The mindset of lenders is totally different from the mindset of equity holders. Lenders get nervous when the creditworthiness of the borrower deteriorates and the ability to service debt declines. Equity holders get nervous when their company loses market share, when their company runs down investments. Lenders, when they get nervous, try to get their money back. Equity holders, when they get nervous, think about new business growth strategies.
In 1996, when Apple was going downhill and Steve Jobs was brought back into the picture, a lender would have wanted to call back his loans as long as there was still enough cash there. An equity holder should have invested as much as he could before Jobs made Apple the most valuable company in the world.
The mindset of equity holders has been totally absent from the Greek debt discussions to date. This is so much more of a problem because it should be clear to the lenders that at least a good portion of their loans has meanwhile assumed the character of equity. Put differently, they should protect their investment and make it grow.
The much-discussed austerity program may have been right or wrong in its implementation but there can be no doubt that a state of the size of the Greek state, particularly when it is so inefficient, must be downsized. When Steve Jobs took over Apple (again), the first thing he did was to cut out all divisions/departments which he thought were doing superflous things (even though they were doing them well). Thousands of employees lost their jobs.
BUT: parallel to this austerity, Jobs embarked on a major growth drive and bet the company on new products. Had the iMac not been successful, Apple might not exist today.
What has been desperately lacking from all ‘plans for Greece’ to date is, parallel to the necessary austerity, a growth strategy in the private sector. In the recent past, there have been very positive reports about the Cosco-investment in Piraeus and about Unilver’s and HP’s decisions to invest in Greece. Please note: those are just three names!
Some learned people are calling for the EIB to spearhead a growth initiative in Greece. I beg your pardon? Do these learned people not know that the EIB is a bank and not an investor? The EIB will indeed lend the money but there will be no EIB-lending if there are no investors with good projects in the first place.
I have been arguing from the beginning of this blog that what Greece needs is a long-term economic development plan for the private sector. A plan which will lead to a situation where not only Cosco, HP or Unilever decide to make investments but, instead, where a multitude of investors recognize the good business opportunities which Greece offers.
Who should put together that plan? Well, ideally Greece itself. The Greek population will only support a new long-term economic development plan if they feel that it comes as a result of Greece’s initiative (as opposed to foreigners’ orders). However, Greece would be well advised to draw on (or rather: to demand!) all possible resources which the EU offers for the development of such a plan.
A couple of years ago, an 11-year old sent a letter to Mr. Papandreou proposing his (very cute) plan how to solve Greece’s problems (published in the Ekathimerini). A year ago, McKinsey came out with their Greece Ten Years Ahead report proposing 500.000 new jobs and 50 BEUR new GDP within 10 years. I am sure that many other good ideas reside in Greek brainpower.
I wouldn’t rely totally on an 11-year old and I wouldn’t rely totally on McKinsey. But, for heaven’s sake, can’t Greek brainpower get their act together and work out a long-term economic development plan for the private sector which will make lenders very happy to have become equity investors?