Posted by

Sukhdeep Dhillon - Global Economic Adviser at the British Chambers of Commerce

06 Jul 2015

As Greece's future in the eurozone looks more perilous than ever, British businesses are beginning to weigh up the potential impact of Greece defaulting on its debts. 

Greece has been in crisis since 2010 running up debts during years of economic boom that it has been unable to repay in harder times. A succession of bailouts by the IMF followed, but only in exchange for spending cuts and economic reforms. 

The prolonged period of austerity in Greece has led to high unemployment, further reducing its chances for recovery and economic growth that would allow it to repay its debts.

As part of its negotiations over repaying its debts Greece held a referendum on Sunday, to decide whether to accept or reject proposals made by the country's creditors. The results show the No campaign has exceeded all expectations by securing 61.31% of the vote, with every area of Greece voting to reject the proposals of Greece’s creditors and seek a better deal.

 What happens next ... a flood of Eurozone meetings are set to go ahead in Athens, Brussels, Paris and Frankfurt, with Greek exit contingency plans also being discussed in the UK. The European Central Bank (ECB) is scheduled to meet today to decide whether to extend its “emergency liquidity assistance” (ELA) to Greek banks. So far, it has pledged €89bn and the ECB last week decided not to offer more which led to capital controls being put in place. 

For British businesses what is happening in Greece is of importance due to its impact on financial markets and trade. Although British exports to the country are small, at just over £900m per year, the British Chambers of Commerce (BCC) International Trade Survey in 2015 showed 23% of Chamber member businesses are currently exporting to Greece. 

The wider impact of a Grexit on businesses would be felt in the UK’s trading relationship with the rest of the EU. Europe accounts for about half of British exports and the weakness of the euro has already made it harder for UK businesses to compete, as the stronger pound has made the value of our goods and services expensive. 

It also looks ever more likely that the Greek referendum vote – will spark fundamental changes in the Eurozone — and the European Union as a whole. The BCC is urging UK ministers to focus on minimising the immediate fallout for UK businesses and markets. Businesses also want to see wide-ranging action to stabilise the Eurozone. 

The Prime Minister may get an early, and important, opportunity to put the case forward for fundamental reform of the UK’s relationship with the EU. Businesses will want him to seize this opening, especially as many of the UK’s desired reforms would support the competitiveness of the EU as a whole. 

While Greece’s future in the Eurozone continues to be decided, the BCC will continue to work with the UK government to monitor the impacts of the Greek crisis on British businesses, and ensure businesses trading with Greece understand the specific support available to them.