E-Day for Greece: What will Euro-exit mean for IT?

Greek referendum vote raises the risk of the country leaving the Euro - possibly within days. What will that mean for IT?

One Friday, maybe even this week or next, the Greek prime minister will re-convene Parliament to make an important announcement: as of the following Monday, he will say, the euro will no longer be legal tender in Greece.

Instead, the country will re-adopt the drachma and all deposits in Greek banks will be converted back to the old currency at an arbitrary rate.

Accounts will be frozen and the people of Greece will be invited to spend the weekend queuing at their bank to convert a limited amount of euros to drachma if they wish to be able to buy essentials.

Over the course of that weekend, much ink will be spilt in the press reporting on the event from almost every angle.

But one consequence that is likely to be overlooked is the impact on IT professionals across the world, who will be called in to work around the clock to patch financial and other critical business systems. Until they can be sure that their organisations' IT infrastructure will not miss a single euro-cent on Monday morning, it is unlikely they will be getting much sleep, let alone going home.

And after "Grexit", who knows where it might end?

Greek lightning

For most companies headquartered in the UK, if the crisis were to be restricted just to Greece, the disruption ought to be minimal and manageable.

"Greece is not really a well-established market for us," says Ian Metcalfe, director of management information systems at printer maker Brother International Europe. "Typically, we would set up an independent sales organisation in European countries to handle distribution. But in Greece, we have an authorised reseller, so we sell in Greece through them."

As a company, the board of Brother Europe has not discussed the issue in-depth from an IT perspective, he adds, although sales have been affected by the crisis.

"We are seeing some struggles in those southern European areas affected [by the eurozone crisis], but across Europe as a whole, probably 60 per cent of our business is in the UK, Germany and France, so our exposure is not huge," he adds.

Even in Italy, which could be one of the countries affected if the chaos wrought by Grexit spreads west, there is little sense of imminent crisis, or that a Greek exit from the euro would be particularly serious from a corporate perspective.

Florence-based KME is the world's largest manufacturer of semi-finished copper and copper alloy products. It runs SAP for financials and a specialist legacy system for metals management.

"The volume of billing for the business that we do in Greece is not so high that it would dramatically change our day-to-day business," says KME CIO Giuseppe Micalizzi. "At the same time, we also have recent experience of moving from one currency to another."

Currency handling in the company's enterprise resource planning (ERP) systems is "quite flexible", says Micalizzi. "And our IT team is very strong and experienced in terms of their business know-how, and is capable of customising the system."

Be prepared

Gartner is one of the few analyst groups to have examined the issue in-depth. In a series of reports, it has sketched out how it might affect various aspects of corporate IT and a roadmap for organisations to prepare themselves.

It takes a more sanguine view of the speed with which a country might revert from the euro back to its old currency - suggesting that it will take weeks or even months. "During that transition period, the new national currency will likely be ‘pegged' to the euro at a fixed rate," says Gartner analyst Nigel Rayner.

Not surprisingly, Gartner pinpointed organisations' enterprise resource planning (ERP) and financial systems as the key potential "pain points" for IT:

• A country exiting the euro will impose additional currency accounting requirements on ERP systems;

• Application managers should anticipate general ledger configuration changes for legal entities affected by any country's exit from the euro;

• Finance users may need to generate comparative national currency historic data for legal entities affected by any country's exit from the euro.

"CIOs should work with their CFOs, application managers and finance team to identify whether their finance systems can handle the likely impacts," says Rayner.

E-Day for Greece: What will Euro-exit mean for IT?

Greek referendum vote raises the risk of the country leaving the Euro - possibly within days. What will that mean for IT?

It is also imperative to consult with software vendors as soon as possible to find out how they will deal with the issue, he adds. Not just what have they identified that might require patching in their own systems, and how soon they might be able to provide that patch in the event of Grexit or worse, but also their roadmap for dealing with issues that may arise and whether that forms part of regular maintenance and support - or whether they plan to charge extra.

"Ensure that you have time to undertake the appropriate remedial actions if it seems likely that the country will exit the euro. Only consider a replacement strategy if a vendor shows no intention of introducing required functionality to support the eventuality of a country exiting the euro," advises Rayner.

