The Greek economic crisis of 2015 presents a number of challenges for British business. It has been well recorded that UK regulated banks have cut their exposure to Greece significantly to a level of risk that the Bank of England now believes to be negligible. Nonetheless, commercial relationships between some banks and their Greek clients continue to exist, whether through the provision of loans, derivatives contracts or other market instruments.

Together with investors in Greek bonds, British banks are facing a period of legal and commercial uncertainty. This has led them to assess the risks related to their direct exposures to Greek counterparties, and also the potentially broader impact of Greece ceasing to use the euro as its sole currency in a disorderly way on the Greek Central Bank, the Eurosystem (that is, the European Central Bank (ECB) and the national central banks of eurozone member states) and TARGET2 (that is, the centralised payment system for the settlement of euro transactions within the eurozone). The focus is on understanding any systemic implications. Likewise, corporates with business interests are also potentially affected by the evolving situation (see box "UK exposure").

A key challenge has arisen from the worsening liquidity position of Greek banks. This has yet again shown the negative feedback loop that can exist between a sovereign state and its banking system. This element was one of the main sources of contagion that affected the eurozone through the summer of 2011 and 2012, and was a primary driver behind the crisis response measures put in place by the eurozone thereafter. These measures included bank stress tests, the banking union measures, ECB non-standard monetary policy measures and the eurozone financial support stability mechanisms.

Greece has shown that, at a national level, the negative feedback loop is more difficult to address, leading to the focus on implementing the EU's Bank Recovery and Resolution Directive (2014/59/EU) locally, as part of the conditions to the new bail-out programme requested by Greece. The Greek bank liquidity crisis, exacerbated by consumer deposit withdrawals, has led to the ECB providing emergency liquidity assistance to Greek banks, but not in the amounts needed to meet the pressures from increased cash withdrawals by consumers.

Greece has therefore had to impose capital controls by way of deposit withdrawal restrictions and the introduction of a prolonged bank holiday to keep banks closed and limit the number of banking transactions to those that fall within certain exceptions or are approved by the banking transactions approval committee (the committee). These measures have been justified on the basis of the need to protect the Greek financial system and the Greek economy in general from liquidity shortages, and to regulate banking transactions throughout the extended bank holiday period.

The European Commission has confirmed that the measures taken by Greece are not in breach of the Treaty on the Functioning of the European Union as they appear necessary and proportionate, constituting a matter of overriding public interest and public policy. It remains to be seen if this continues to be the case and whether the International Monetary Fund (IMF) takes the view that these and any subsequent capital control measures are not in breach of the IMF Articles of Agreement. These issues could gain in significance from a legal perspective depending on any new turns the crisis may take.

As the crisis resolution talks continue and the various eurozone participants seek the necessary approvals to implement the tentative agreement in respect of a third Greek financial assistance programme, Greek banks remain closed. Each day that this continues, the negative economic impact increases. For the time being, transactions in financial instruments that would create short positions are prohibited. The Hellenic Capital Market Commission has closed both the regulated and the alternative market of the Athens Exchange and the electronic secondary market for bonds of the Bank of Greece. Redemption of mutual funds' units, the clearing services of ATHEXclear for all securities and derivative instruments traded on the Greek securities' and derivatives' markets and the cash settlement of transactions or securities traded on the Greek markets, effected by the Hellenic Central Securities Depository, have also been suspended.

For a British business with exposure to Greece, the implications of these measures will depend on the nature of the business interests that a company has in Greece and the extent of its reliance on banks affected by the capital controls. It is worth noting that the controls do not currently apply to branches or subsidiaries of Greek banks in the UK. As the crisis response measures take hold, the capital control measures are likely to change and legal uncertainty as to their scope should diminish. In the meantime, businesses should continue to monitor daily the legislative changes that might affect the length of imposition or scope of the controls, or both, and any of the daily derogations granted by the committee. In addition, affected parties may request the committee to pre-approve particular transactions.

Day to day, the imposition of capital controls is likely to affect the ability of Greek businesses to make timely repayments and meet funding obligations, which could have an impact at a number of different levels in relevant supply chains, with Greek businesses potentially finding it more difficult to supply goods and services. Consumer demand is also likely to be severely dampened in Greece as consumers are constrained from accessing funding. Companies should assess these risks and put in place any appropriate contingency plans. One area that businesses should be cautious about is reaching any agreement with Greek counterparties that could be characterised as a variation or a waiver of a contractual arrangement if a variation or waiver is not intended. In some cases, it may be necessary to reserve legal rights.

To the extent that UK companies have transacted with Greek counterparties on the basis of English or other foreign law-governed contracts, they should be better protected in circumstances where they need to pursue any claims through the courts. Enforcement, however, will remain challenging, especially if the crisis escalates further, unless there are assets or collateral outside Greece in respect of which a claimant can obtain a right of attachment or other enforcement remedy. To the extent that parties can source payments outside Greece, this would be a sensible route to pursue, not least because the challenges faced by Greek banks will persist for a time. Greek banks will need to emerge from this crisis with stronger balance sheets, whether by way of recapitalisation or banking bail-in measures, or both.

More broadly, how this round of the Greek crisis finally plays out will undoubtedly frame any further policy response measures that eurozone member states will wish to consider. While the measures introduced after the 2011-2012 crisis have not been deemed unfit for purpose, it has become clear once again that it is not possible to separate the politics from the decision-making processes required to activate some of the tools available to the eurozone, and that the questions around the need to further underpin the euro will not yet go away. In light of Britain's proposed EU referendum, the Greek crisis raises some significant broader questions as to the European single market, including the extent of the commitment to the euro among participating member states and the amount of sovereignty that countries are comfortable with forsaking to be fully participating members of the EU (see News brief "The possible Brexit: an uncertain path").

It is these broader questions that will affect the environment in which corporates undertake business within the European single market in the medium term.

We can expect scrutiny of the role played by the different institutions in the unfolding Greek crisis to begin shortly and renewed calls for the establishment of a legal framework for an orderly exit from the eurozone by some member states. It remains to be seen whether the markets treat the Greek crisis as an anomaly or whether confidence in the euro is undermined. This alone could affect British business significantly, which has a considerable economic and financial exposure to the eurozone.