Woody Wade on Scenario Planning

“The Cyprus scenario”

Blogs should get you thinking. Their content should be “ripped from today’s headlines”

Well, they may not directly affect the UK hospitality market, but the events in Cyprus are truly astonishing, don’t you agree? I’m reading this morning that some politicians and advisors are telling people that if they have any money in a bank in southern European – not just in Cyprus, mind you: in all of southern Europe – they should withdraw it now.

This is sobering reading:
http://etfdailynews.com/2013/03/24/words-of-warning-get-your-money-out-of-european-banks/

And within just the last few minutes (speaking of “ripped from today’s headlines”), Bloomberg has posted that depositors will lose 40% of their account balances, while Reuters are saying it’s “only” 30%.

Don’t they know?? You’d think this would be an important fact to get right.

In any case, this entire scenario was unimaginable at the beginning of March, let alone at the beginning of 2013. Yet here we are. And while we may be looking on in shocked horror at the idea that the EU could just swoop in and scoop up a third of somebody’s savings, thank you very much, shouldn’t we also be grabbing this opportunity to conduct a quick-and-dirty scenario generation exercise to try and imagine the possible consequences that could indeed affect us as this sad situation continues to unfold?

You see, events in Cyprus may well afford us an “opportunity”, possibly very soon, to learn what it looks like when a country’s economy essentially collapses. With its important banking sector, the Cypriot economy will live or die depending on depositor/consumer confidence. Today, they’ve announced a “deal” – oh joy! Should that make us confident? If you had money in the country’s banks, would you breathe a sigh of relief that they “only” grabbed 30% of it (or 40%?)… or would you hightail it out of Cyprus? I know what I’d do.

The real confidence issue is not about Cyprus’ banks, of course. It’s whether the EU, having set this egregious precedent, can be trusted not to resort to this method of “bailing out” financial institutions in Greece, Italy, Spain or Portugal. What about Ireland? What about France? Is any place in the eurozone safe? The Cyprus “solution” could trigger a disastrous domino effect: the infamous “unintended consequences”. Think: bailout “taxes” on deposits, runs on banks, bank failures, capital controls, ATMs running out of cash, banks allowing you only restricted access to your own money, and all while insiders are quietly warned in advance to move before the hoi polloi is informed what’s going on. I don’t want to sound like one of those doom-and-gloom pessimists predicting blood in the streets, but when governments start raiding people’s savings, and access to actual money is blocked, it’s hard to imagine a completely peaceful outcome.

I’m hinting here at only one, very dire, future scenario – but there are certainly others, just as plausible. Can you imagine a scenario that would have an impact on you?

Sceptics out there would ask me: “Would scenario planning have foreseen any of this?” Perhaps not in all its details, in glorious technicolour. But companies that take the time to think about what could happen in their politico-economic back yard might find themselves better prepared for the potential fallout from this kind of event, indirect though it may be.

Here’s the rub. Where will all this lead in 6 months? Or in 3 years? It’s worth thinking about today.

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