Greek debt-crisis: An open-book for African economists

Imagine a situation in a country where all the banks are closed because there’s no money in the economy and at the automated machines, one can only withdraw up to Rwf50,000; this isn’t some lurid dream, it’s the current Greek reality; it’s called ‘capital control.’ Greece, one of the world’s oldest civilizations, is headed back to its ‘dark ages’ after it earlier this week became the first developed country to default on a scheduled repayment of a loan worth US$1.6bn to the International Monetary Fund (IMF). It means Greece, which has been on ‘financial life support’ from European creditors for five years since 2010, is too bankrupt to repay its debts to creditors that include the IMF. In other words, the five-year bailout program has failed to revive the Greek economy. Greece defaulted after a failed marathon of meetings with its creditors to try to avert a default and to negotiate new terms to continue the aid flows; this has removed Greece off life-support and pushed the Greek economy into ‘cardiac arrest.’ The matter has now been shoved into the hands of the Greek masses who will today vote in a referendum to decide on what their country’s experts failed. Normally, when you owe someone money, you don’t debate about it, you simply pay back since you would have signed up to the terms of repayment. But being an old democracy, Greeks will debate and with a ballot paper, they will vote either ‘No’ or ‘Yes’, or in Greek ‘Oxi’ or ‘Ne’ to accept or snub terms of repayment proposed by creditors; terms that their government refused. Many international experts have voiced concern that beyond Oxi and Ne, most Greek voters don’t really understand matters on which they’re to vote today; most are acting out of clever manipulation and incitement by politicians. But again, Greeks are a legendary proud people who pride themselves in a long history of democracy; most have been incited to believe that the international creditors are blackmailing them into signing terms of repayment that would make their life unbearable. There seems to be more politics and ego involved than logic and prudence on the side of the Greek government led by Prime Minister Alexis Tsipras who is metaphorically standing between a sword and a sharp rock. Anti-austerity Tsipras Tsipras is a populist politician whose Syriza party was voted in with a landslide victory of 75 percent in the January 2015 general election after he pledged to end the austerity measures that the previous governments had signed in order to obtain the current bailout packages. Greeks had been used to extravagant lifestyles supported by over-generous public wages, tax evasion and careless government spending which drove the country into a deep canyon of debt. As a member of the European Union, Greece and other countries in a similar situation had to be saved from bankruptcy for the sake of economic stability of the Euro zone. In May 2010, Greece signed on the first bailout deal, an international aid package worth 110 billion Euros (US $146 billion) to be released in phases over a three-year period, negotiated with the European Central Bank (ECB), European Commission and the IMF. “Greece had a choice between destruction and saving the country and we have chosen of the course to save the country,” said Greece’s then Finance Minister George Papaconstantinou. But the deal came with tough austerity measures which put an end to extravagant spending by Greek government leading to wage cuts and increased taxation on Greek businesses; these measures angered the masses and fuelled violent street protests thereafter. With the austerity measures and the aid package, Greece was expected to overcome its debt-crisis and get back on the right economic path by 2015 and be able to start repaying its debts. However, with huge public disapproval of the austerity measures, politics prevailed and it was a matter of time before the bailout program failed. Shortly after signing the deal, Finance Minister George Papaconstantinou became a scapegoat of the austerity terms in a 2011 cabinet reshuffle in which then Prime Minister George Papandreou replaced him with Evangelos Venizelos, a former defense minister. “I am leaving defense to go where the real battle is,” said Venizelos after his new appointment. The reshuffle by Papandreou was a purely political card played calm an enraged public that blamed Finance Minister Papaconstantinou for ‘betraying Greece’ when he accepted the bailout terms; the reshuffle saved Papandreou’s own skin but not for long. By this time, all three major international credit rating agencies, Fitch, Standard and Poor’s and Moody’s had downgraded Greece’s credit worthiness to the lowest levels and country’s stock market fell to lowest levels. In October 2011, Euro-zone leaders agreed a 50 percent debt write-off for Greece in return for further austerity measures but PM George Papandreou cast the deal in doubt and announced a referendum on the rescue package. A resultant storm of criticism over Papandreou’s referendum plan forced him to withdraw it and announced his resignation on November 6, 2011; Lucas Papademos, former head of the Bank of Greece became new prime minister in a three-party coalition government. In February 2012, the Greek parliament approved a new package of tough austerity measures agreed with the EU as the price of a 130bn euro bailout. On April 4, 2012 a retired pharmacist committed suicide near the Greek Parliament allegedly in protest over the austerity politics. Between April 2012 and December 2014, Greece went through a period of political turbulence that climaxed with the anti-austerity, radical leftist Syriza coalition led by Tsipras capturing power. Lessons for Africa Respected economists such as Donald Kaberuka, President of African Development Bank are already warning African governments to look at the Greek debt crisis as an open book for lessons on careful borrowing and wise spending. “The crisis in Greece is a reminder of the need to preserve hard won macroeconomic stability in Africa by borrowing carefully and spending wisely,” Kaberuka twitted shortly after Greece defaulted. Like individual persons, governments too can go bankrupt if they spend beyond their means; that was the case in 2009 when for the first time Greece admitted that its budget deficit would be 12.9 percent which was more than four times the EU’s 3 percent limit. Greece was running a consumptive budget rather than a productive one; it had one of the most extravagant public wage rates in Europe, its pension system was flawed and tax evasion was an almost normal thing to do. These and hundreds of other reasons led to Greece’s current crisis. At a time when many African countries are experiencing fast growth, credit rating agencies are flattering them into raiding the market for huge sums of capital to invest in very ambitious projects to allegedly sustain their growth trends. While this is a good thing, it’s also very easy for things to go wrong. Political instability, low commodity prices, corruption and generally weak fiscal management policies could easily create a Greek scenario in Africa. Results from today’s referendum will do very little to dig Greece out of its debt abyss especially if Greeks vote for ‘no;’ whatever happens, experts hope Africa will pick lessons and avoid going down the same path.

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Greek debt-crisis: An open-book for African economists