Sovereign debt crisis: Effects on financing and the real economy

Sovereign debt crisis: Effects on financing and the real economy. An International comparison between Romania, Central and Eastern Europe (CEE) and other global markets (Based on the Roland Berger Global Restructuring Study 2012)

NOT for the first time and probably not for the last time over what is now almost half a decade of economic crisis, managers feel they are heading once again for the "blues"... According to around 600 managers worldwide1, the outlook for the economy as a whole is rather pessimistic. A clear majority of managers in Romania (54%), Central and Eastern Europe (70%), Europe as a whole (62%) and Japan (100%) see a high risk of a renewed economic slowdown, as a direct result of the sovereign debt crisis. Overall, over 80% of the companies surveyed believe the worst of the crisis is yet to come.

These are the main findings of a new study by Roland Berger Strategy Consultants reflecting the managers' views on the sovereign debt crisis and its effects on financing and the real economy. The aim of the study was to learn how, in view of the current sovereign debt crisis, managers are preparing their companies for such possible scenarios as a renewed economic downturn or the exit of individual countries from the euro zone.

Many of the companies are preparing for the worst – about a third have already made contingency arrangements for a possible breakup of the euro zone, or are planning to do so. In this context, two thirds of the respondents are focusing primarily on cost-cutting and efficiency-raising programs to make sure they are ready for any financial or staffing shortages. Consistently implementing the proposed restructuring actions is important to ensure the companies' success.

Despite all the turmoil however, half of the companies in Central and Eastern Europe and almost 60% in Romania consider themselves well equipped for any scenarios. After all, almost 5 years of surviving "blue" times have not come without hard lessons, and survivors tend to emerge stronger than before.



Europe expects the economy to stagnate overall in 2012 and grow by a mere 0.6% in 2013. North-Western Europe (NEW) is moderately more optimistic, expecting 0.8% growth. At the other pole, South-Western Europe (SWE) expects GDP to be down by -1.8% in 2012 and still down by -0.6% in 2013. Somewhere in between, CEE expects economic development of -0.2% – only a slight decrease. By comparison, Japanese expectations are much more optimistic, at 1.3% economic growth in 2012.

For 2012, both Romania and Germany are expected to register growth somewhere in the interval 1.0% to 2.0%. A similar level is also forecast for 2013, with Romanian managers however slightly more dispersed towards extreme values (both positive and negative).

Despite the general wave of uncertainty, over 60% of those surveyed in both countries expect growth of more than 10% for their own companies and thus much more than for the two economies as a whole. German managers are once again more confident with almost 75% of them expecting solid growth from their organizations.

Overall, 62% of the companies in Europe perceive the threat of a possible new recession in their country. More optimistically, in NWE just half of companies believe there is a risk of recession, with German managers even more positive. At the other end, SWE companies believe to already be in recession, while over 70% in CEE fear a new possible slowdown. In line with European expectations, 54% of the Romanian managers are also anticipating a renewed decline.

The current situation is expected to worsen in an economic downturn particularly in terms of more restrictive lending and declining intra-European exports. In Romania in particular, the fear of growing unemployment is higher. The most relevant factor in Europe as a whole, i.e. declining demand among private households, is also a key concern in Romania, while declining extra-European exports is of no particular relevance, the only exception being Germany, for whom exports are the main economic growth engine. The sovereign debt crisis is expected to impact companies much less than the economy as a whole, as 61% of those surveyed in Europe see a strong negative impact on the economy, compared to only 34% on their own companies. The situation is similar in Romania, with 68% of managers anticipating negative shock waves on the overall economy, but only 29% on their own companies. On the negative side, 84% of companies worldwide believe that the sovereign debt crisis has yet to reach its peak, which is estimated in late 2012 or early 2013.



When analyzing individual sectors, unsurprisingly financial services are the most impacted sector across all Europe, as well as in Romania. The construction sector, as well as the retail, consumer goods and automotive industries seem to have been considerably impacted in most regions, also. At the other end, energy & utilities, pharmaceuticals and media seem to be the most stable in front of the crisis.

Survival of the euro – regional Assessments

While almost 50% of those surveyed across Europe are certain that there will be no collapse of the European monetary union, nearly a third are uncertain. Over 65% of both Romanian and CEE managers consider a (voluntary) Greek exit from the euro-zone to make sense – however, compared to NWE executives (53%), for example, Romanian (69%) and CEE ones (68%) are much more certain that such an event will take place. Diverging from the general CEE opinion however, Romanian managers seem to be more preoccupied with a potential euro zone collapse. The concern nonetheless, remains limited to just above one third of the Romanian respondents. Where steps were taken, the focus was primarily on cooperation with companies and contractual hedging with potentially affected customers / suppliers.


More than half of Romanian companies and almost 60% of the European ones consider themselves well equipped for an economic slowdown or a new crisis in 2012, compared to their competitors. Moreover, in 2011, 52% of those surveyed in Romania indicated that the economic crisis of 2008/09 significantly helped them boost their competitiveness in the long term through restructuring. Thus, in the event of an economic slowdown or an emerging liquidity / currency crisis, 58% of the Romanian companies think they are currently well or very well positioned, in line with the European average, but relatively less confident than German ones, for example.

Besides actions to promote sales growth, cost-cutting and efficiency-boosting programs in particular are top priorities for both Romanian and European managers. Stronger risk management is of particular concern in Romania, but is at the bottom of the European priority list, where it continues to be underestimated. Therefore, restructuring actions are still at the core of the top priority list of managers, with liquidity issues of particular relevance for Romanian executives. At the other end, strategic actions are still not seen as top priorities. When it comes to risk management, while commodity price risks are considered highly relevant, currency risks are deemed to have a more widespread importance. The situation is reversed compared to 2011, as commodity price risk has maintained relatively stable, but the currency risk has gained significant importance (78% in 2012 vs. 48% in 2011) in Romania. This rising concern has been mainly triggered by the recent devaluation of the Romanian currency on the back of internal political struggles and growing impact of the sovereign debt crisis. Passing the risks on to the customer is named the most significant countermeasure – but it can, nevertheless, be difficult to implement.

In terms of success factors in implementing these actions, management commitment remains the most important driver, both among Romanian and European managers, but is becoming less important compared to 2011. Rapid implementation is seen as the main success factor gaining importance in both Europe and Romania, as quick reaction becomes critical in an ever-changing environment.

In terms of liquidity, with 2011 a peak critical year, Romania and CEE in general were somewhat delayed compared to Germany and North-Western Europe. The situation has somewhat eased currently, but the European sovereign debt crisis and its impact on the financial services sector are considered possible main causes of a renewed credit crunch or liquidity crisis, especially in the SWE and CEE regions.


In terms of financing, Romanian and European managers generally face the same challenges, with the Romanian perspective rather more negative, on the back of business environment deterioration and breach or lack of ability to fulfill financial covenants.

Thus, in Europe only 24% of those surveyed expect insufficient funds from shareholders to be a problem. By comparison, in Romania this challenge is significantly more pregnant, affecting almost half of the respondents, as Romanian companies rely a lot on external financing from parent companies. Also, access to financing from banks is a lot more difficult in Romania as compared to the European average, both when it comes to approval of new credit lines and when expanding / maintaining existing ones. The causes are primarily exogenous, resulting mainly from the deteriorated business environment, e.g. due to internal political struggles, as well as the sovereign debt crisis seriously reducing financing in CEE and South-Western Europe, in particular. Compared with external financing sources, almost all companies attributed the greatest importance to internal financing power. Among internal financing forms, working capital actions continue to be ranked first – however, as North-Western Europe relies mainly on reducing inventory assets, in Romania and CEE, in general, optimization of payment terms and billing are considered more important.

Leaving the "blues" behind – obstacles to be overcome

In terms of possible obstacles hindering growth, although declining in importance, the availability of qualified staff remains the greatest challenge across Europe, Romania included. In the meanwhile, the fear of insufficient financing options has risen considerably over the last year.

Currently, both in Romania and Europe, insufficient financing options constitute a significantly greater hindrance to growth compared with 2011 (up +17 and +6 percentage points, respectively). Of particular relevance is also the perceived lack of management / shareholder willingness to take risks, which is feared by over 40% of both Romanian and European managers, but even more so by CEE executives (over 75%), who seem to suffer more from "inaction" rather than "action".

Summing up, as internal financing power remains an essential source of funding for virtually all European companies, and implicitly, overall future growth, implementing restructuring actions is therefore of paramount importance.




Real-life restructuring experience (gained in over 2,000 projects over the last 10 years) reveals the fact that a successful restructuring process relies on the capacity to take rapid and effective actions, without altering the company's capacity to generate future growth and remain competitive. Thus, a holistic approach, entailing strategic, operational and financial levers, is needed in order to tackle the three pillars of a consistent and accomplished restructuring process: strategic realignment (addressing product portfolio, client segments, geographic markets, business and organizational model, consolidation opportunities, etc.), operational restructuring (addressing admin and personnel expenses, procurement and logistic costs, outsourcing, liquidity management, etc.) and financial restructuring (liquidity, capital structure, etc.).

Restructuring also demands swift identification of restructuring needs and rigorous implementation of precise actions, while the project is intensively monitored along the way. Furthermore, active participation and support of the restructuring process from all stakeholders, as well as full dedication of the management team are also key prerequisites.

Finally, swift implementation of a correct restructuring platform should establish a basis for future growth. When reducing costs, a key element to be considered is that effective restructuring should increase a company's competitiveness, and it is of outmost importance that growth and sales initiatives are taken along with cost actions. Also, competitors' own struggle with the crisis may also emerge as a positively surprising prospect to strengthen market position and come out as a leader once the tumult slows down. Because, in the end, going through a fruitful restructuring process could prove the only way in which companies could improve liquidity, guarantee financial independence, and eventually leave the "blues" behind…