Greece has been left in political limbo, and it could go bankrupt and crash out of the Euro as early as next month.
As the Greek tragedy enters its final act, Athens' exit from the Euro is looking grimly inevitable. The country that proudly calls itself the cradle of democracy has been badly let down by the democratic process.
This month’s inconclusive elections have left Greece in political limbo, and it could go bankrupt and crash out of the Euro as early as next month. But as the bloody denouement begins, all we can know for sure is that the ripples of what happens in this proud nation on the edge of the Eurozone will be felt across Europe.
Britain's banks closely links to Eurozone fortunes
The Greek economy's small size and distance from the UK mean that few British companies are directly exposed to a Greek collapse, but Britain's banks are closely linked to the fortunes of the Eurozone through a network of loans. The immediate impact of a Greek exit would be to make Greek banks go bust, but this would quickly cascade into bank defaults in other weak Eurozone countries like Spain and Portugal.
A Greek default will surely lead to international investors pulling their money out of the Eurozone, cutting a further swathe through the banks' balance sheets – including those of British banks. The cause will be different, but the effect could be the same as, or even worse than, the 2008 credit crunch.
The impact on the struggling SME sector
For Britain's struggling SME sector, the most immediate impact will be a sudden and potentially disastrous tightening of bank credit. Despite the best efforts of Project Merlin, in many cases the banks are already unable or unwilling to lend, even to vibrant businesses. Another credit crunch could force them to bring down the shutters on new lending, and even start clawing back existing lines of credit - for example by withdrawing overdraft facilities.
British companies that export to the Eurozone (of whom there are many as it's the UK's biggest international trading partner) will be doubly exposed as their European clients may suddenly start struggling to pay invoices.
This problem will be compounded by the likely fall in the value of the Euro - which will make British goods relatively more expensive. The mere spectre of a Greek default sent the Euro to its lowest level against the Pound for three and a half years on Tuesday. The net effect will be to put severe strain on the cashflow of many British businesses.
Most worrying of all is the prospect of a second credit crunch. The last one in 2008, which began in the esoteric world of US sub-prime mortgages, soon spread to Britain and triggered the recession.
Alternative forms of finance
If the Eurozone crisis once again leaves banks unable to provide their traditional role as sources of finance, businesses will have to look elsewhere, to alternative finance providers like crowdfunding, private investors or invoice trading platforms.
Our experience shows that invoice trading is becoming particularly popular as a source of working capital. Trading invoices online releases cash back into an SME’s business weeks or months before their customers eventually settle invoices.
By giving businesses earlier access to the money they’re owed, it improves cashflow and reduces a firm’s reliance on other sources of funding such as overdrafts, which are likely to become in ever shorter supply. The banks are constrained by the pressures affecting the money markets – and if those markets seize up, so will their ability and appetite to lend.
As Britain braces itself for the fallout of a Greek default, Britain’s SMEs will need to prepare for the worst – and explore alternatives to the banks as sources of funding.
With the banks at risk of being sucked into a vortex of Eurozone chaos, alternative sources of finance will be thrust to the fore – and could play a vital role in helping SMEs cover their overheads, pay their bills and deliver the growth that will be UK Plc’s best defence against the gathering storm across the Channel.
Newer news items:
Older news items: