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The Credit Decision to Extend Additional Funds to Greece
By Declan Flood, Irish Credit Management Training
Aug 25, 2015

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So, what lessons could a humble credit manager teach the heads of the ECB who have decided to extend additional funding to Greece?

  1. The whole basis of Credit Management is trust. When you extend credit, you are providing goods or services now and you trust your customer will pay you as agreed in the future. No matter how complex your risk assessment tools get, the simple answer is can I trust them to deliver. How do you think Greece rates on this scale?
  2. It would be considered irresponsible in credit circles to advance additional funding to a person or Company who is not in a position to repay their current loans. Why should a country be any different? Greece currently owes €313bn, have defaulted on their loan repayments and are clearly unable to sustain the current debt burden out of their own resources. Is it a good idea to give them another €85bn?
  3. If you are in doubt about your customers ability to pay, it is a good idea to look for security. So, even if it all goes pear shaped, you have something to fall back on. The deal to sequester €50bn in Greek Public Assets into a special privatisation fund is an attempt to do this, so it looks like the debt is secured. One of the first lessons in credit management at this level is to make sure your security is adequate and realisable. Will the assets be delivered? Even if the ECB takes ownership of these assets, do you think private investors would be willing to invest €50bn in Greece?
Now I am not advocating throwing the Greek people into abject poverty, I think the first step is to start living within your means. They need to adjust spending in line with income, then agree a repayment schedule that will result in a reduction in overall indebtedness, rather than increasing it.

The first bail out came five years ago, the second three years ago, the third, this week, what sensible person thinks that a fourth will not be required in a year or two again? They are simply kicking the can down the road, when what is required is action to address the unemployment situation and the national income position.

What we have here are a number of bookkeepers, when what we need is a commercially minded credit manager to resolve the issues for once and for all.

Declan Flood,
Chief Executive,
Irish Credit Management Training,
121 Lower Baggot Street,
Dublin 2.

M: 087 2447052
P:  01 659 9466
F:  01 659 9401

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