Lloyd’s: Preparing for a Euro Collapse

The chief executive of Lloyd’s of London has begun preparations for a potential collapse of the Eurozone.  This corporation has admitted publicly that the Eurozone is headed for tough times. They have worked to reduce their exposure to the unstable currency. After continued debt crises in Greece, Spain Italy and Portugal, Lloyd’s has decided to turn away from the euro.

If the worst case scenario unfolds, Lloyd’s will have to take a write-down on more than £58.9 billion in its investment portfolio. With a potential exit by Greece looming, the company is prepared to switch to a multiple currency system if Greece chooses to leave the European Union. Currently accounts in Europe account for £23.5 billion of premiums. Most of this amount is invested in Germany, Italy, France and Spain with a few investments in Poland.

Just a short while ago, a major French and German provider of credit insurance announced that they were considering a reduction in trade with Greece. The potential that the country may leave the European Union is considered to be too much of a risk for investors.

On a local level, companies who go bankrupt are met with a withdrawal of credit insurance from any supplier in the area who wants to trade with it. A country that defaults on its loans is met with much the same scenario. Credit insurance companies no longer want to provide their services because of the heightened risk that their investment will be lost.

Greece is currently facing a constant stream of battles within the European Union. The recent elections in June created a sense of uncertainty within the area. Investors have become increasingly nervous as a result of several Greek political parties advocating a default. After years of austerity measures, the political environment in the country is shaky at best. Citizens are upset over cuts to their government pensions, salaries and government provided services. As a result, some political parties and a portion of the citizenry are advocating for a default on their loans and an end to austerity measures. If Greece goes through with these measures, it will be forced to exit the European Union. Without the value of the euro to depend on, Greece will find it difficult and potentially impossible to make any debt payments.

With the increasing level of uncertainty within the European Union and Greece, Lloyd’s has decided to protect their investments from the vagaries of the European marketplace. Until today, the company had maintained a high level of cover. As situations have changed, Lloyd’s and other investment companies are being forced to switch their approach.  Lloyd’s has chosen to have a multiple currency approach with all of their investments divided between corporate bonds and government bonds around the world.