• Can The Odd Couple save the Euro? ...

    What next for the Euro? As forecast in this blog, the Euro-zone countries have been forced to stump up a massive rescue package in order to avert a sovereign debt crisis in Greece and other Euro-zone countries. Will that be enough? Possibly not, if the continuing state of unease displayed by the financial markets is anything to go by.

    In this ongoing tacit negotiation between the Euro-zone countries and the financial markets, one problem is that the Euro-zone “negotiation team” need to project an air of certainty and conviction about their commitment to the Euro and each other. Yet the key members of that team, President Sarkozy and Angela Merkel, look about as united as Katie Price and Peter Andre.

    Any disunity in the team on one side of a negotiation will always be picked up by the other and exploited to its disadvantage. So, irrespective of their differences, Sarkozy and Merkel need to stop looking like the Odd Couple, and start looking like a dream team, or they will inadvertently prolong the very crisis they are seeking to bring to an end.

    Together with the IMF, the EU has created a loan-and-guarantee package worth €750 billion. This is intended to stop international money markets forcing up government bond interest rates – in Greece, Spain and Portugal – to such unsustainable rates that their debt collapses under its own weight, and sparks a wider Euro-zone debt crisis.

    The package included €220 billion provided by the IMF, €440bn of government-backed loan guarantees and a commitment for the European central bank to buy European sovereign bonds. What’s more, to combat rising financial market tensions triggered by market fears over public finances in the weaker Euro-zone countries, the EU decided to more than double its existing payments facility used in 2008 to help Latvia, Hungary and Romania – increasing it by €60bn to €110 billion. All of this is on top of the €110 billion rescue package agreed by the EU and the IMF for Greece only days earlier.

    The extent of the package underlines the threat the debt crisis has posed to Euro-zone stability. Anders Borg, Sweden’s finance minister, said: “We are seeing wolf-pack behaviour in the markets, and if we don’t stop these packs, they will tear the weaker countries apart.”

    There was initial positive reaction to the package from the markets. Erik Nielsen, chief European economist at Goldman Sachs, said the outlines of the package were impressive; “In any comparison, in terms of financing needs in southern Europe, this is a substantial amount.”

    However, that optimism seems to have evaporated and has not been re-captured by announcements of austerity packages from two of the most debt-laden Euro-zone countries, Portugal and Spain.

    The Dollar now stands at US$1.25 against the Euro, slightly up from its horror level of US$1.19 at the beginning of June. But the exchange rate is a long way from the US$1.43 level at which it stood only 4 months earlier. There is now concern that the economies of the 16 Euro-zone countries are so disparate and the debts of the weaker countries so enormous, that the Euro itself cannot survive as a common unit of currency.

    What is contributing to these fears? For the answer, we need to put the microscope on the personal chemistry between the bed-fellows at the historical heart of Europe’s economic and political composition.

    Alignment between France and Germany has always been the key to EU stability ever since the creation of the first European Coal and Steel Community in 1952. On the face of it, France and Germany displayed a unified front concerning the rescue package. Angela Merkel declared that the deal proved that, “Europe can act together to defend our common currency against attacks”. Christine Lagarde, French finance minister, said the response from international authorities was “consolidated, coherent and determined”.

    However, whilst France and Germany profess a united approach, Angela Merkel faces deep political problems over continued German support for the Euro. Germany has to contribute more to this kind of package than other countries because it has the biggest economy. Complaints about Germany leading the Greek bail-out have been very vocal. Merkel has recently lost elections in North Rhine-westphalia and last week narrowly avoided her choice for presidential nominee being voted down by her own party colleagues.

    So, the two leaders therefore face different political contexts. On top of this, there are striking behavioural differences between them. Sarkozy negotiates from the “heart”, using plenty of disclosing behaviour and creating emotional pressures and incentives to get his way. There is even talk that he threatened to pull France out of the Euro unless Merkel agreed to the latest EU plan to stabilise the currency. Merkel is much more of a “head” negotiator, using rational behaviours such as “proposing with reasons” and “testing and probing” of positions to secure her needs.
    “Heart” and “head” negotiators often find it difficult to negotiate together because of their differing styles. These differences make them wary of each other. Heart negotiators find head negotiators aloof and cold; head negotiators find heart negotiators too emotional and impulsive. Moreover, these differences are accentuated when the parties are under pressure, when we all tend to default to our favourite behaviours.

    We might expect financial markets to pounce on this schism in “Team-Euro” soon, anxious about their lack of unity and as a result betting against the Euro once again.

    If, as expected, the Euro-zone countries are required to put together yet another rescue deal in response, then that lack of natural empathy between Sarkozy and Merkel may yet de-rail the Euro. When you are under pressure to get a deal done you need to be able to trust your team mates instinctively. As Elvis so rightly put it, “we can’t go on together with suspicious minds…”

  • Previous Articles

    Paralysed England need new Backbone to move on ...

    The debate over whether Fabio Capello should stay or go has obscured the real reason why England lost so badly to Germany and crashed out of the World Cup. It is a feature of any negotiation that winners have a positive attitude. This is a feature of traditional business negotiations and also of “physical” negotiations like sporting contests.

    In this case the difference in attitude between England and Germany is palpable. Germany take to the field expecting to win. England take to the field fearing that they may lose.

    If you bring a losing attitude to a negotiation, that dictates your own behaviour and the attitude of others. You become less ambitious in your aims, your behaviour is tentative, you anxiously fluff your lines. All of this fuels the attitude of the other side; they become more ambitious,  more confident and more assertive. Sounds familiar from watching England play?

