Recent developments in Greece and their impact on employment
The Greek Government’s surprise call last week for a referendum on the recent austerity proposals by its international creditors, followed by the introduction of capital controls and the shuttering of Greece’s banks and stock exchange, has opened a new chapter in the European debt crisis.
But where do we stand now? To prevent capital flights and collapse of Greek banks, the Greek government instituted a short term bank holiday along with capital controls which limit daily cash withdrawals to an amount of 60,00 € and prohibit transactions outside Greece with very few exceptions.
Given that the Greek government’s plea for an extension of the emergency loan program has been rejected and Greece has failed to make the 1.6 million Euro payment to the IMF οn June 30th, the reaching of an agreement between Greece and its creditors is of high urgency, to retain access to EU subsidies and disbursements and return to normal business.
Meanwhile, the impact of the above developments on employment are significant:
Dysfunctionalities in transactions affect payroll payments while the increasing lack of sufficient liquidity impairs everyday business operations. Employers have to consider alternative ways to minimize operational costs, i.e. agreeing with employees to take their annual leave or even unpaid leave, not renewing fixed-term contracts, renegotiating employment agreement terms, even temporary suspending part of their local operations. Meanwhile, with the situation remaining fluid and the outcome of an affirmative or negative result in the referendum of Sunday July 5th being uncertain for the country and its economy, companies will have to increase their flexibility of actions to ensure business sustainability. To this extent it is suggested to implement internal audits to evaluate the possibility of remodeling employment relations and restructurings, as well as financial plans to mitigate the impact of capital controls, i.e. opening and operating foreign bank account(s) would help cash-flow and intercompany money transfers, as local money withdrawal and transfer restrictions wouldn’t apply.
In the unfortunate event of a Grexit, more radical measures should be taken into consideration, as the re-denomination of contracts and the consequent devaluation of the new Greek currency would unavoidably lead employers to rethink their approach to the cost and effectiveness of their businesses in total. Besides mitigating the currency risk (i.e. including relevant clauses in employment agreements, employing local workers vs. expats etc) companies should also evaluate the tax and pensions implications i.e. as regards to the treatment of voluntary/salarial benefits and benefits in kind, modification of insurance schemes etc.
With the private sector suffering an increasing fiscal stress, failing to plan is planning to fail. We at Kremalis share your concerns and stay at your disposal to suggest the appropriate strategy and maneuver you away of pitfalls.