It has slipped from the news in recent wee ks as the Olympics has dominated the news agenda, but behind the scenes work continues on plans to try to stabilise the eurozone economies.
The markets have reacted favourably to the European Central Bank's plans to buy back bonds from troubled economies, effectively combating the problem of the rising cost of short-term borrowing for nations in trouble.
However, many believe that this could be a short-term fix and that the longer term more fundamental problems with the eurozone could resurface. In short, the potential collapse of the Euro is still very much on the cards and with that in mind British businesses are being urged by law firms to consider the consequences of a eurozone collapse.
UK businesses trade heavily in mainland Europe, which remains the UK's biggest trading partner. However, this brings with it the prospect of UK businesses being hit heavily by problems in the eurozone economies.
Hope for the best, plan for the worst
Law firms are urging UK businesses to think ahead when planning contracts to ensure that payment terms are specifically worded to avoid the possibility of payment in a devalued sovereign currency, should a country be forced out of the Euro.
Jim Rice is head of the eurozone core group at city law firm Linklaters.
"If they have got business and contractual arrangements in a country deemed particularly at risk then it could have a dramatic impact on cash flow if the payment is made in a different or devalued currency," he told the BBC.
This can be achieved by ensuring that contracts use the definition of the Euro as the currency of the eurozone and not as a particular nation's membership of that currency.
Use the UK legal jurisdiction
Firms can help themselves even more by insisting that the applicable law on any contract signed in future is UK law, or any jurisdiction outside of those that are particularly at risk, such as Spain, Italy and Greece.
Do your research
The single most important factor stressed by law firms is to ensure that any contracting party is fit and proper and in a financial position to meet their end of the contractual bargain. Conducting routine, rigorous credit-checking is the norm for most UK businesses but this has never been more important than now, and particularly when trading with companies in the eurozone.
"There is little that you can do that is foolproof, but many clients are making some changes, or at least instigating a review as an exercise to determine what the extent of their risk is," added Rice in an interview with the BBC.
Legal changes
The country most at risk of default remains Greece, where the prospect of a return to the drachma remains a tangible possibility. In such a scenario, it is likely that the Greek Government would impose new laws preventing contracts from being paid in Euros in order to protect the value of the new drachma.
Such a prospect makes it very difficult for businesses to prepare and this is exacerbated because it is unclear exactly how the eurozone would fall apart. It could be that Greece would leave on its own; however, a more likely scenario is that a Greek default would impact on other weak economies such as Italy and Spain.
The message is to be prepared and to plan for a variety of possible scenarios which could materialize in the coming months.
Source:
Firms urged to prepare for eurozone break-up (BBC News)
