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May 22 / Gene Bellinger

The Euro Financial Crisis: Making Sense of the Mess

Author: James B. Rieley. Volume 1. Issue 1. Article Date: May 21, 2012.
Abstract: There are times when problems seem almost insurmountable.  Typically, we believe a problem to be insurmountable for one of several reasons.  These reasons include; 1) the belief that the problem is something that has never been experienced before, and therefore, we have no past experience to help us solve it; 2) the belief that the problem is so complex that there is no way that it can be solved; and, 3) the belief that because we have tried to solve the problem previously but it has come back, the problem is impossible to solve.  The common element in all of these examples is our “belief” that a problem is insurmountable.  There is no doubt that our beliefs are powerful, and there is also no doubt that our beliefs guide our actions.  Our beliefs may be the basis for our reality, but they are not necessarily the same.  In the case of looking at problems that we believe to be insurmountable, one solution is to change the way we look at the problem.  The European Financial Crisis and its impact on local businesses provide a good opportunity to do this.


There is no doubt that the current euro financial crisis has for some time been the topic of conversation.  When most people talk about the impact of the euro financial crisis, what we hear represents the detail complexity (Senge 2010) of the problem.  Because detail complexity refers to situations that have many different parts or components, we hear things like, “our national debt is too high;” “the austerity measures the government is put in place are crippling;” “tourism is down;” “ nobody is going out anymore;” and, “our business is failing because of things that are out of our control.”  Whilst these comments represent some of the component elements – the detail complexity – of the impact of the crisis on local businesses, they do little to help local business owners, other than feel that there is little that they can do to survive the crisis.  Therefore, whilst talking about the impact of the crisis on local businesses in terms of detail complexity might be nice for the evening news report, it offers little that can help local business proprietors learn what they can do to make it through the mess they are in.

By changing the way in which we view the problem, we can have a better chance of solving it.  In most situations, better solutions can be found by looking at the dynamic complexity (Senge 2010) of the problem.  The term dynamic complexity refers to the various interrelationships between the component elements of a problem.  In puzzle terms, looking at the detail complexity of a puzzle you see all the puzzle pieces.  Looking at the dynamic complexity of a puzzle you see how all the pieces interconnect with each other.  If you want to put the puzzle together, just knowing what all the pieces are won’t let you put the puzzle together, but if you see how the puzzle pieces fit together, you can solve it.  The same holds true to a problem like the impact of the euro crisis on local businesses.  Just knowing what a mess it is won’t help you make it through the mess; but if you can see the interrelationships between all the component elements that make up the problem, you may find a solution that will help you and your business survive.

The dynamic complexity of the euro financial crisis and its impact on local businesses is a good example.  The story of the financial crisis and its impact can be seen on several levels.  One part of the story focuses on what has been going on at a trans-national level; i.e. the level where countries interact with each other.  It is well understood that for years, countries have spent more money than they take in.  When national spending is greater than the money taken in, the country is recognised to be in debt; and as we have seen recently, some countries are deeply in debt.  Because some countries have more money than others, when a country goes into debt, it typically borrows money from another country, or in some cases, from organisations that have been set up by many countries to lend money to poorer countries.  In today’s world, the fact that a country may be in debt isn’t seen as a big problem until the country cannot afford to pay back the money it borrows.

When the global economic crisis began to hit, heavily indebted governments discovered that it was becoming more and more difficult for them to continue their pattern of borrowing in order to continue to spend and invest in their countries.  Because countries had used borrowing as a way to cover the fact that they were spending more than they took in, governments became addicted to the behaviour of borrowing-as-a-way-to-reduce-debt.  As their addiction grew, their debt levels increased due to their previous borrowing behaviours (see figure 1).

Whilst this picture looks far more complex, the way to read it is the same.  The structural loops in this picture have been numbered in order to make it even easier to read, with “R” meaning the behaviours are reinforcing; i.e. more will lead to more, or less will lead to less.  The “B” notation in the loop numbering refers to a balancing behaviour; i.e. more leads to less or less leads to more.

figure 1

Loop B1 shows the interrelationship between two variables; money problems and borrowing level.  The arrows and the notations show that as money problems increase the level of borrowing increases, and as more money is borrowed, there is the belief that money problems decrease.  But the solution of borrowing leads to the addiction (R4) of believing that there is an easy way out of national money problems, and the easy way out is to simply borrow more money.  There is a more fundamental solution to national money problems however, and that solution is shown in B2.  Again, by following the arrows and reading the notations, this solution becomes clear.  As money problems increase, the fundamental solution is to move toward a more fiscally responsible environment.  Fiscally responsible means stopping spending more money than you have.

As there is a greater move toward fiscal responsibility, there is less spending beyond ones means, and in this case, that means spending by government.  Less over-spending means fewer money problems (B3).

