In previous posts, research notes and press releases both I and my colleague David Furlonger have been warning our clients about the need for CIOs and IT leaders to start preparing for the consequences of a euro crisis.
Understandably many people are in denial about the possibility that the euro breaks up, or that their country leaves what looked like a safe haven just a few years ago. EU treaties that included detailed provisions to join the euro and were supposed to reign on the fiscal rigor of countries that proved to be much more profligate than they could afford do not contain anything to deal with an orderly (or less orderly) exit of one or more member states from the eurozone.
As a consequence, while people do understand that a euro meltdown or a major change in the eurozone would have a critical impact on their business, they assign such a low probability to these events that they feel they do not need to prepare.
However there are good reasons to prepare even if the euro stays the same, perhaps with changed rules that favor a greater integration of fiscal policies across the eurozone. Last week, for the first time, the IMF managing director has used the word that many have in mind but are afraid to pronounce: depression. As reported by the Deutsche Welle
“The world economic outlook at the moment is not particularly rosy – it is quite gloomy,” she said, warning that failure to act collectively could lead to protectionism and isolation reminiscent of the 1930s depression.
“There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating”
Looking at the stream of news from the last few months, what she says makes a lot of sense. A depression would have on many businesses and government agencies in and outside the eurozone and impact that is comparable to a euro meltdown. However the difference between the previous depression and a possible future one is embedded in something else she said:
As European leaders work to resolve their “monumental” challenges, the impatience of financial markets is a problem, Lagarde conceded. She cautioned that democratic processes often make quick fixes difficult, saying that the collision of market expectations with political reality must be resolved.
The speed at which highly computerized financial markets react to the unchanged pace of policy is where the key problem lies. Democratic processes, like any human process, simply cannot keep pace with automated processes.
As I highlighted in a previous post, IT has some major responsibilities for the situation we are facing. Irrespective of whether this will create or not a backlash against the IT industry similar to what we are seeing with the banking industry, IT professionals in all enterprises should start planning both professionally and personally for what the current situation could morph into.
Those who work in countries that are most directly exposed to the euro crisis should not be dismissive or remain in denial, but leverage this crisis in order to prepare themselves for major shocks that may hit their business and country even if the euro stays pretty much as it is today.