The good news was that the Eurozone leaders did realise, at the last moment, that Sunday was a “moment of truth” for the currency union and for Europe. They spent 17 hours negotiating through the night as a result. But reports suggest it wasn’t an easy time:
- The BBC carried live reports of arguments between key players and shouting matches
- At one point German Finance Minister , Wolfgang Schäuble apparently shouted “I’m not stupid” at the Governor of the European Central Bank, Mario Draghi
- One participant described the meeting as being like “a kindergarten – the emotions have completely taken over“
And since the meeting, a new IMF report has warned that “Greece will need debt relief far beyond what euro zone partners have been prepared to consider, due to the devastation of its economy and banks in the last two weeks:
“The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date – and what has been proposed by the ESM,” the IMF said, referring to the European Stability Mechanism bailout fund.
“European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a very dramatic maturity extension, or else make explicit annual fiscal transfers to the Greek budget or accept “deep upfront haircuts” on their loans to Athens, the report said, adding.
“Greece’s debt can now only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far.”
It thus looks as though this may well be another of those “one step forwards, two steps back moments“.
I fear we will see many more of these moments in the future, as our leaders are finally forced to confront the problems of the real world – and can no longer pretend everything has been solved by printing money. As we wrote in chapter 11 of Boom, Gloom and the New Normal:
“The transition to the New Normal is a sea-change for the global economy. Its full impact will take years, if not decades, to become clear. Meanwhile, the world will face much greater uncertainty, as conflicting views of the world play out on a day-to-day basis. Companies therefore need to plan for a VUCA environment: Volatility, Uncertainty, Complexity and Ambiguity will be the order of the day.”
The Greek crisis thus highlights the insight of Unilever CEO, Paul Polman:
“I use the term VUCA to describe the world – Volatile, Uncertain, Complex and ambiguous. It is very difficult for people to get a total picture.”
- Volatility. Nobody, including the key players, had forecast the twists and turns of the crisis over the past few months. Crisis Eurozone summits followed each other in quick succession, Greece held a referendum on a week’s notice. And we still don’t know if a final deal can be agreed.
- Uncertainty. The focus on the drama now shifts back to Athens. Will the Syriza government gain approval for the package? Will it survive as a government, or be replaced by different leaders? Will there be new elections in the autumn? We simply cannot know the answers to these critical questions
- Complexity. The Greek crisis was supposed to have been settled in 2010, and then in 2012. Each time the bailout figure was higher, and now a 3rd bailout of €86bn ($95bn) is discussed. But nobody really believes this will finally put Greece back on the road to economic sustainability
- Ambiguity. After all this time, there is no agreement within the Eurozone on objectives. Greece wants to “end austerity”, Germany wants Greece to cut spending and increase taxes, other countries (poorer than Greece) don’t understand why they should handover yet more cash to Greece
And Greece is only a very small economy, its GDP was just $238bn last year. What will happen when it becomes clear that one or more G20 countries cannot pay their bills? As I wrote in my 2014 – 2016 Budget Outlook:
“The key is for each company to develop its own VUCA for success:
- “Volatility. Developing a road-map requires Vision
- “Uncertainty. A strategic Understanding of the changes underway is essential
- “Complexity. The planning process requires Clarity over implementation
- “Ambiguity. Unforeseen events will place a premium on Agility
“Nobody said business was meant to be easy. But companies who take on the challenge of today’s VUCA world will be increasingly successful as we move through the 2014 – 2016 budget period.”