The Eurozone: Checklist of issues for finance documentation
Recent events relating to the Greek crisis have demonstrated the strength of the political will to keep the eurozone intact - but they have also re-focussed attention on the effect of a Member State departing the eurozone. Whilst it is hoped that the continuing efforts to stabilise the eurozone will succeed, businesses should remain alert to the potential impact on them if a Member State leaves the eurozone. In addition, the measures which Greece has agreed in order to maintain its position in the eurozone are likely to create opportunities for businesses in various sectors, with commitments being made to a programme of reforms including privatisations with a reported potential value of 50bn euros. In pursuing these opportunities, businesses should take care to ensure that any investments are structured so as to minimise the impact of any eurozone exit by a Member State in the future.
It also appears likely that, despite the additional funding of €7bn to be provided by the Eurozone from the European Financial Stability Mechanism (EFSM) and the additional ELA provided by the ECB, the Greek banks will need some form of resolution in the medium term to address both the liquidity and the capital issues that have been exacerbated by recent events. Greek bank creditors should assess the possible impact a bank resolution might have on any amounts owed to them by the Greek banks.
This checklist is not written to be specific to a Greek exit but instead considers the theoretical position for any Member State in a similar position. It assumes that, regardless of the exact legal framework adopted at the time, the following things could happen. The departing Member State might:
- announce its withdrawal from the eurozone over a weekend or public holiday with no specific prior warning
- introduce a new national currency and a fixed rate for mandatory, automatic conversion of euro obligations into obligations denominated in that new national currency
- introduce exchange controls to avoid massive euro outflows from the departing Member State which could otherwise occur.
This checklist does not consider the ramifications of a full euro break-up or the impact on the sovereign debt obligations of a departing Member State.