- 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.
- 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. © DotNews, 2005-2015. This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.