Global Economics and SMB – Europe’s Woes (Part 1 of 3 Part Series)

I had the good fortune of spending the summer of 2008 at WHU near Frankfurt, Germany studying the ongoing implementation of the European Monetary Union (EMU).  To me and my colleagues, the motivation for European cooperation made sense.  With fiercely independent member nations that compare in size to some of the largest and smallest U.S. states, each with its own set of rules for commerce and currency, Europe wanted the scale to better compete with larger nations like the US and China.

My colleagues and I seemed to agree that in good times, cooperation is easy to justify — everything’s one big happy family when you are winning.  However, we had to wonder about the flip side: What would happen when the economic conditions go south?  Would there still be loyalty to the Union?  Would the members pitch in to rescue other members?  Well, we know what happened here in the United States.  Despite partisan ideologies, hard line politics and last-minute brinksmanship, the interested parties stuck together to rescue the United States of America.  California never complained about helping to rescue NY (well maybe a little…) and vice versa.  However, given the current state of Europe’s strain upon the global banking system, it’s a completely different story across the pond –

  • Stress rippled through debt and stock markets despite measures taken by its leaders to restore investor confidence – many indicies at their all-time lows as countries are at risk for further downgrades.
  • The Euro sunk to the lowest level against the dollar as short-term borrowing rate between banks continue to climb – certain central banks began to estimate the cost to abandon Euro and return to its former currency (somewhere UK Sterling is LOL).
  • Many prominent European banks, e.g. Credit Agricole SA of France, are exiting many of country specific markets to shore up their own finances, further tightening the liquidity crunch in the region where typical leverage models for companies as well as individuals are even greater than here in North America.

The near-term future forecast is indeed gloomy…  Some analysts are estimating European banks in total have more than 700BN Euros worth of debt maturing next year that needs to be refinanced, and the European Central Bank will crumble under this and other pressures.  So what does all this mean for small to mid-sized businesses around the world?  At a minimum, you need to stay abreast these developments and understand your risk and exposure to the region.

Some say the U.S. is now beginning to rebound after 5 years of a down economy since 2006.  I say the current economic woes began in 2001, and it took us 10 years for macro variables and policy decisions to take hold and trickle down.  Many agree that Europe’s worst days lie ahead.   Will it take 10 years for it to recover?  Only time will tell…

 

Part 2 – Global Economics and SMB – 2010 US Growth Forecast

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About Richard Lee
Experienced finance and operations professional. Currently partner in five companies, adjunct professor of economics at Columbia College and executive contributor to a small business blog (www.SMBmatters.com); following corporate finance, M&A and management consulting tenures with Orbitz and Diamond Technology Partners; and six years of service with the United States Army.

4 Responses to Global Economics and SMB – Europe’s Woes (Part 1 of 3 Part Series)

  1. Pingback: Global Economics and SMB – 2012 US Growth Forecast « SMB Matters – Blog for Small and Medium Business

  2. Pingback: Global Economics and SMB – 2012 US Growth Forecast | SMB Matters Blog - SMBMatters.com

  3. Pingback: Europe in Crisis.?! « SMB Matters – Blog for Small and Medium Business

  4. Pingback: Europe in Crisis.?! | SMB Matters Blog - SMBMatters.com

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