I‘m not an economist, however I have been a student of history, amongst other things. And the current Greek economic troubles remind me profoundly of the troubles of the German Weimar Republic, circa 1930.
It was the Weimar Republic’s reliance on foreign debt and investment that led to its great lifestyle – drastically unsustainable after its main creditor, the US, called in its debts after the great Stock Market Crash. The Republic had done a great deal to lift productivity and industry post-World War I, but the high rolling came off the back of loans; leveraged funds.
When your creditor comes a-calling, it’s awful hard to be the one to set the terms of repayment. Banks couldn’t provide enough money and the currency quickly hyper-inflated and became essentially worthless. Radical agitating groups, e.g. the Nazis, quickly became de rigeur as advocates for the resurgence of the Republic, because they saw the reliance on foreign investment and regulation as restricting the growth and success of the German people. And, in no small way, they were right. But, of course, they were wrong about the destiny they wanted to forge and the way in which to forge it.
A similar economic condition currently faces Greece and is behind all the shenanigans of national referenda and Tsipras vs Merkel stand-offs. It’s not as easy to comprehend as a Wimbledon match, but the stakes are much higher. One debtor (Greece) is taking a hard negotiating stance against its creditors (Germany, France and others) in an effort to determine its own course and stoke a resurgence.
Greece’s hardline stance – its giant national bluff – is somewhat a case of “Who will blink first?”
German Chancellor Angela Merkel certainly knows how to play chicken in the big leagues. And she’s more invested in this than she is against Putin, ironically, because this is about Germany’s money and the regulation of the Eurozone. She will not be moved, except for an outcome that will put her and her nation in a favourable position.
Although losing Greece from the Eurozone would be both technically difficult (due to the EU’s regulations) and a morale blow to the EU and markets around the world, the fact is the loss of a mere 11 million people nation would not do long-term damage to the EU economy or currency. In fact, there might be some benefits.
Some economists argue that resorting to its drachma and dumping the Euro would help Greece. Others argue the exact opposite. Some economists argue that losing an economic drain like Greece would help the Eurozone. Others argue the opposite. Whom do you trust? How do you decide?
So, if you were in charge, what would you do?
I don’t have a simplistic answer to that question, as this situation is at the centre of a convergence of forces over a number of years. I do, however, have some answers in terms of leadership that can help guide you through negotiations and the leading of resurgence in your own life and business.
10 Lessons to Apply to Your Business and Leadership
- Negotiating debt repayments is easier when you do it proactively, rather than wait for the creditor to set the terms. Greece has sat around waiting for others to solve their dilemma, rather than taking the initiative to solve its national dilemma on its own terms, energy and productivity. Its now infamous retirement ages for various professions bespeak its satisfaction with itself and reliance on old money and high land ownership. Land keeps you in a house, but it doesn’t pay for a high-flying restaurant style culture. If you want to keep living a certain level of expenditure, then you need to be the one to set the terms.
- Similarly, it’s the first one to set forth terms during negotiation that actually has the advantage. Know what you want and set the position for your agreement. You may ask, “But what if by holding out I’d gotten a better deal?” Well, if you set terms that you were happy with in the first instance, what does it really matter? You may have gotten slightly better terms, but the likelihood is that you wouldn’t.
- Make agreements that allow you flexibility in the first place. The Eurozone has restrictive rules and sets terms that have allowed the creditors to try to dictate an economy’s internal workings. If you enter into lending agreements that allow the lender to set the regulations for how you run your life, it’s a bad deal. You need to ensure that your agreements provide you with scope to do what you need to do to keep productive.
- If you default on your loan repayments, don’t be surprised if the big guys come a-callin’ to your front door to work on your thumbs, “You know whaddeye mean?”
- Playing chicken only works if you’re prepared to go all the way. If you’re going to play chicken, you’ve got to play it knowing and accepting that you could totally lose. That’s, ironically, the only way to win.
- If you’re the one setting the rules, realise that desperate people will do desperate things. People will follow your directions only for so long and only so far as they can bear it. Then they will break – either by running, or by breaking down. Greece is no post-World War I Germany. Even then, as of 1933, Germany had a powerhouse population of over 65 million people and a huge military-industrial complex. Greece has nothing of that scale or intent. However, it could destabilise internally, as various radicals and nationalistic movements continue to assert their validity in the face of Europe’s seeming intransigence (in fact, Europe has been very generous to Greece). Don’t push your own people – business, family, friends – too far. They’ll rebel. And not in a good way!
- One of the most important economic lessons is: Over-leveraged businesses are only valuable for a season and then they crash. Unfortunately, our speculation-driven stock markets thrive on this kind of leveraging. Invest billions in a company like Uber on the expectation that some day it will make money, even though it continues to post hundreds of millions of dollars in losses every year. Yeah, eventually they might make money if you pour enough down their throats. And certainly the people at the top (think Zuckerberg, etc.) will make loads of money of the speculation, but they’re not building real, viable, hard asset enterprises. The digital economy is so often merely a giant Ponzi scheme and that will come crashing down on the small investors whose funds are being used by those living large of their fees, percentages, hedging and shorting of stocks. It’s even more true of your family and your business that you can’t over-leverage, than it is of government. At least government can print more money, even if it devalues the currency by doing so. You can’t. Don’t over-leverage, because it will all come crashing down eventually.
- It’s easier to make hard choices earlier, rather than later, in order to set up your future. It only gets worse with time. Greece needs to do a great deal to change its future. So do we.
- He who has the money ultimately sets the terms. Don’t forget it. There’s an old Biblical proverb that “The rich rule over the poor and the borrower is servant to the lender.” Every society backs the concept that the one lending the money has the right to claim that money back and to enforce terms for repayment – or a consequence for non-payment. That’s why Polonius (in Shakespeare’s Hamlet) says to his son Laertes, “Neither a borrower or lender be” because it can be fraught with difficulty.
- The reports that Merkel has been stunned by Greece’s vote and caught flat-footed are too much to be believed. She had to know that it was a real possibility and that she should have a fallback position. In this case, I believe her fallback is exactly what she’s saying now: “No new money for you!” And that’s the final lesson: Have a fallback position, in the event that your debtor does the craziest thing you can think of. That way, you’ll have some tactics in place to deal with it.
There are many more lessons to learn from the Greece/Eurozone situation. In my part of the world, we’re starting a new financial year and so it’s important we keep our houses in order and make the hard choices that will set us up for our futures.
All the best!