How the Greek Crisis Affects Your Business in Two Very Significant Ways

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(This post originally appeared on Inc.)

You own a gas station in Baltimore. Or a tire distributorship in Savannah. Or a pizza shop in Chicago. You sell insurance. You are a financial analyst for an oil and gas company in Louisiana. You’re a taxi driver in Miami. In other words you’re in business. And you hear about the current crisis in Greece. Greece cannot pay its debts. Its people want to drop out of the Euro currency. The banks are closed. There’s a lack of cash. Food and medical supplies may be unavailable. You think to yourself: that’s terrible. For them. But it doesn’t affect me. It doesn’t affect my business.

And in some ways you’re right.

Half of the states in the U.S. have a higher GDP than the entire country of Greece. In fact, Greece only represents a little over 1% of the GDP in all of Europe. The lion’s share of the company’s debt is owed to Germany and France who, although exposed, have taken precautions over the past few years through diversification to protect themselves. A default by Greece would hurt those countries, but it’s unlikely to significantly reverberate around the world. Yes, there could be some volatility in our own markets as a result of the Greek crisis. Yes, those companies that do business with Greek companies are going to find things very challenging (and potentially very profitable if the dollar gains more strength) over the next few years. Yes, travelling to Greece will be dirt cheap as long as you bring a lot of cash. So yes, the Greek crisis will have some impact on you and your businesses. However, the effects from these events will likely be minimal.

But will they? Don’t be so sure. There’s something else going on here. Something much more ominous for you, the American business owner and manager. If you’re running a pizza shop in Chicago the Greek crisis impacts you in a much, much more powerful way. Two ways, in fact.

The first is about contracts. When it adopted the Euro in 2001 the Greek government entered into a contract. It promised to abide by certain rules to maintain reserves and a stable budget. And the government broke those promises. Spending spilled over its maximum levels. And then the Greek government was bailed out by its European partners not once, but multiple times. Each time the government promised to adhere to austerity measures and each time it failed to do so. And so the government defaulted on its debt. It has thumbed its nose at the very partners who sought to help.

How does this affect your Chicago pizza shop? It reminds you that contracts are never guaranteed. Even contracts made with governments or between governments. And definitely not contracts made with your customers, suppliers or partners. Debts are never guaranteed either. For whatever the reason, people sometimes don’t pay their bills. Even governments don’t pay their bills. You can fight, protest, riot and even go to court. But that doesn’t mean you’ll get paid. In the end, whether you’re buying and selling to a person, a company or a government there will be an element of faith and another element of trust and you’ll need to make sure you’re protected in case either of those elements suddenly disappear.

The other reason your business is affected has to do with debt. Government debt. Although Greece’s economy is significantly smaller than that of the U.S. there are some things in common. The Greek government’s debt was over 150% of its GDP. It hit a wall. It is now unable to service that debt and still pay its bills. When people don’t get their paychecks they have no money to spend. And when there’s no money to spend, products and services aren’t purchased. Back home, our most recent GDP stands at about $17 trillion and our debt will be about $19 trillion in 2016. We continue to run annual deficits in the neighborhood of $500 billion a year. The Congressional Budget Office warns us of enormous unfunded retirement and health care obligations in the years to come and many economists are predicting that American debt will reach Greek levels in the next 20 years if things are left unchecked.

Currently we’re able to service this debt, mostly by issuing more debt. But what happens when our creditors hit their limit, like Greece’s creditors? What happens if and when interest rates rise and demand a larger share of our strained Federal budget? What happens if the same austerity measures are needed here like in Greece? And workers don’t get paid. And they don’t spend. How does that affect your business? In a big way. Demand for your products will dissipate. Your business could face much higher taxes. Or it could be faced with a loss of business as the government cuts back spending in your area or industry. What will you do then? Perhaps the same thing that your fellow business owners in Greece are doing. Panic and suffer financially. This could really happen.

Today, we sit and watch on the sidelines as the people and business community in Greece experience crisis, financial ruin, hardship. We’ve seen contracts broken, debt commitments tossed aside and the effects of government spending run amok. Yes, we’re sitting on the sidelines this time. But next time we may be players in that game.

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