Continental Contagion

Posted on Jun 1, 2012 | 4 Comments
For the past century or so, one unfortunate European country or other has been called the “sick man of Europe.” Now, practically all of Europe is the sick man of Europe.

Today’s Wall Street Journal takes a look at the patient and asks: What next?

If you’re running a company that does business in the eurozone, that’s an especially tricky question. The volatility in Europe makes planning harder than ever. “Measuring this kind of mega-uncertainty, and making rational decisions, is tricky for business,” notes columnist John Bussey.

So far, reports the Journal, businesses are sometimes securing their cash, sometimes digging in and sometimes pulling back.

Peter Drucker, for his part, surely would have been skeptical that Europe’s monetary union could be maintained. “There is practically no reason to expect that the political units, that is, the various nations, will subordinate their fiscal, monetary and credit policies to any but their own political authority,” he observed in Management Challenges for the 21st Century.

So how does a business plan amid all this turbulence? On the most elementary level, it simply needs to mind its currency exposure. “With currency fluctuations as part of economic reality, business will have to learn to consider them as just another cost, faster changing and less predictable, perhaps, than costs of labor or capital but otherwise not so different,” Drucker wrote in The Frontiers of Management.

Regarding the bigger question of how to deal with political volatility, however, Drucker’s advice was no different from that related to business volatility: You plan, and then you take the wisest risks you can.

Strategic planning is not an attempt to eliminate risk,” Drucker explained in Management: Tasks, Responsibilities, Practices. “It is not even an attempt to minimize risk. Such an attempt can lead only to irrational and unlimited risks and to certain disaster.” The best thing we can do is to “choose rationally among risk-taking courses of action rather than plunge into uncertainty on the basis of hunch, hearsay, or experience, no matter how meticulously quantified.”

What “risk-taking courses of action” do you think business leaders and investors should take to Europe? Would you scale up or scale down there—and why?

4 Comments

  1. Mike Grayson
    June 1, 2012

    Warren Buffett said to “buy when everyone else is selling”. So, I think that there are numerous opportunities in Europe. But, you don’t want to be the fool who buys when prices are still falling.

    While I think it is too early to get a sense of where things are heading, Greece is likely to be very close to resolving their political direction, probably within the next six months. Ireland has voted to back the EU Treaty. Spain’s regional governments reported a balanced budget, rare news.

    Bottom line, cautious optimism…

    Reply
  2. Raniere Santos
    June 2, 2012

    Entendo que a análise é profunda, mas que a Europa não pode pecar por excesso. Drucker continua correto, é preciso ser racional, mas não limitado. A ousadia, é necessária a inovação, então acredito que a Europa deve inovar, buscando economizar, com maior equilibrio do consumo e investindo em práticas sustentáveis e em parcerias com as potencias emergentes, como o Brasil e a China por exemplo. É hora de compartilhar conhecimento, e romper alguns paradigmas das supremacias.
    “I understand that the analysis is thorough, but that Europe can not err on the side. Drucker is still correct, you must be rational, but not limited. The boldness, innovation is necessary, then I believe that Europe must innovate, seeking to save, with greater balance of consumption and investment in sustainable practices through partnerships with emerging powers Brazil and China for example. It’s time to share knowledge, and break some paradigms of supremacy.”

    Reply
  3. Alba Patricia Valencia
    June 3, 2012

    In order to grasp the impulse, never go back. Perhaps it is time to begin a new chapter in their life, set a new course. They should not restrict by circumstance, for they must see beyond to new possibilities.

    Never look back always look forward.

    Para atrás ni para coger impulso. Tal vez es hora de comenzar un nuevo capítulo en su vida, un nuevo rumbo. No deben limitarse por las circunstancias, deben ver más allá a nuevas posibilidades.

    No mirar hacia atrás siempre mirar hacia adelante.

    Reply
  4. In (Slight) Defense of the Eurocrats | The Drucker Exchange | Daily Blog by The Drucker Institute
    March 20, 2013

    [...] over EU officials. Certainly, he would have expected the bailout terms to be voted down. As we’ve noted, Drucker felt that no nation would ever willingly subordinate its own political authority to any [...]

    Reply

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