The Greek Crisis: Lessons For South Africa
Greece is in an unenviable position – it can leave the Euro and face potential collapse or it can stay in the Eurozone and face years of financial hardship. Pensions are being cut, the retirement age is going up, youth unemployment is more than 50% and the banks are close to collapse.
Clearly, South Africa is nowhere near as bad but we can still learn some valuable lessons from Greece.
The Deepening Crisis
So what are the lessons?
The Deepening Crisis
Like us, Greece boomed from 2000 to 2009. The Greeks had a consumer-led boom which created their debt pile up. South Africa’s boom was also consumption driven but there was infrastructural investment and the Fiscus kept debt under control.
Since 2009, Greece has implemented several austerity belt-tightening exercises. The reality is that the Greeks, with Euro 320 billion in debt, are insolvent. The austerity measures caused demonstrations in Greece as the population rebelled against this program. Inevitably, populism bubbled up and a leftist populist party was elected to put an end to the “national humiliation”. Yet the crisis has only deepened and the Greek government has accepted terms harsher than the recent ones rejected in a referendum.
So what are the lessons?
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Country debt does not go away.
European countries are refusing to write off debt or to give any funding to Greece without further severe austerity measures. At some stage you or the next generation(s) is going to have to pay for South Africa’s national debt. For example in 1985, South Africa effectively defaulted on its external debt and when President Mandela assumed power in 1994, he was forced to pay off this historical debt, which we finally settled only in 2001.
The lesson learned is don’t let national debt spiral out of control.
South Africa’s debt has increased considerably since 2009 but the Treasury has been determined to ensure it stays within credible bounds. So far they have been relatively successful.
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Greece is not too big to fail and cannot go it alone.
An unspoken threat running through these negotiations is that it will be devastating for Europe if Greece exits the Euro – the “Grexit” option. Clearly, the governments of Europe are trying to keep Greece within the Eurozone, but there is a limit to this. Greece makes up less than 2% of the European Community’s economy.
Globalisation effectively makes it impossible to go it alone – the collapse of Greek banks without European funding illustrates this.
The government in South Africa is aware that no country can simply wish away financial discipline in the globalised economy.
- Greece needs to rein in expenditure and reduce corruption.
Greece has not fulfilled many of its obligations since joining the Eurozone. It still has a bloated civil service, cronyism is rife, tax collections are low and Greece is rated the most corrupt European country. This irritates many of its Euro partners – not just Germany. As discussed above, Greece needs to seriously commit to reform.
In South Africa both corruption and the size of the civil service have increased – in 1994 civil servant salaries made up 5% of government expenditure and today it is 45%. In addition, we have been slipping in the governance and corruption global indices.
This is a concern for South Africans. Corruption has become a daily news item and the increase in the government’s salary bill reduces its options in fully committing itself to the amount of infrastructure spend the nation requires.
It is unlikely we will face a Greek debt scenario but there are some signs that we should begin to address some worrying trends.
No one wants to be like Greece which has surrendered its sovereignty and faces real hardship over the next generation.
Provided by Schoeman Coetzee
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