Welcome to the second issue of Resilience: Winning with risk. In the first issue we addressed a number of topics regarding the interrelated themes of strategy, risk and sustainability—the themes that are the focus of our journal. As a quarterly journal we are not trying to report news, but we are trying to be timely in covering topics that are of special contemporary relevance. Thus, in some issues, we will have a concentration of articles on a particular topic.
In this issue we are devoting four articles to a topic that is of great interest to executives, policymakers and citizens all over the world: the Eurozone crisis. Its implications for countries and for companies are still unfolding in uncertain ways. This inherent uncertainty requires that companies develop the capability of risk resilience, which we defined in our first issue as ‘the ability of an organisation to recognise, take, and rapidly and effectively adapt to changes and the resulting risk’.Since it is impossible to predict future states-of-the-world that this crisis will bring about, companies need to be able to rapidly recognise events and configurations that will affect them in positive and negative ways and respond accordingly.
Writing today, we are uncertain about what the Eurozone crisis will look like only a few months after this issue is published. Even if it appears to be abating, or even under control, we should be careful not to think it has passed or that its implications are fully known. We can learn a lesson from US President Hoover’s 1930 declaration that ‘while the crash only took place six months ago, I am convinced that we have now passed the worst and with continuity of effort we shall rapidly recover’. As we now know with the humility of hindsight, it would take the best part of a decade before global output returned to the levels seen before the Wall Street Crash, and by then the Great Depression had given away to an even graver political crisis.
It is easy to see the parallels with the present-day Eurozone facing a seemingly endless spiral of failed crisis resolutions and contagious instability. Uncertainty is putting a brake on investment and growth, not just in Europe but worldwide. But it is the danger of a meltdown—be this the default of a major economy like Spain, forced exit of a member state like Greece or even full implosion of the single European currency—that is causing the most anxiety in cabinet rooms and board rooms alike. As steps to hold the Eurozone together continue to falter, the risk of a cataclysmic end game become ever more present—although they are by no means inevitable. In almost all ‘meltdown scenarios’, executives will be facing exchange rate volatility and pressures on financial liquidity and potentially even a prolonged recession in Europe that will spread to the rest of the world to varying degrees. Yet even a more positive outcome that preserves the Eurozone largely intact does not mean that companies can go back to business as usual, since actions taken to preserve the Eurozone will have long-term consequences. Many parties, including PwC, have intelligently examined multiple scenarios for how the crisis will play out, and we intentionally do not offer alternative macroeconomic analysis in this issue. Instead, our articles look at features of the crisis that warrant our attention but have perhaps been underemphasised: particular company actions, physical security implications, subsequent debt unwinding in other markets and the situation in Central and Eastern Europe.