What they say

Stephen Archer is a speaker with great charisma. By using illustrations and personal experiences and not being afraid to share his own point of view of the current situation and who is to blame for it, he engages the whole audience, at the same time helping us all to understand the credit crunch a little better.

— Warwick Business School


The Eurozone Crisis and lessons in Leadership

The most extraordinary thing about the Eurozone crisis today is not the scale of the problem but the apparent impotence of EU political and financial leaders to do enough about it.

How can this be, is it that hard? The reality is that we have something of a ‘perfect storm’. The sovereign debt situation has been made into a crisis by market fears. In the case of Portugal, Ireland and most notably Greece, there has been an inability on the part of these Eurozone nations to survive without significant outside financial help. In the case of Greece it seems clear now that it will be unable to meet its debt obligations even with the help it has had. The fear of contagion has materialised as the price of Spanish and Italian debt has been running at record high levels. Rating agencies are fuelling the fire and the situation is compounded by a weak US economy and an even weaker recovery policy outlook for the US.

So what is the problem with the Eurozone? It cannot reach agreement on what to do about Greece. Whatever decision is made is either a rock or a hard place. The only prize that really matters is to re-build some confidence in the Euro. Luckily, at the moment, the weakness of the US economy is helping to prevent the Euro crumbling in value. But it is on a knife edge.

The nub of the problem is that the politicians are driven by self interest or EU ideology or both and the finance ministers are paralyzed by indecision – helped on by the uncertain behaviour of politicians. The financial options are all painful and massive in scale. This is a new EU crisis the likes of which have not been seen since 1945; no one has been here before so experience cannot bolster decision making. The problem is further compounded by the fact that Germany’s chancellor Merkel is up for re-election next year as is Nicolas Sarkozy. Meanwhile Italy with a debt of 119% of GDP is run by a libidinous megalomaniac straight out of central casting. All EU member states need to ratify the next Greek rescue package but this is threatened by the German electorate, the Finns and the Slovakians. If the next Greek rescue fund is not sanctioned (even though this one at 8 billion EU’s is only a patch job) then Greece will default and all bets are off as to what happens next. See my previous blogs for views on how this could have been prevented this year.

So at a time when the EU most needs clear thinking and bold leadership we actually have myriad committees and deferments of decisions. This is no way to run a region, country, market and of course the same would apply to a company.

But bold decision making is not encouraged in politics or, perversely in business so it requires someone very very brave or foolhardy to make it in this situation.

The lessons for business are as follows.

Don’t start anything without knowing the potential outcomes and exit plans (the EU has no exit mechanism for Eurozone members).

Keep things to manageable size.

Many businesses are effectively unmanageable and get by with luck, fortitude and forbearance.

Keep units to a mananagebale size and do not allow a business to breed contagion of one bad decision to another division.

Keep process simple and decision making even simpler.

Finally, give leaders the full remit to lead. Conditional leadership requirements lead to conditional success or complete failure

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