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04/03/2012

A Master Plan for Greece

Greece is not yet saved after having taken a haircut. Its restructuring will be long and painful: manager magazin online shows five examples of how management consultants and debt experts want to solve the case of Greece.

 
 
By Sarah Sommer

Hamburg – The euro bailout fund has been set up: The EU Ministers of Finance and the Parliament in Athens approved the EUR 130 billion rescue package by the European Union. At the same time, a drastic haircut relieves the Greek budget by more than EUR 94 billion.

However, Greece's problems are far from being solved with these measures: A master plan is now needed which will render the Southern European country competitive again. The election campaign beginning in the coming weeks will thus also be a vote about the future Greek business model. Will everything remain the same, or will Greece prescribe itself an entirely new concept? And: What might be a viable new economic model?

If Greece were an insolvent corporation, receivers in bankruptcy and management consultants would offer their services to corporate management – or right away take the helm from the company's executives. In Greece's restructuring case, consultants and crisis managers are also not at a loss for good advice. After all, they say, many of Greece's problems are not unlike the problems a company in economic straits is facing.

The purchasing consultant: On Zwegat's trail

Gerd Kerkhoff, Managing Director of the consultancy Kerkhoff Consulting specializing in procurement management, of course would first of all optimize Greece's purchasing structures. He explains that Greece could save about six billion euros if it were to professionalize its procurement management and reduce costs through privatization and outsourcing.

"Like any company in a crisis situation, Greece must also save costs. Purchasing would be an important leverage instrument to relieve the budget – without imposing additional cutbacks on the Greeks", says Kerkhoff. It would be most important to get all corruption out of the system. That's why Kerkhoff argues in favor of a central procurement agency which would take care that, in the future, government contracts will be awarded in a transparent manner and according to clear criteria.

Greece's existing practice of frequently bypassing proper tender invitations is opening the doors wide to corruption, he warns. "We will need sensible controls instead of bribes or payoffs." Kerkhoff often says "we" when he is talking about saving Greece. Because: "What the Greek state spends – i.e. the procurement volume of about EUR 25 billion – it had received from us, from the EU", he says.

"It's accordingly important to prevent any squandering of bailout funds." Kerkhoff considers it his civic duty to tackle the Greek problems and look for solutions. He summarized his contribution to the Greek saving plan in a PowerPoint presentation.

Kerkhoff has in mind a central procurement agency and would like to have EU representatives occupy it or have an EU controlling body monitor it. "Without external advisories or controlling bodies, it will be very difficult to eradicate corruption", says the consultant. "Even now, it frequently happens that promises by the Greek government are not implemented."

It would be for the welfare of the Greek people to get outside help. "The principle is known from the German RTL reality TV show with debt advisor Peter Zwegat. It sometimes takes an outside view to show solutions and implement them as well." It's important that procurement would no longer proceed arbitrarily and at random, that it would not be egoistic, corruptively motivated – but much rather transparent and with clear regulations. "If these rules provide that, for instance, Greek companies or companies with production facilities in Greece were favored, I would have no problems with that", emphasizes Kerkhoff.

Strategic consultancies, such as Roland Berger and McKinsey, also champion the cause of saving Greece. Roland Berger Strategy Consultants proposes in its "Master Plan for Greece" to first of all bundle the Greek public assets in a central holding.

Harbors, airports, highways and real estate of a total value of EUR 125 billion could flow into the holding, the consultants indicate in their calculations. Subsequently, this holding should be sold to a European institution.

With its proceeds, they figure, Greece could discharge its liabilities with the countries of the Euro group. The Greek Ministry of Finance made no statements regarding this plan – but it will actually now be forced by the EU to sell their most valuable assets, their 'silverware', so to speak: State property of a value of EUR 50 billion is to be sold to pay off public debts. This will include real estate property, state-owned companies and infrastructural objects, such as harbors, airports, mines and highways.

The management consultancy McKinsey also has a plan for Greece: Better management would be necessary, stated McKinsey's head of the Greece division in his 500-page study "Greece in 10 Years". McKinsey suggests that, in the future, growth should be provided by tourism, by the food industry, agriculture and retailing, pharmaceutical generics, aquaculture, medical tourism, and logistics.

