Fixing Greece: Treat it like a troubled subsidiary

What are the next steps now after the strong "ókhi" (no) vote of the Greek population against the last bail out offer from the creditors? The European Union can't let Greecefall by the wayside. There is so much more at stake than the cost of a bailout: Patients struggle without medicines and elderly citizens cry in front of closed banks because they can no longer access their pensions. Children are hit hard as services dry up. The EU cannot say "This is not our problem anymore."

To find a solution, let's take for a moment a management perspective, with Greece being a subsidiary, and the EU its parent company. How would the top management team of this multinational company handle the issue?


A Greek flag during a rally in Athens.
Yannis Behrakis | Reuters
A Greek flag during a rally in Athens.

Step 1 - Understand the true nature of the problem and develop a realistic turnaround strategy: Is the subsidiary a turnaround case with a high probability to succeed in getting back to profitability? I think Greece can be brought back into the black. It has a population of only around 11 million that produces a GDP of around $250 billion, a tiny fraction of the world's GDP. It should be easier to turn around than most large economies. Think Singapore, and how this tiny island nation has developed. Greece, too, has the potential to thrive again. As a country that laid the foundation for modern civilization and gave birth to democracy, it has plenty of resources that can be developed such as shipping and tourism, just to name two. If creditors and the Greek government act swiftly and hammer out a turnaround strategy that would stop the Greek economy from contracting, a "Grexit" can be avoided. To do so, creditors need to find the right balance between necessary austerity and purposeful government spending.

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Step 2 - Commit: Once the decision has been made to save the subsidiary, a firm needs to reassure its partners (suppliers, clients) that things will change. Same thing for Greece. Uncertainty kills business. Individuals spend money only for necessary goods. Foreign trade partners demand that shopkeepers pay upfront. Local banks won't lend money to entrepreneurs. Tourists choose different locations, and so on. When the European Central Bank president, Mario Draghi, declared in July 2012 that he would do "whatever it takes" to save the euro, he marked the turning point in the crisis. We need a similar commitment now to save Greece. The creditors need to stand up and say: "We will do whatever it takes to save Greece." Such a statement will not only lower the interest rates for Greek debt, but will restore credibility and create trust: two fundamental pillars for foreign direct investment.

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Step 3 - Change the governance structure: When a multinational firm understands the business of a troubled local subsidiary, it usually centralizes power for a few years. Then, once things have stabilized, local decision-making gradually increases. Of course, to solve the Greek problem, we need a credible turnaround team that has the trust of the Troika (the EU commission, ECB and the International Monetary Fund), as well as the necessary support of the Greek population. I don't think that the turnaround can be managed from within as Greece seems to be taken hostage by a powerful elite. To fight corruption and tax evasion, a credible turnaround manager needs to be found. Of course it is not easy to agree on a turnaround manager. The process of creating the technical government of Prime Minister Mario Monti in Italy November 2011 could be used as an example of how to handle this issue.

Step 4 - Execute the strategy: We need stability of leadership and enough time to make reforms and take tough actions that have a sustainable impact on Greece's competitiveness. There needs to be a drastic overhaul of EU policies — strategies that everyone can agree upon before the next subsidiary falters. The most urgent policy changes relate to the governance system within the EU. The Roman Empire was a democracy, but when faced with an external threat, a dictator was elected. Similarly, the EU needs clear leadership that can develop a long-term vision and reduce the cultural and economic differences between the member states.

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Of course, dealing with a troubled subsidiary of a multinational firm is less complex than aligning multiple stakeholders concerned with the destiny of a country. But, despite what we are reading in the headlines, the turnaround case for Greece is strong. The fundamentals of the euro zone are solid and, in fact, the euro is relatively stable. But Europe needs to think beyond the immediate financials. The Grexit discussion should be less about what the EU can financially afford and more about how Europe defines itself. Is it just a set of independent countries or a community with a shared set of values? What is the level of trust between the countries? It's time to find that common ground with shared policies that lift up everyone, because in today's world no nation can stand alone. Once you go global, there's no going back.

Commentary by Markus Venzin, Professor of Global Strategy, Università Bocconi, Management and Technology Department.