It might be no surprise that today’s EU summit is exposing even more leadership discord in Europe. But it’s also exposing a serious, fundamental leadership lesson for the modern era. Before going into that, here’s how to shoot yourself in the foot.
Reuters quotes Chris Turner, head of foreign exchange strategy at ING: “It’s rare that we’ve seen this amount of discord going into a summit. On the face of it, it looks like it’s going to be reasonably negative for the euro.” So what lessons can we learn from it?
#1. The leaders of the Eurozone’s four big economies (Germany, Spain, Italy and France) and their finance ministers have been meeting outside of the summit rounds. This will have an incendiary effect on their smaller partners, especially those like Holland and Finland who will be footing a part of the bill, come any agreement. Those meeting have also served to deepen divisions between the major Eurozone “powers”. Big is not beautiful – the big 4 leaders need the smaller countries more than the other way around, just like big corporations need their micro-partners and therefore develop new respect systems to accommodate them.
#2. Everybody has assumed the German position was for turning but Germany has been consistent – it will not go any further with mutualizing debt unless the EU introduces a Federal Government. Earlier in the week Germany’s Finance Minister said that Germany would hold a referendum before that step could be taken. Other countries would also need referendums. So put that solution 5 – 10 years out. Bringing constituents with you though is paramount and Germany has got this one just right. It means that the Euro zone will have to be reduced in number so that countries like Spain can revitalize their economies. It looks like there can be no other form of agreement.
#3. Leaders need options. It’s becoming apparent everywhere that we live in an on-demand economy. Communications are so rapid, connectivity so ubiquitous that multiple options have to be available ahead of events unfolding. The EU used to be good at this – in fact it excelled at preparing a variety of options that would allow faster decision making, depending on which ways its larger members wanted to go on a policy. They lost the art. The Euro is a project with a single goal and no optionality. That is its strategic weakness.
Where does this leave the Euro – nothing much will come out of the summit, and analysts will be left realizing that political solutions are years in the future. Will major market players innovate a solution instead?
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