The Greek elections in June may have averted the most immediate challenge to the eurozone, but for treasurers of companies operating in Europe, the threat of a euro break-up remains all too real. A survey of UK CFOs published by Deloitte in July found 36% of respondents expect one or more countries to leave the euro by the end of 2012, while John Paulson, founder of hedge fund Paulson & Co., reportedly sees a 50% chance the euro will break up.
The continuing threat to the single currency—whether that means the exit of one or more countries or a complete disintegration—looms large for treasurers in Europe, particularly when it comes to choosing a safe haven for their deposits. Recent downgrades of a number of European banks and countries by Moody’s and S&P has added to their concerns.
Other treasurers argue that the risk measures put in place during the early stages of the financial crisis are sufficiently robust. “The eurozone crisis was not a big trigger to our counterparty risk management because we made some important adjustments early in 2007 when the first indications of the U.S. subprime crisis appeared,” says Steffen Diel, head of treasury finance at SAP. “At that point we reduced our counterparty limits and started to invest in some other investment categories. We also began distributing our cash in a very broad manner among our core banks. The eurozone crisis hasn’t required any additional actions in that respect.” The additional investment categories SAP is now using include German government paper (BuBills) and tri-party repos.
Nevertheless, the recent bank downgrades in Europe have had an impact on the amount that SAP will deposit with any one bank. “When downgrades happen and certain rating categories are reached, then the counterparty limit changes,” adds Diel, who's pictured at right.