Putting a price on the eurozone crisis

Estimating the business cost

Monday night’s news that international lenders had reached an agreement on how to remedy Greece’s bailout programme, thereby releasing a delayed €34.4bn aid payment, was an important step for the future of the eurozone. But as the crisis drags on and growth rates continue to disappoint, the cost to businesses keeps on rising. 

Last week we released estimates of the impact of the eurozone crisis, which indicated that it had wiped over US$2.2trillion off revenues globally.[1]

This is a staggering number. But it does not stop there.

Business revenues in the eurozone are estimated to have dropped by around US$636bn (or 2.6% of total revenues) as a result of the crisis. Businesses in Spain have been hit even more severely: the estimated US$148bn loss is equivalent to 5.5% of total corporate revenues.

And in an ever more globalised world, businesses outside the eurozone are counting the cost. Businesses in the UK are estimated to have lost US$69bn (1.4% of total revenues) whilst across the Atlantic, business revenues in the US are estimated to have dropped by US$307bn (1.0% of total revenues).

Lower revenues squeeze profit margins meaning businesses have less flexibility to invest in their workers, their buildings, R&D, new plants or machinery. In other words, the long-term growth prospects of both their operations and their economy suffer.

Just as pertinently, 17% of businesses globally – rising to 25% in China – now say they are less likely to do business in Europe as a result of the crisis. This compares with just 10% when businesses were asked the same question about the Middle East & North Africa in 2011 following the Arab Spring.

Overhauling Greece’s bailout programme is welcome news, but eurozone leaders should be wary of the short and long-term damage the crisis is doing to regional business growth prospects. A resolution is needed. Fast.

[1] Businesses negatively affected by the eurozone crisis were asked: “By how much has your revenue fallen as a result of the eurozone financial crisis?” Total impact was then calculated at the global level using the ratio of US and UK corporate revenues to GDP of approximately 2:1.