market, but we need to confront it.”
The EU summit scheduled for December 8-9 is now seen as absolutely crucial as European leaders examine proposals on eurozone economic integration, new rules for national budgets and strict sanctions to ensure enforcement, among others.
There are other meetings and issues to watch out for, however, before the EU summit next week. Today Nicolas Sarkozy will give a keynote speech on the eurozone crisis and how he intends to tackle it, while on Friday the French President hosts British Prime Minister David Cameron for a bilateral meeting in Paris. On December 5 Italian Prime Minister Mario Monti’s Cabinet is expected to approve deficit-cutting measures and reforms to promote economic growth, and on December 7 the Greek Parliament is due to approve a packet of austerity measures.