Ireland could also be a victim of U.S.
tax legislation changes on corporate
business if, as Trump advocates, U.S.
corporate taxes are reduced. The
Republic currently benefits greatly
from its low-tax environment, having
attracted many U.S. businesses as
an English-speaking, low-tax entry
point into the EU. Having suffered
greatly in the 2008 financial crisis,
when it was the first eurozone country
to address its nonperforming loan
(NPL) problems, Ireland may now face
another round of economic problems.
The winners from Brexit are likely
to be those U.K. companies with
minimal European trade or minimal
euro and dollar costs that will
benefit from currency movement
and import substitution. Leisure
industries in tourist locations will
benefit from increased foreign
visitors attracted by the 15 percent
depreciation in the exchange rate
for the pound. Other foreign buyers
will emulate Warren Buffet and look
to profit from cheaper U.K. assets.
However, until the Brexit divorce
settlement is agreed upon and
businesses can assess the new
playing field, investment decision
making will be deferred and
competitiveness eroded. This could
be two years at the very best but
looks likely to be longer. Neither
side seems willing to compromise
over its red lines on free movement
of labor, and the leverage appears
not to favor the U.K. negotiators.
Continental Europe
So much for Britain and its self-inflicted Brexit problems. What of
Continental Europe? It is likely to
be largely immune to a significant
Brexit effect, but the EU’s leaders
will be extremely worried about
the potential impact of Trumpian
populism. As previously stated,
such populism threatens the
very fundamentals of the EU.
Europe’s leaders will, however,
take some solace from the fact that
people should now at least know
that populist electoral revolts do not
necessarily solve economic problems.
This was evident in Greece in 2014,
when the populist movement did
nothing but defer the problem of
debt. And it is this debt issue that
will be occupying EU leaders as
much as the threat of populism and
nationalism over the coming years.
With more than $1 trillion of NPLs
clogging the arteries of the banking
system, a mammoth program of
NPL workouts is still needed. While
only one-third of that amount
is corporate debt and a target for
turnaround professionals, this is
more than enough to keep the
turnaround and restructuring
industry busy for the next few years.
More than half of this NPL debt is
in two countries: Italy and Greece.
The European Central Bank (ECB)
and the EU have made great strides
in preparing the way for progressive
workout reduction. Insolvency
legislation has been changed in
Italy to reduce the timeline of in-court restructuring to encourage
buyers of distressed portfolios.
A realistic plan has evolved in
Greece, encouraged by the ECB
and European Stability Mechanism,
to work out its nearly $120 billion
of NPLs over three to five years in
conjunction with U.S. and London-based funds and the involvement of
internationally recognized turnaround
and restructuring firms. While there
is a long way to go and Greece is
capable of many surprises, much
uncertainty has been removed.
Stability and international support,
not Trumpian populism, is needed
to get Greek banks lending and
the economy moving again.
The Long View
“May you live in interesting times”
is a euphemism, of course, for
troubled times and should perhaps
be the watchword of TMA, whose
members certainly live in interesting
times on both sides of the Atlantic.
It is not unreasonable to assume
that the convulsions that are being
brought about by the populist
reaction to globalization and which
led to both Trump and Brexit will
significantly upset established
business structures and open
opportunities for the turnaround and
restructuring industry across Europe.
It is not something that anyone should
necessarily wish on the world, but
TMA members can take comfort in
knowing that they have the skills and
knowledge to help. With the progress
the industry has made since TMA
was established, today’s turnaround
and restructuring professionals
are in a better place to manage the
problems than were their forebears.
Nationalism and protectionism brought
Europe to its knees once before. The
EU has helped restore Europe with 50
years of peace and prosperity. The EU
is not perfect, but it is better than the
alternative of nationalism and trade
conflict offered by populism. Political
backlash is trumping economic
growth right now, but in the long
term, “it’s still the economy, stupid.” J
Alan Tilley, EACTP Companion, is chairman of
BM&T, a London-based turnaround boutique with
offices and associates in France, Germany, Italy,
Spain, Romania, and Greece. He has more than
20 years’ experience in European cross border
restructuring. Prior to founding BM&T, he was
European managing director of Glass & Associates.
Tilley is a past president of TMA UK, a former VP-International for TMA Global, and a founding
director of TMA Europe and EACTP, and has won
several awards for innovative turnaround.
