In (Slight) Defense of the Eurocrats

To those Cypriots among our readers, we send you our sympathy.

If it’s any consolation, much of the world seems to be on your side, at least if you have 100,000 euros or fewer in the bank. Under the proposed terms of an EU bailout of Cyprus’s banking system, even savers with deposit insurance (applicable to any sum less than 100,000 euros) would be subject to a 6.75% tax on their holdings, while those with more would pay 9.9%.

And now Cyprus has voted down the deal, banks are closed and the crisis continues.

Photo credit: Avij
Photo credit: Avij

We expect that Peter Drucker, like nearly all observers of this situation, would have been among those siding with ordinary depositors over EU officials. Certainly, he would have expected the bailout terms to be voted down. As we’ve noted, Drucker felt that no nation would ever willingly subordinate its own political authority to any outside interest.

But he also knew that outside interference was inevitable whenever managers failed to anticipate impacts (something we’ve discussed recently). The result, Drucker warned, were often clumsy solutions imposed with an iron fist.

Not always, however. Sometimes, Drucker said, centrally imposed fixes were not a betrayal of the principles of decentralization that are supposed to reign in entities like the EU; rather, they are a necessary, if unwelcome, complement to them.

“In fact it can be said that for a decentralized management to be efficient, it must contain at least a sprinkling of executives who pay very little attention to the rules of decentralization and are inclined towards a rather autocratic, ‘do this or be damned’ attitude,” Drucker wrote in Concept of the Corporation. “For every institution will sooner or later run up against a situation which cannot be solved on the basis of factual analysis and policy, on which agreement cannot be reached and for which there are no precedents.”

Under such circumstances, “high-handed, arbitrary, even dictatorial behavior may thus be not only no contradiction to decentralization, but a prerequisite for its functioning,” Drucker asserted. But under one condition: Such behavior “must seen and understood by everybody—including the dictatorial executive himself—as an exception and as a deviation from the norm.”

What do you think?  Can the European Union’s approach to Cyprus be defended?