Greece's financial problems in microeconomics can be related to the everyday life of companies in Poland and around the world. Every country, like a large enterprise, has revenues and costs and obligations towards employees or citizens in the form of social benefits. Companies and states operate in specific macro- and microeconomic conditions that strongly influence the condition of markets and their individual participants. Moreover, both commercial organizations and countries pursue specific goals, are led by their leaders, and various interest groups operate within them. Comparing Greece to a corporation broadens the horizons of thinking about management and recovery from the crisis. This is a classic case study and a good lesson for entrepreneurs.
Support in a crisis
In order to effectively get the debtor out of the crisis, regardless of whether it is a country, a city or a family business, three elements are needed - a legal formula, a restructuring concept and a financing plan. The legal formula was defined in the agreement between Greece and the EU. The concept of changes is imposed by the conditions dictated by Euroland, and financing within the alliance was undertaken by Greece's creditors, i.e. the European Union, the European Central Bank and the International Monetary Fund. This is a classic arrangement procedure, in which the debtor is given a deferral of debt repayment, and even co-finances, counting on the possibility of a return on investment in the future. The security for the receivables will be the property assets of Greece, worth a total of EUR 50 billion, including banks, state-owned companies, companies from the energy sector, and even infrastructure elements such as airports and monuments. According to the Greek rescue plan, the profit from privatization will be allocated to debt repayment, economic investments and the recapitalization of banks. Despite the fact that it is a state, the restructuring model is very similar to the rescue companies before bankruptcy.
Time is always money
Companies that go bankrupt are in most cases victims of the mantra "it'll work out somehow". Unfortunately, the human mentality suggests waiting until the critical moment, and only then, when it comes, to consider the possibility of getting out of the crisis. This is the most common mistake, and Greece made it too. The country's authorities had known for a long time about the deepening deficit of the state budget, and yet they turned to the EU only shortly before the scheduled repayment date of the next tranche of the loan. The limited time makes it difficult to develop a solid restructuring plan, introduces pressure to make a decision and significantly reduces the debtor's credibility. Creditors, including banks and even the International Monetary Fund, are more likely to agree to conciliatory solutions that ensure full repayment, even if deferred. It is worth remembering that the creditor always wants to recover as much of the debt as possible, hence the popularity of stand-still agreements or composition proceedings, which show that with the good will of the parties, a partnership approach and trust, it is always possible come to terms.
Replacement costs
No repair, and even less restructuring, will take place without openness to change. What is causing much controversy in Greece, but also among other Europeans, is the cost of reforms. On the one hand, Greece wants to break away from the "policy of austerity", on the other, other countries accuse the Greeks of living beyond their means, at the expense of the EU, which in the event of a crisis grants further loans.
As usual, the truth lies somewhere in the middle, but going back to the business analogy - change always affects people - employees. It could be downsizing, reducing salaries or cutting non-wage benefits. Rescuing cash flow is always based on cutting costs and minimising expenditure. This gives a quick boost to the budget and does not require investment. A prerequisite is communication that will protect the process of change from a revolt by employees whose interest lies in defending their rights and salaries. The Greek government seems to have forgotten to consult the public and try to reach an agreement with its own citizens, which could trigger a wave of protests and the escalation of the conflict could even lead to the political and economic paralysis of the country.
There is always a chance
Argentina and Cyprus have already demonstrated effective recovery from the financial crisis in the past. And although they are not economic leaders in their regions, their success shows that it is possible to overcome the impasse, even on a national scale. Another good example is Poland, which at the turn of the 1990s was also in a catastrophic economic situation. However, decisive reforms and support from the Paris and London Clubs allowed us to get back on track and even develop. What I would advise the Greeks to do is to understand the exceptional situation and start looking at their country through the prism of national, and not just individual, interests. Greece may not turn out to be the phoenix of Europe in the coming years and will not match the GDP level of powers such as Germany or France, but it still has a chance to regain stability.
The spectre of Greek bankruptcy is a costly and painful lesson in humility for other countries, not only in Euroland. The winners will be those who learn the lessons and do not repeat Greece's mistakes.
16 July 2015:
" Restructuring expert: Greece's crisis a lesson for business
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