Is the world heading into another financial maelstrom?
The Standard & Poor’s debt rating service today downgraded Greece’s sovereign debt to junk status over concern that the country will default on its staggering debt load, now 124% of its economy … and growing. The fear of default could be a self-fulfilling prophecy as it significantly raises the interest rate at which the government can borrow in order to service existing debt or raise new funds — without outside *special* assistance.
“The challenges our country faces are unprecedented,” Prime Minister George Papandreou told his party. “Not only for Greece, but also for Europe and even the world economy. … And what I say is no exaggeration.”
If Greece defaults on its debt, other shaky European nations may fall off the precipice: first Portugal and then perhaps Spain, with its much bigger economy. And then … well, with the contagion effect inducing an accelerating whirlwind of debt downgrades and investor panic, who knows? The euro will be swamped by all the bailout demands. Hearing thunderclaps, the European Union and the International Monetary Fund are trying to rescue Greece — or rather, to keep themselves from drowning if the situation deteriorates further.
Problem is, some EU member states are furious at the prospect of being soaked by Greece’s cavalier unwillingness to live within its means. Germany in particular has been, um, shall we say, hesitant to commit its crucial share of a 30 billion euro loan (in addition to 15 billion euros from the IMF) unless Greece shows a Teutonic-like commitment to fiscal discipline. Greek unionists are letting everyone with a camera know what they think about that, by taking to the streets to denounce the mere prospect of austerity. Negotiations are ongoing as storm clouds gather….
And to think it all could have been avoided, if only the Greek government and people had been more honest and responsible from the start (or even the middle) of the crisis. The government purposefully, and vastly, understated the amount of it owed, which is supposed to be under 3% of GDP to comply with EU membership rules. (Instead, it’s closer to 14%, as revealed by a recent independent audit.) Voters, meanwhile, don’t pay taxes, preferring the cheaper option of bribing tax collectors – and are outraged that services or jobs might be cut in order to close the yawning gaps in budget and credibility. Now investors and other governments have a hard time believing that Greece will actually deliver on its newest promises.
What does all this have to do with communication? This: Trust is everything in communication, so if you’ve got bad news, get it out quickly, get it out completely, and get away from it by taking immediate corrective action – or it will be out to get you.