An expert for restructuring cases is Dirk Andres, receiver in bankruptcy from the law firm Andres & Schneider. Actually, Greece would also need a kind of receiver in bankruptcy, he says. Because, after all, the Greek situation would certainly be comparable with that of an insolvent company. "That's not a realistic option, however", he emphasizes. "Of course, you cannot assign a receiver in bankruptcy to a democracy – because such a person's authorities within the enterprise would be equivalent in politics, to some extent, to those of a dictator."

The discussion about a debt commissioner for Greece already had shown that there would be no acceptance for a restructuring specialist with such far-reaching competences. But just like a bankrupt enterprise, the Greeks would also need a clear restructuring plan. "When looking at it from the outside, it seems as if just more and more money is being pumped into the country. No genuine restructuring plan can be detected in the debates; it's always just a matter of last-minute stopgap solutions merely to survive somehow for the time being." As a receiver in bankruptcy, he would tackle restructuring cases differently. "First of all, I'll always ask the question: Is the company capable of restructuring at all – and if so, how?", says Andres.

To this end, the country's assets status would need to be clarified: What are the country's values? Which sectors of the industry are promising? Furthermore, the Greeks would have to collect all outstanding receivables and cut all unnecessary expenditures to become capable of acting again. "It doesn't help to just cut off debts", he emphasizes. "If there is no promising restructuring plan, new debts will be run up again, and the dreadful situation will just repeat itself."

Ralf Moldenhauer, restructuring expert of the management consultancy Boston Consulting Group, also states that politics had wrongly approached the restructuring in the classical sense. He says, "in the sense of classical corporate restructuring, taking a haircut would have to come as the last step of a restructuring plan".

"Only if there is a viable business model for the future and a total macroeconomic calculation has been developed on that basis, the size of the haircut can actually be determined." The EU had put the cart before the horse, so to speak. "That's also the reason for the uncertainty on the markets. It's only logical that the haircut will later require some readjustment – once it's clear what the future earning power of the Greek economy will actually be."

Greece would now have to make up for steps that, by now already, should actually have long been completed: Developing a sound, viable business model; identifying future industries; restructuring loss makers; tackling structural and operative adjustments. "The problem is that all of it has been going on for too long already", says Moldenhauer.

In crisis companies, the rule of thumb would be: Any change process should not take more than three years. One tough year with painful cuts; one year for stabilization; and one in which things are looking up again. "Otherwise, all participants will suffer from a restructuring burnout; all faith in a rescue will be lost", explains Moldenhauer.

"You can now see that in Greece as well. The Greek people already have two very tough years behind them. A lot of valuable time has passed because clear, hard cuts had been delayed far too long." Right at the beginning of the crisis, crucial measures would have had to be taken, such as hard cutbacks in the proliferating civil servant sector and the bureaucracy.

"That would have been better than always announcing one new wave of dismissals and reductions after the other." Now, the restructuring process should not last more than five years because otherwise, social and societal upheavals would result or the country would fall into lethargy, warns the crisis consultant.

To motivate Greeks and donor countries to hold on for another few years, proper communications would be especially important, says Matthias Michael, expert for crisis management at the communications agency Engel & Zimmermann. "In crisis situations, the executive personnel must communicate more, not less", he says.

"A good idea would certainly be regular government statements in which Prime Minister Lucas Papademos explains on television what has been achieved and how things will go on." Papademos – or his potential successor after elections in the summer – would have to keep up a communicative balancing act: "Both within the EC and with Greek citizens, he must be able to bring back faith in the country's viability and future."

Papademos would have to tell more positive stories – to counteract the negative reports in Greek and other European newspapers describing lazy Greeks on the one hand and arrogant EU governments on the other hand. "Papademos could present diligent, pleasant Greeks who are working on the reconstruction of the country and for their own future", says communications expert Michael.

"On the other hand, he could emphasize how valuable the EU assistance really is for the country, and he could present joint projects." High marketing expenditures would certainly be the wrong signal now, he says. But turning general attention to the work on the viability of the country: That would be important now. The consultants agree on that.