Give Greece a chance



Last week I was in Athens on the day after the second general election to take place there since the beginning of May. The three political parties prepared to implement an EU, IMF and ECB-backed bailout programme formed a coalition government and the financial markets appeared to turn their attention towards Spain again, and even Italy, for a few days.

The truth of the matter, however, is that agreements affecting Greece will need to be renegotiated. There is a growing consensus that the present terms cannot work. At the same time there is political pressure from creditor states; those in power are concerned about their relationship with their own electorates.

However the political issues evolve, ensuring commercial and legal interests are safeguarded is not without difficulty. There are risks relating to unilateral withdrawals from the Economic and Monetary Union (EMU) and the redenominations that may follow.

The area is particularly complex; there is no law concerning state insolvency and the relevant treaties do not provide for unilateral withdrawal from EMU or the EU. It is not even clear whether withdrawal from EMU would require withdrawal from the EU. Despite the difficulties or uncertainties, it is important for all businesses with a presence in Greece, in other EU member states considered at risk, or that have assets or other investments there, to review their arrangements and contracts. It may be that certain contracts will become frustrated or performance would be impossible. Depending on how the exiting state handles redenomination it is likely that it will consider any attempt to make payments not in the new currency illegal. If the relevant issue was to come before the courts of the exiting state the outcome would be pretty predictable.

It is therefore important to review contracts, consider applicable law and jurisdiction and ensure that place of payment and definition of the currency is favourable to you. Even then, sovereign immunity issues and the possibility of retaliation by the exiting state must be taken into account.

Now might also be the time to dust down longstanding bilateral investment treaties and consider whether they would offer protection and compensation if any consequences of redenomination can be brought within their ambit.

Above all, I hope the difficult situation in Greece will lead to a workable programme to create productive businesses, boost investment and build a modern state with reformed legal, judicial and fiscal systems. The new government and the people together will also have to deal with corruption, which must be eradicated if the country is to progress.

The metamorphosis that is required of law, the judiciary, politics and the fiscal system will ultimately require education and changes in society. It will take one to two generations and Greece will therefore need to be given breathing space by its creditors and the markets. Speculators must be kept at bay. In parallel, some developments will lead to change in Brussels.

Whether there will be political and fiscal union, single banking supervision and European bonds, or whether new treaties will be required, change is needed if monetary union is to succeed.