Loop B6 shows that fiscal responsibility can be a double-edged sword, as it can result in more money being made available to provide assistance to other countries.  This will increase the potential for further bail-outs, which in turn, can lead to a greater reliance on bail-outs on the part of countries that are addicted to borrowing their way out of debt, further enabling them to avoid becoming more fiscally responsible.

The reason that this seemingly obvious solution isn’t attempted by most governments is that they are so addicted to borrowing their way out of money trouble that they do not even consider it as a solution because it would be far more difficult to do than simply borrowing more so that the problem appears to go away.

There are some other dynamics at play in this structure as well.  As seen in R4, because some countries have borrowed too much (and are not able to pay back the money they owe), their ability to borrow decreases.  This should make sense because when we borrow more money than we can pay back, it becomes more difficult for us to find someone who will lend more to us.  The picture shows that when the ability to borrow decreases, countries that spend more money than they have become reliant on other countries to ‘bail them out.’  In terms that we all understand, being bailed-out is like receiving welfare, but in this situation, it is welfare on a trans-national level.  The more a country becomes reliant on being bailed-out, the more it supports their addiction to believing that there is an easy way out of the mess they are in, which means they won’t have to attempt to become more fiscally responsible.

The rest of this structure sheds light on what happens when a country does make the conscious choice to move toward becoming fiscally responsible.   As a country that used to borrow to get out of its money problems becomes more fiscally responsible, it will have more money than before.  And because of this, it often will become involved in helping other countries that still have financial problems.  By being in a position to help other countries, the availability of external funding increases, which increases the potential for more bail-outs, which (sadly) means that some countries addiction will continue to prevent them from becoming more fiscally responsible.  A positive effect of becoming more fiscally responsible is that when a country makes this move, it works to stop spending more than it takes in; i.e. more than its means.  And when this happens – not spending more than it has, a country will cease to have money problems.  Therefore, it makes sense for a country to move toward becoming more fiscally responsible to get out of its money problems.

Because the problem is the impact of the euro financial crisis on local businesses, what we see in figure 1, whilst showing what happens on the trans-national level, does not completely answer the question of ‘’what else happens?’’  To do this, we should look to see the dynamics that are taking place at the national level.

figure 2

The picture of what is happening at the national level looks different because this view looks at what else happens when a country does move toward more fiscal responsibility (R7).  Typically, a move toward more fiscal responsibility leads to austerity measures.  Austerity measures means that a government spends less money and this often takes the shape of fewer investments in business and industry in the country.  Fewer investments for business and industry means that companies will need to cut back on expenses.  This means less potential for growth, which leads to a reduction in employment.

As employment goes down; i.e. as more employees are made redundant, means that these now out-of-work employees have less spendable income.  This puts pressure on a country’s welfare system, which causes the government to spend more to help its people.  As welfare requirements increase, spending increases, which, for a country that wants to become more fiscally responsible, will result in additional austerity measures.  The dynamic shown in R7 is reinforcing in nature; i.e. this cycle will continue to repeat itself unless something else changes.  In the case of many countries that are experiencing this, it means deeper and deeper austerity cuts.

The pain that is a result of austerity cuts in one country can be felt in other countries as well.  The island of Mallorca has been thought for many years to be a wonderful place for Brits to relocate in order to enjoy the climate and culture of the Spanish island. With relatively close proximity to the United Kingdom, airlines have been bringing planeloads of tourists here each year.  Because of this, many ex-pats who have moved to Mallorca have set up small businesses, with the hope to capitalise on the low cost of this tourist haven.  Some of these businesses have been extremely successful, mainly through catering to the wants and desires of the tourist and ex-pat populations.  Over time, this has been a strong growth engine for these companies.  Business models that had relied on the expectation of continued growth soon began to show weakness and for many business proprietors, this was confounding as it represented a clear limit to on-going success (see figure 3).

figure 3

These proprietors saw the decline in business being the fault of external factors that were beyond their control.  This belief was founded in the reality that the global economic crisis led to financial hardship on the part of tourists, who found themselves unable to afford to take holidays to Mallorca, and, consequently would not be spending money in their businesses.

Many business proprietors then became trapped in their own mind-set addiction to the belief that  “our business model has always worked in the past, and therefore, it is sound and there is no reason to change.”  In simple terms, our beliefs and assumptions drive our actions, and in this situation, the belief that a business model has worked in the past and therefore, it should always work meant that not being willing to change becomes a limiting factor for continued success.  The reality is that past success does not always ensure current or future success, and the addiction to the belief that there was no reason to change meant that many local businesses were doomed to fail.

