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Minimizing the Impact of the Euro crisis

Minimizing the Impact of the Euro crisis

The European debt crisis, which has lasted for nearly three years, appears to be entering into a  new phase as election season begins to heat up in a number of critical nations, according to CNN Money.

With the euro zone economy moving further toward a recession, the debate between austerity measures and policies designed to boost growth is heating up once again, the news source said.

Ultimately, CNN reports this debate could be the deciding factor in elections in Greece, France and perhaps the Netherlands. Portugal, Spain and Italy are also central figures in the debate, as each of these nations are struggling to retain credibility.

Though the economic picture may be brightening in the U.S., this doesn't mean American companies are completely shielded by the issues in Europe, particularly those that have operations overseas.

In a recent CFO Magazine column, Jay Craig, the CFO of Troy, Michigan-based auto manufacturer Meritor, said that he and other executives at the company have not panicked over the euro crisis. Despite expectations that its European business will continue to slow down, Craig anticipates higher revenues and profits this year.

High expectations does not mean complacency, however, as Craig's company operates 36 manufacturing plants around the world and sells its products in more than 70 countries, according to the publication. As a result, executives have been working to determine how the corporation could be affected by the euro crisis, and what they can do to limit the damage.

One move has been for Meritor to reduce costs in its European operations, cutting down its hourly workforce and selling one of its manufacturing plants. Meritor has also reportedly looked into its foreign exchange risk management to determine whether or not it should change its hedging practices and if it should continue to use euros for deals outside of the euro zone, according to CFO.

Increased communication with clients has also been key, particularly when it comes to assessing demand, the finance chief says. Keeping close contact with suppliers and banks helps ensure the business continues to run smoothly.

Still, there are aspects that Craig admits are beyond his control, according to CFO.

"I don’t think we’re too concerned about the technical banking implications of the crisis," Craig explained. "We’re more concerned about when Europe’s consumers and businesses will be allowed to have confidence in their path going forward, so that underlying demand can be restored. That’s the most difficult issue for us to forecast."

Gerry Hansell, a senior partner with The Boston Consulting Group, told the publication that regardless of what happens in the euro zone - and there are a number of possible outcomes - companies should not simply sit back and brace for the worst.

"Some companies are very pessimistic and paranoid, while others are quite fatalistic and not that worried about it," Hansell explains. Danny Friedman, another senior partner with BCG, added that "we’ve been saying that companies should have a planning team looking at the extreme scenarios. I have clients that would view that as a pretty strange idea, and other clients that have already done it."

CFOs can play a significant role in their company's pre-emptive strategy to avoid being significantly impacted by the euro crisis as it continues to unfold. Ken Favaro, a senior partner with Booz & Co., told the magazine that CFOs need to determine which aspects of their company are most susceptible to the issues in Europe and act quickly to put proactive measures in place.