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How Will Tech Fare in the European Crisis?

Late last week, European Union heads of state gathered to hash out regulatory details for greater financial unity, find ways to bolster resources, and, once again, try to get more control over the unwieldy debt crisis. This week, the Web is awash in headlines about the agreement's fallout, stock market jitters, and, as always, political finger-pointing about who's doing what right or wrong.

Most financial, economic, and political savants are still passionately discussing the pros and cons of the EU mind meld led by German Chancellor Angela Merkel and French President Nicolas Sarkozy. I'm in no better position to predict how this will all play out in the coming quarters, nor what it means to the EU’s fundamental strategy of continental togetherness based on a common currency and open trade borders.

I have the same questions posed in this Financial Times story: Where is the fiscal union? Is there enough intergovernmental political will to implement terms of the proposed treaty changes?

As background, EU leaders pulled up chairs last week and over two days debated ways of imposing more central control over national budgets, evaluated penalties when deficits violated EU standards, sought to establish a permanent euro rescue fund, and explored other fiscal safeguards aimed at saving the euro.

UK Prime Minister David Cameron cast the sole veto, a decision that has all of Europe and the world wondering what’s next. Sweden, the Czech Republic, and Hungary at the time said they wanted their parliaments and political honchos to weigh in before deciding. And credit downgrades for core EU countries are likely, and the ease and legality around implementing the accord are raising eyebrows as well.

The short answers to the lingering questions of “Will this work?” and “What now?” are probably as simple as “Who knows?” or “Time will tell.”

What does all this mean for tech companies doing business both in Europe and abroad? What should they be considering between now and some point in the future when the impact becomes clearer?

Obviously, the region's demand picture will remain murky. Government, corporate, and consumer spending will largely depend on perceived long-term economic optimism, but more likely, as many tech companies cited during recent earnings calls, the coming quarters probably will remain soft, and many are monitoring their supply chains and product lifecycles closely.

The currency fluctuations could also affect balance sheets at tech equipment makers. On Monday, the euro slid to its lowest level in two weeks, and the dollar gained ground against other major global currencies.

However, for some sectors or companies in emerging markets with an eye on expansion, there could be good news on the horizon. The EU crisis could present opportunities for companies in places like China and India that want to break into or strengthen their regional presence; the crisis may tip European companies in favor of these kinds of partnerships. India-based IT provider HCL Technologies, for instance, expects the European debt crisis to help it buy and partner with local firms, a sentiment shared by some other organizations.

For sure, whichever way it goes, it will be a while before things will look “normal” again. After all this, will we even know what “normal” is?

18 comments on “How Will Tech Fare in the European Crisis?

  1. Barbara Jorgensen
    December 14, 2011

    It would seem this is a good time to make acquisitions in Europe with the euro being so low. But you can never really count on currencies remaining stable, which is why companies account for currency fluctuations in the first place. In general, high-tech seems to fare better than other industries during a downturn. Maybe this situation is unique to Europe this time around.

  2. Jennifer Baljko
    December 14, 2011

    Barbara – euro is low, but I think still will drop some more in the coming months. Depends on how this starts shaking out.

  3. Houngbo_Hospice
    December 14, 2011

    Should we expect Euro to worsen to reach near dollar parity? If this does happen who will profit the best? I have heard many times people complain that Euro was too strong and after all the current weakness of the European currency might be what many have hoped for.

  4. stochastic excursion
    December 15, 2011

    At this point I think the most important goal is to avoid total abandonment of the Euro.  This would severely impact lending institutions and existing financial agreements internationally.

  5. jbond
    December 15, 2011

    I think the big issue behind some of the disagreements are like any other conglomerates, the countries in the better financial situation are upset at the countries that are hurting the EU. Total dissolution of the Euro is always a possibility, but would do much more harm than good right now.

  6. Jennifer Baljko
    December 15, 2011

    Hospice – I don't know how far the euro will slide, but I don't suspect it will fall to a one euro-one dolar ratio. Look at this chart/story, and the cycle becomes pretty clear: http://blogs.reuters.com/felix-salmon/2011/12/14/should-we-care-about-eurodollar/

  7. Jennifer Baljko
    December 15, 2011

    Stochastic – I think you're right about what will happen if the euro tanks altogether. Doubt that will happen. There appears to be a concerted effort to save it.

  8. Houngbo_Hospice
    December 15, 2011

    @Jennifer:

    Thank you for the link. It does seem that analysts have been predicting that for months now. In a 2010 article, it was predicted more rough road ahead for Euro. I guess european leaders have done whatever they could to prevent this from happening. But the main question is how long the Eurozone will still stand.

  9. Himanshugupta
    December 18, 2011

    The problem with the European financial crisis is similar to the problems of joint family where all independent adults live together and try to run the family according to their wish. The only solution seems like either everyone go their separate way or an adult take control of the situation and take some tough action to put the house in order. Both ways seems like offering a long term solution only and no immediate relief to the market.

  10. Ashu001
    December 18, 2011

    Himanshu,

    Nice analogy. Thing is most of the working adults in this house called Europe are tired of living under threats and leadership of the Joint Superpowers of the Eurozone(Germany and France).

    So expect them all to go their seperate ways very,very shortly.Which will actually end up boosting growth very sharply(after the initial Devaluations).

    Regards

    Ashish.

  11. Himanshugupta
    December 19, 2011

    @tech4poeple, your predicton may be true but i think that it will be very unfortunate for the EU zone. The main vision of creating the EU zone was to unite Europe so that it could bipolarize the unipolar world after the fall of Soviet Union. Alas, the cultural and political differences are too much.

  12. Jennifer Baljko
    December 19, 2011

    Himanshugupta & tech4people – Agree, an interesting analogy – a family of adults living together. Not convinced, though, the EU zone will completely crumble. While there is grumbling that German and France are calling the shots, it sounds like there is recognition that they are stronger together than separate. Another phrase, borrowed from U2 comes to mind  – “can't live with or without” each other.

  13. Mr. Roques
    December 19, 2011

    I think the EU was a good idea, but like Private Clubs, you only want to be part of it if you don't really belong in it. 

    Germany et al are carrying all the weight while Italy, Greece, Spain and others are bringing the EU down.

    I think what it does is let people know that the Yen and the Dollar are still the “World Currencies”.

  14. Anand
    December 25, 2011

    Not convinced, though, the EU zone will completely crumble.

    @Jenniferm, What the EU does next year to resolve the eurozone crisis will be of global significance. The individual measures needed to resolve the crisis have been widely discussed and are well known. But unless EU leaders completely change course and overcome political and legal obstacles there is little hope the current malaise can be overcome.

  15. Anand
    December 25, 2011

    I think what it does is let people know that the Yen and the Dollar are still the “World Currencies”.

    @Mr.Roques, I agree with you. Dollor and Yen will rule the world. Just couple of years back people were discussing about replacing dollor with euro as the global currency. Its shocking how things have changed in just couple of years.

  16. mario8a
    December 31, 2011

    Hi Jennifer While the dollar and the Euro are strugling to be estable, who will take better advantage the chinesse RMB dollar or japanese yen?

  17. Kunmi
    December 31, 2011

    It looks like a fantasy to speculate which currency is capable of ruling the world. Everything we are seeing today are just the cycle of time.

  18. Mr. Roques
    January 19, 2012

    I think people stop trusting the Euro after all that has happened lately! too many variables.

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