One of the Gartner reports stresses: "It is important to keep IT strategies (what to do) and IT plans (how to do it) separate, as the latter are likely to be changed much more frequently in this especially volatile environment."

Even outsourcing arrangements need to be checked carefully, it adds, which will mean building a new inventory of applications, processes and systems, bearing in mind that in the worst-case scenario, new regulations and tax rules might be suddenly applied, depending on geography.

Scenario planning

US-based Juniper Networks' chief financial officer Robyn Denholm instigated in-depth scenario planning early on and has already taken some steps - mostly financial - to limit the company's potential exposure in Europe, where it generates 30 per cent of revenues.

For example, along with many other companies today, it regularly sweeps its bank accounts in geographies across Europe to ensure that in certain countries it keeps no more than is required for day-to-day operational purposes.

It has also conducted a scenario planning exercise as part of its risk management and compliance activities, says Denholm.

"Obviously, there's been a lot of focus on that from a regulatory perspective, particularly in the US. As part of that process, we select different ‘risk types' to review in more detail in an executive committee. We don't just do it from a compliance and financial perspective, but also from the strategic and business operations perspective," she says.

She adds: "The risk management team and the treasury team went through that process and walked through all the potential customer impacts, employee impacts, supplier, and treasury and financial impacts."

Juniper Networks also looked at how other companies were examining the issue to make sure that it did not miss anything in its planning.

Should anything happen - whether it is an almost-expected Greek withdrawal from the euro or something more widespread - both Juniper and KME expect a quick reaction from their respective financial software vendors.

E-Day for Greece: What will Euro-exit mean for IT?

Greek referendum vote raises the risk of the country leaving the Euro - possibly within days. What will that mean for IT?

Interestingly, perhaps, neither SAP nor Oracle were able to provide a meaningful response to a simple question Computing put to them: “What will you be doing for your customers in the event of a break-up of the eurozone?”

Other vendors, though, were more forthcoming.

QAD chief marketing officer Gordon Fleming, for example, said that it had been monitoring the situation in Europe and already had been working with its customers in manufacturing industry to ensure that it is prepared should one or more countries exit the euro.

“Customers ask us, what would happen hypothetically if this occurred? They would have different regulators with which to file accounts. They would still, one assumes, have many trading operations with companies inside the EU, and still have residual activities coming through the EU,” said Fleming.

IFS, meanwhile, believes that an unwinding of the euro would be a similar process to the one that put it together 12 years ago, while financial software conglomerate Unit 4, which acquired the widely used Agresso and Coda financial software packages, says that it will be ready to roll the moment anything happens.

Fear and greed

In the financial services industry, according to a banking insider – who wished to remain anonymous – the issues are potentially even more complicated.

“The IT departments of banks in any country leaving the eurozone will have to do a considerable amount of work, possibly even more than the euro conversion required, because there may be an element of running accounts in a parallel between the euro and the new currency for a period,” he says.

He adds: “For banks outside the eurozone the IT implications are more around static data changes than actual technology changes. Setting up a new currency in a bank’s foreign exchange infrastructure is a fairly routine activity.

“To process a new currency you need to set up the new code and related ‘static’ in the front-office systems (curves and so on, for viewing risk and profits), and standard settlement instructions (SSIs) in the bank office systems for determining where cash in the new currency should go. Every decent size bank will have a detailed migration plan to setting up this new static.”

What will cause a major headache for many banks will be the turmoil as trading volumes spike on the following Monday morning, he says. Another headache will come from trying to identify which securities should be re-denominated in the new currency, which will not always be clear cut. The ensuing legal disputes could last years.

“Sloppy programming in many banks could cause varying degrees of pain for them,” the banking insider says. “Hard though it is to believe, there are bound to be hard-coded lists of euro countries in some programmes for reporting, reconciliations or, in the worst cases, risk and collateral management processes.”

But the biggest headache for IT departments, he concludes, could come from one of the intrinsic characteristics of investment banks and brokers: “They really are driven by fear and greed. Fear is sure to generate a lot of confusion and long hours for many people in IT.”

Should the worst come to the worst in the eurozone, it will not just be bankers and brokers who will be driven by fear and greed. Indeed, probably the biggest challenges and headaches will be reserved for IT staff in corporate Greece – especially in the banking sector.

This article was originally published in Computing in September 2012