5 lessons from the Greek Corralito

Sometimes the unexpected happens. The world woke up on Sunday morning to see people queuing atATMs in Greece, with capital controls in place, reminiscent of what we saw in Argentina in 2001. Just one week ago, this was an unthinkable scenario, though when we look back on this day in future, we may come to see how probable it was that this situation would unfold. Take a look at our blog from four months ago: The euro and the perpetual Greek crisis.

Now that we are faced with this situation, what can we learn from it? And what we should do?

1. The unexpected happens. Despite all that the headlines we have seen about Greece-EU relations, the introduction of capital controls and the decision to call for referendum came as a shock to most observers. So, if you think it can’t get worse, think again. We have reached a point where literally everything is possible – full scale or limited default, last-minute agreement, Drachma and more.
2. Greece is closer than it might seem. Greece might not be the only troubled EU member in the near future. As we saw in the first chapter of the debt crisis back in 2011, Greece is not that far from other western Eurozone countries like Spain or Italy. If you do not have savings or assets in Greece, the Grexit issue might not affect you directly, but business managers and CFOs should be on high alert. An indirect effect of the Greek crisis will be the general increase of uncertainty regarding financial markets, be it EURUSD or EURGBP, as well as in the stock and bond markets.
3. Analyst opinions should be noted with caution. Let’s face it, they might have the generic knowledge but they may be missing the right insider information to reach to an accurate conclusion. They are extremely knowledgeable, but remember that they have access to the same CNN, CNBC or Reuters feed as you do, and therefore, they can be wrong, and you can be the one to suffer the consequences.
4. Politicians can not be trusted either, although for completely different reasons. Unlike the analysts, politicians do have the insider info, although their interests and agendas very often clash with the general interest at moments like this. Their delicate balance between their party lines, their personal political career and the responsibility towards their voters can be an obstacle to take the necessary decisions to reach an agreement and resolve a complicated problem. All the unsuccessful meetings and summits held over the last months to resolve the Greek crisis bear witness to this. 
5. It is never too late to act. Thousands of Greeks moved their assets out of Greece many months before the bank closure and “corralito”. Even those Greek citizens who queued in front of the ATMs last night were wiser than those that sat back and watched, doing nothing. This shows that it is never too late to take preventive measures. In that sense, it would be smart to remain alert and monitor current events closely to understand what impact this could have on the currencies you use. But monitoring is not enough. Make sure you understand the risks, the instruments you use and have a sound strategy to mitigate the risks of the Greek fallout that might affect your business.

If you are a financial manager you should expect a serious depreciation of the Euro in the short run if Greece exits the Euro Area. Companies in the Euro Area, and also in the UK, are likely to be affected by their exposure to the Euro. Those who buy commodities or products in Euros would be receiving better prices. The revenue of foreign companies that sell their products in the Euro Zone countries will be seriously damaged if the Euro depreciates against their local currencies. On the positive side, though, things might look a bit brighter for you next year, as Greece will be definitely a cheaper summer destination.