When confronted with evidence that not all businesses on the island were in financial trouble, the ex-pat proprietors who had achieved great success catering to the ex-pat market continued to look at the problem as one that was beyond their control, largely because they were looking at the detail complexity of the problem instead of looking at the dynamic complexity of what was going on (figure 4).

figure 4

Figure 4 identifies a structure known as Shifting the Burden (Senge 2010).  Shifting the Burden is an archetype that explains a specific set of behaviours that occur when there is a problem that can be solved by either using a quick-fix or a more fundamental solution.  Using the quick-fix makes the problem appear to go away temporarily and its use causes an addiction to a behaviour that typically means that the more fundamental solution will never be attempted.  In this case, Shifting the Burden manifests itself as a mind-set by focusing on placing the blame for the market turn down and its impact on business by blaming external drivers, including the euro financial crisis (loop B10), proprietors become addicted to the belief that the problem is not of their making, and therefore, there isn’t a reason to change how they do business.  This reinforcing addictive mental model prevents them from ever getting to a fundamental solution of how to deal with the impact of the situation (loop B11).

When all of these pictures are put together (figure 5) it is possible to see how the dynamic complexity of how the euro financial crisis impacts local businesses.  It is fair to say that figure 5 is complex…because what is going on is complex.  Overall, this means that unless one of the variables in this structure changes, the overall behaviours of the structure (the action of the gears) will remain the same over time and, consequently, generate the same results over time. For business owners who are feeling the impact of the euro financial crisis, this isn’t good news.  Having said that, by looking at the variables in the overall structure, it is possible to see that there are variables that can be changed.

The impact on local businesses of the euro financial crisis is real, but just because the problem is complex, it does not mean that local business proprietors have no options.  The options for local businesses are there, but only if they choose to break their addiction to believing that what has worked in the past (before the onset of the euro financial crisis) will work today and in the future.  Looking at the situation by examining the dynamic complexity of it can illuminate where these options are.

figure 5

By looking at the impact of the euro financial crisis on local businesses through dynamic complexity, it is possible to see that, whilst business proprietors are not able to change what is happening on the trans-national and national levels, they do have the opportunity to re-think how they operate their businesses.  Instead of continuing to be reliant on their previous business models to achieve success, they can adapt them to pursue a different, more local, customer base that has not been affected by the crisis as much as their current ex-pat and tourist customers.

Looking at the dynamic complexity of difficult problems will not solve them.  But by using dynamic complexity to look at difficult problems can provide a perspective that will help us understand what is really going on so we can have the chance to solve them.

James B. Rieley is an advisor to CEO’s and senior leadership teams from all sectors.  He was the CEO of a successful manufacturing company for over 20 years, and has written extensively on the subject of personal and collective organisational effectiveness.  He is the author of Gaming the System (FT/Prentice Hall), Leadership (Hodder), Strategy and Performance (Hodder), Change and Crisis Management (Hodder), as well as numerous articles and the subscripton-based Plain Talk about Business Performance newsletter.  His work has been cited in Fast Company, Making It Happen: Stories from Inside the New Workplace, A Fieldguide for Focused Planning, and Breakthrough Leadership.  Rieley, who holds an earned Ph.D. in Organisational Effectiveness, lives in Mallorca, and can be contacted at

Staff who worked on this article: Editor: Gene Bellinger. Reviewers: Barry Clemson, Eero Hollming, Steven Schneider, Nicolas Stampf


Senge, P. (2010) The Fifth Discipline: The Art & Practice of the Learning Organization. Crown Business

Citation details for this Article: Rieley, James B. 2012. The Euro Financial Crisis: Making Sense of the Mess. Systems Thinking World Journal: Reflection in Action. [Online Journal]. Vol. 1 Issue 1. [Referred 2012-05-22]. Available: . ISSN-L 2242-8577  ISSN 2242-8577

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  1. souradeep / May 31 2012

    Nice read. Shows how understanding the bigger picture is important before solving anything-such as restrained fiscal policies. I wonder if analysis of imbalances between borrowing and lender countries could be a large macro analysis which can potentially extend the CLDs even further.

  2. Franc / Jun 23 2012

    This is very fine article. It shows that the root cause is important and not consequences if we want to solve the problem. Politicians are paying attention to consequences and unfortunately not to the root cause.

  3. Easyebes / Jul 3 2012

    This is interesting, but I wonder if it’s application to the Euro Zone is appropriate. The assertion that countries should simply spend less does not appear to take into account the situation over there, namely, the countries are not as independant as the anaylsis assumes. The Euro Zone is a customs union (among other things), so basically it’s a FTA area. The Euro crisis likely cannot be solved by simply spending less while also promoting growth. There are trade and economic imbalances at play. For instance, Germany is the dominant player by nearly anyone’s calculations. With a free trade zone in effect, how would a country such as Greece expand their economy and progress economically in such a scenario? They have few natural resources and almost no arable land for farming. Attempting to build an economy (especially through an export avenue) while competing with the world’s premier exporter in a free trade environment is ridiculous.

    I am not condoning Greece’s foolish use of cheap money in the past or saying that the analysis in the article is in any way incorrect. However, there appears to be a lot more going on on a more fundemental level (geopolitics) than balance sheet or bail out issues.

    Thanks and I look forward to future articles!

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