    Germany have progressed further than England in every single World Cup since 1966. That’s 11 tournaments in a row.  Once may be chance, twice a coincidence, three times is a pattern, eleven times is an inevitability.

    It is the difference in attitude which makes the difference. England will not beat Germany in a competitive fixture at the World Cup until that attitude changes. This issue is more important than goalkeeping bloopers, penalty misses, refereeing errors, mid season breaks, whether England are wearing their lucky strip, or any other reason which is cited as an excuse for England’s repeated failure to progress.

    If this is the case there is no point sacking Capello – he at least is a “winner” who always expects to win. It is the players who are the problem. The so-called “Golden Generation” have failed so often that the expectation of failure at this level is hard-wired into their attitude. It must be tempting now for Capello to abandon these older players. I would encourage him to select a group of young players not older than 20 and work with them through the Euro’s and on to the next World Cup. Players would be selected for this group not just on the basis of their ability, but also their attitude – do they have the invincibility of youth to go out on the pitch expecting to win?

    Taking this strategy may mean that if we meet Germany again in the 2014 World Cup we have a chance of winning the match. But we have to win the mind game first…..

    Can BSkyB resist Rupert’s Bear-hug? ...

    The proposed deal for News Corp to buy out the other existing shareholders at BSkyB throws up some interesting scenarios in relation to the participants’ needs and how they can best be met. A quick look at the needs, bargaining power and behaviour patterns on all sides suggests that a deal will be forthcoming. But how this might be viewed in any investigation by the Competition Authorities is another matter.

    Looking at the needs of Rupert Murdoch’s Newscorp it would seem that a familiar pattern is being played-out. The deal would provide a source of cash from BSkyB’s operations which are forecast to grow rapidly – by as much as 70% over the next 2 years. This would no doubt be useful to Murdoch’s media empire at a time when there is a reassurance need for cash-flow, as newspaper revenues plummet all over the world, and the jury remains out on whether this trend can be reversed through the introduction of the kind of “pay-walls” recently introduced by Murdoch for The Times newspaper.

    In terms of other personal needs, there is no need to dwell long on the partial satisfaction of Murdoch’s ‘achievement’ need which this deal would also represent. The man has been executing headline-grabbing and ground-breaking media deals for 60 years, and is not likely to stop scratching that itch until he is 6 feet under, at the earliest.  The deal is also another gratifying instalment in the saga of the Murdoch Dynasty, a family that loves to be seen to be commanding respect and attention.

    That brings us to James Murdoch, who as CEO of BSkyB finds himself in an interesting position. It is hard to believe that Murdoch’s bid would have been launched without his son’s tacit support. However, though he is no doubt loyal to his family, I wonder if there is something just slightly irritating in this deal for baby James?

    Like any child of a masterful parent, he may sometimes feel that his father’s shadow looms large in his life. Children in his situation often develop strong and understandable needs to create their own achievements. Over the last few years he has successfully escaped Murdoch Senior’s shadow by forging his own formidable reputation as a very successful and smart businessman. Now he finds himself on the brink of coming back under his father’s wing again.

    It may well be that as part of the deal to garner his son’s support for this take-over, Rupert Murdoch has had to come up with some ‘coinage’ – a negotiating reference to a concession which may not have huge value to the giver, but is highly valued by the receiver because it meets a personal need. Perhaps this coinage is a potential new role for his son, maybe in another company or division, where James can continue to develop his reputation and success, and satisfy his own dreams and ambitions independently of his father. Or maybe, dare one say it, it’s even a promise that Rupert Murdoch will step aside from running the combined entity in due course in favour of his son?

    And what of the other independent Board members of BSkyB, including heavyweights like Gail Rebuck (Chairman and CEO of Random House), Alan Leighton (ex CEO of Asda) and Nick Ferguson? They may well be feeling that this is a difficult deal to stop, regardless of their point of view. Newscorp has a lot of bargaining power to bring to the table:

    • Market power, weight deriving from its size and resources
    • Expert power in relation to its understanding of the satellite-TV market
    • Network power based on the connection between Murdoch Senior and his son.

    In this context, other Board members may be feeling uncertainty as to their own position, if and when the takeover happens. Rupert Murdoch is known as a tough negotiator whose style is based on ‘pushing’ his own agenda, rather than accommodating the needs of others. So, the other BSkyB Board members may feel that their needs are best satisfied by preserving their own reputation for integrity and shrewdness, through pushing Murdoch to the highest price to which he will go.

    This certainly seems to be the gist of the early exchanges of bids, with BSkyB rejecting Murdoch’s current bid of 700 pence per share and insisting that a price in excess of 800 pence per share is required. This would value the 61% of BSkyB shares that Murdoch wishes to buy at some £1 billion more than the News Corp offer of £8 billion (which itself represented a 27.5% premium above the average BSkyB share price over the last 12 months).

    Rupert Murdoch is not a man easily put-off when he closes in on a potential acquisition, so the expectation must be that, ultimately, enough needs would be met by all participants that BSkyB agrees to the take-over deal. Whether the Competition Authorities will feel the same way is another question.

    There may be issues in Brussels and in front of the OFT about an arrangement which would give one company control over the largest digital pay-TV platform in Britain, major newspapers such as the Times, Sunday Times, and the Sun, and a burgeoning broadband and telephony operation. However, that’s another deal for another blog…