If Greece is to keep the Euro a deal must be done, which satisfies the demands of Greece’s international creditors, creates a platform for structural reform of the Greek economy and creates growth opportunities for Greece and its citizens.
It is a difficult balance to strike. If, for example, the EU accedes to Greece’s demand for unconditional relief of up to 30% of its total debt, it could spark a massive debate on the willingness of other indebted EU countries (most notably, Spain, Portugal and Italy) to continue to pursue their plans for debt reduction and lead to unravelling of the European Union.
On the flip side, however, rigid austerity policies imposed onto Greece may end up bankrupting the economy, spelling disaster for Greece and its citizens.
Impact on food and drink
If Greece were to exit the Euro, how would that impact trade in food and drink trade between the UK and Greece?
Like the UK economy and UK banks, the scale of exposure of the UK food industry to the Greek economy is low. About 1% of the total value of UK food and drink exports, reaching £118M last year, are bound for Greece, half of which is accounted for by alcoholic spirits. Less than 1% of the total value of UK food imports are from Greece, totalling £236M in 2014, approximately a quarter of which consists of dairy products and around a half is fresh and processed fruit and vegetables .
The direct and immediate impact to UK food businesses, whatever scenario unfolds for Greece, is therefore unlikely to be significant to the UK food chain as a whole.
Of real concern to the UK is the impact the outcome for Greece will have on the rest of the Eurozone and, in particular, on the euro:sterling exchange rate. The contrasting performance of the UK economy, compared with the rest Europe, has seen the pound steadily gain ground against the euro, since the middle part of 2013.
Of real concern
Between January and June 2015, the pound has strengthened even further, increasing in value by 9.1% relative to the euro, bringing the exchange rate more or less back into line with pre-financial crisis levels.
Europe is, by far, the biggest trading partner for the UK. Last year, the UK exported £19bn worth of agricultural, food and drink products to Europe. This is equivalent to 61% of total UK food and drink exports. We imported £39bn worth of agricultural, food and drink products from Europe. This is equivalent to 72% of total UK food and drink imports. A strong and resilient Europe is good for the UK too.
Swings in favour of Europe.
But the change in the sterling:euro exchange rate swings in favour of Europe. A weaker euro means that European goods and services will be more competitive and this should help to boost exports to countries like the UK. This will benefit UK buyers and, if the lower costs are passed down the chain, consumers too.
However, it may also bring retailer 100% British sourcing policies – especially for meat products – and the commercial necessity to keep retail prices low into direct conflict. UK suppliers may lose out, or face the reality of re-aligning their costs to remain competitive.
A strong pound will make it even more challenging for UK exporters to be competitive within Europe. In this and in the previous parliament, there has been much talk of rebalancing the economy in favour of manufacturing industries – of which food and drink is the largest – and of an ‘export-led recovery’ but little direct support has been provided.
It seems the task of boosting UK food exports is made even more difficult with the UK’s most significant customer struggling to stay together and with the exchange rate working against UK exporters.
Whatever the outcome for Greece, the UK food industry should prepare to defend against and react to the wider impact it will have on Europe and the euro.
- Matt Incles is a senior consultant at Promar International.