The problem in Greece

I hope you had a chance to meet us at the MBA Fair in Washington or New York.  Later this month I’ll head off to Rome and a colleague will attend the fair in Moscow. We are very happy to meet you.

I guess many of us recently have been intrigued by what it takes to bail out a country like Greece and how this will turn out. Greece has a deficit that is estimated at 13% of their GDP.  Only 13%. Is this bad?  Well, yes it is. In very simple terms it’s like you spending 13% more than your annual salary. In more exact and complicated terms the Gross Domestic Product of a country is the market value of all final goods and services made within that country in a year.  Add up total consumer, investment and government spending and add to this the value of exports, and detract the value of imports. That’s your GDP. So as you can see it’s not just the value of products that a country can sell to other countries and thereby create an income.  It’s basically everything that happens in a country so if e.g. a car accident happens and people need to go to hospital then everything going into that increases the GDP. But it doesn’t create funds to pay off debts.

The Euro Zone, driven by Germany, is looking into a bail out plan but we seem to be in a Catch 22 scenario.  The Greek Government is unwilling to commit to savings until the Euro Zone has made promises about how much and how the bail out is going to happen. Germany especially is reluctant to commit to anything until Greece have made promises about how they are going to straighten out their economy.  Who will blink first? The Euro Zone probably, because the Greek situation is affecting the Euro Zone as a whole and more specifically the value of the Euro and so is affecting other Euro Zone economies. The Euro has suffered against the Dollar but it’s actually faring better than the Pound. It is now at its lowest since April 2009. Investors are worried about the UK’s precarious fiscal situation. This combined with the uncertainty that always follows national elections has dented the Sterling lately.

But it is not only in the World economy that faces storms and inclement situations. So does the World. Saturday Chile was struck by an earthquake measured at 8.8 on the Richter scale, this is about 500 times stronger than the Haiti quake, killing more than 700 people and this is just the early count mind you. The epicentre near Concepcion the magnitude of the quake meant that cities such as Valparaiso and the capital Santiago were hit as well, and it estimated that 2 million people were affected. Many more bodies will be found once the clearing up begins and all more remote villages have been reached. Luckily the tsunami caused by the earthquake surging across the Pacific Ocean caused less devastation than could be expected. Nearby in France storms have killed more than 50 people, many drowning in the floods caused by the storm.  Some may say that this is not nearly as bad and maybe the devastation is much less but for those loosing near ones and dear ones it can only be bad.


Jobs back on

Looking gaunt but happy Steve Jobs yesterday retook Apple centre stage. The presentation of new products and features took back stage to his actually being there and during his presentation Jobs took the opportunity to urge his audience to become organ donors. So what to expect from Jobs now that he is back but not at his former strength? Well, I suppose there’s a very real chance that Jobs despite his having had a successful liver transplant will have to pass on or at least share the responsibility now. A liver transplant is not something the leaves you bright eyed and bushy tailed.  We can but hope that he will continue to make the same high demands that we have seen in the past.

Closer to home the news is awash with suggestions that the UK is slowly emerging from the recession and making a fragile recovery. And also the news that England has qualified for the football World Cup in South Africa next year. Scotland bowed out after a home defeat against The Netherlands. My home country of Denmark is still group leader despite a draw against Albania last night – how on Earth did that happen?

Bonus or no bonus?

Love it or hate it but I do have to touch upon the issue of bonuses in the banking world. This is so to the fore of peoples’ minds in the UK, especially because a certain bailed out bank has been reported to preparing to pay £1bn in bonuses. Yes, it is RBS I’m referring to.

A reaction to this from the FSA’s new chairman, Lord Adair Turner was that it was necessary to ask important and difficult questions about the bonus systems found in the world of banking. The view was echoed by the PM, Gordon Brown who referred to certain unacceptable features of the bonus system. A system that could be seen not to reward long-term benefits and growth but rather short-term and risky behaviour. Lord Adair Turner went so far as to say that the FSA could penalise banks who pay bonuses that encourage the wrong kind of business.

Let’s pause and look at the remuneration scheme at the FSA. Here we see rewards related to meeting objectives as well contribution to success and goals. So far nothing very different from the banks and this is the same for the criteria for annual bonus rewards – performance and delivery. But then we get to the third point: “demonstrate the behaviours we value.” I expect/hope that these values are made clear by the FSA.

And that is the point really, are the values of the company made clear? Apparently the values of certain banks until now have been gains for the sake of gains but nothing about the nature of these gains. So yes, a revision is essential.

So now many people in the banking world now fear for their bonuses and that is fair if you are on the low rungs of the ladder and need the bonus to balance your personal books at the end of the year. But the fact-cat bonuses? No, I can’t support that.

KPMG thinks it unlikely that the regulators will want to instill rigid models but do expect pressure on the bonus scheme and foresee big changes to these schemes in the future. Some experts expect to see more bonuses paid out e.g. in the form of shares that cannot be sold for several years and this I suppose could instill in employees an interest of that of the shareholder who is often in the ‘game’ for long-term gains.

A personal closing note: I am a taxpayer of the UK and I bank with one of the bailed out banks that may use my tax money to pay fat-cat bonuses. Will I choose to take my business elsewhere if they persist in that? I am very likely to.

End of another year

Today has been hectic with various exam board meetings for our MBA programmes including our executive MBA for KPMG.  At one of our meetings we dealt with the award of the degree for the outgoing full-time MBA class.  Amazing that it was already time for that.  A number of students came during the afternoon to collect their letters of confirmation and it was so nice to see the elation for those who achieved the Distinction and the disappointment for those who fell just short.  CONGRATULATIONS ALL!  You’ve worked hard and you deserve your success. 

It was also somewhat interesting to see the void that some felt, now that it is all over.  Well of course it isn’t all over but you know what I mean.  It makes a huge difference that no one is expecting you in class tomorrow or next week.  A number have already secured jobs while others are now ready to apply for the Tier 1 visa that permits a graduate to remain here as a highly skilled worker.  Later on, on 3 December, we will have the formal Graduation in McEwan Hall.  As I’ve mentioned before in my blog – it is sad to see them leave but great to have met and worked with these people for a year.

On a personal note, I had a nice long weekend with my long term friend.  I wrote about that in my last entry.  Good to spend some quality time together and dissect the World; and everything else such as why we should be grateful to the Ethiopians who apparently discovered coffee, and why listening to the water float by in a river or a stream seems so soothing.  Does anyone know?