With the euro looking shaky, it’s time to assess your practice’s exposure to the currency
As I said in this column last week, architects have been remarkably resilient in the face of recession, diversifying and seeking work abroad to make up for the lack of work at home
This includes picking up a significant number of projects in the European Union. In the AJ100, 71 per cent of practices expect to work in the EU this year, up three per cent from last year.
But with the eurozone and its currency looking shaky, with politicians thus far having failed to secure a solution for Greece, now is an important time to assess your practice’s exposure to the euro.
There may be steps your practice could take now to mitigate any fallout from the devaluing of the euro or a Greek exit
Should Greece exit the currency, the value of the euro is likely to wobble. An analysis piece by Martin Wolf in the Financial Times predicts Greece’s departure would lead to the currency’s collapse, provoked by a run on the banks in Portugal, Ireland, Italy and Spain, in addition to social unrest.
Architects owed fees in euros could find their income eroded should the currency devalue rapidly, unless sterling was to fall at the same rate.
There may be steps your practice could take now to mitigate any fallout, which is why it’s crucial for practices to examine what fee income, if any, would be threatened by the devaluing of the euro or Greece’s return to the drachma, before it has happened.
A few questions to ask around the boardroom table: How many projects are currently on the books in Europe, and in which countries? Is the invoicing up to date? What percentage of the fee is outstanding? In what currency was the fee arranged? If the contract was signed in pounds or American dollars, you may be on safer ground than if your fee was negotiated in euros.
You might also discuss whether your practice currently holds any business accounts in euros, and whether these should be transferred and/or converted into pounds. Likewise, if you are negotiating a fee on a new job, consider whether you might quote your fee in American dollars or pounds sterling. If the currency is severely devalued, at least with a contract in sterling the value of your fee to the UK office will be preserved. Finally, once you’ve assessed your practice’s current level of risk, if deemed significant, you should urgently take financial advice on how best to protect your practice.
No one knows for certain what the effect of a Greek exit would be on the euro or the economic union, and whether its exodus would be followed by the departure of other debt-laden countries, such as Spain or Italy.
It’s time to count just how many eggs you’ve got in that basket. Should the euro begin to crash, it will be too late. Practices must act now, preemptively, while measures can still be taken.