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Companies draw contingency plans for Greek exit

David Brancaccio Jun 12, 2012

David Brancaccio: It’s five days to go before voters in Greece go to the polls in a general election that could determine if the country keeps using the euro or goes through a wrenching devaluation and returns to its old currency. While most experts are still calling a return to the drachma unlikely, one would think companies might prepare just in case.

Michael Heise is chief economist of Allianz, a German based financial services company.  Dr. Heise, good morning.

Michael Heise: Good morning.

Brancaccio: I remember we would telephone people and ask if they would make contingency plans should Greece leave the eurozone. ‘Unthinkable,’ they would say, ‘no contingency plans’ — is that changing do you think?

Heise: It definitely is changing. I think any company needs to think about this scenario of Greece exiting the eurozone. Personally, I don’t think that the liklihood is very big, I would say around 20 to 30 percent, but definitely high enough to warrant a plan of how to deal with this possible currency exchange.

Brancaccio: I mean if you think about it, you actually work for a company that does a lot of work in the insurance field. If there were a 20 or 30 percent chance of something bad happening, you might take out insurance against it.

Heise: Definitely, every company has to figure out a way to minimize the possible losses or damage caused by such an exit. For a financial company like ours, basically the situation is both sides of the balance sheet would be exchanged into a new currency, so there is no huge mismatch.

Brancaccio: You want it to effect both of those — assets and liabilities — in a similar way.

Heise: Oh yes, but of course any currency exit of Greece would probably cause some recessionary momentum in the economy. Basically this is also the reason why we do not advise the EU or Greece to do this kind of exit — it would be a very painful thing to do.

Brancaccio: Is it actually something that companies could hedge against? Or is it something that is just fundamentally unpredictable?

Heise: I think there is basically no possibility for hedging against it. It’s basically an exchange with a lot of risk which you can’t hedge against.

Brancaccio: Michael Heise is chief economist with Allianz. He spoke with us from Munich. Dr. Heise, thank you very much.

Heise: Thank you.

Brancaccio: Disclosure: Allianz is one of the underwriters of this program.

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