Tuesday, February 24, 2015


While we have been preoccupied with our internal politics Greece has been teethering at the edge of economic disaster.

Imagine you inherit a house in Kololo, with a 25 meter pool, a fantastic lawn and garden, 50 bulb-house and a staff complement of five. After the initial euphoria of living in Kololo has worn off (probably by the time of the first workers’ paycheck) it will begin to dawn on you that you might be playing out of your league.

But you might soldier on thinking that you have arrived because you live in Kololo.

You will soon realise too that to keep up with your neighbours your security lights have to be on all night, you have to own a fuel guzzling 4wd – not one, but at least two, one for you and one for your better half, you might have to throw a few garden parties, if only to “revenge” for the ones you have been invited to.

You soon realise that the expenses are mounting faster than your boss can afford you a raise.

You can do one of two things. Either, sell the house or rent it out and move to a neighbourhood where you can keep up with the Jones, better still where you can be THE Jones or raid your bank, the local loan shark, friends and family to keep up the lifestyle.

The latter is the more sensible solution but oftentimes, out of pride and our unwillingness to take a downgrade to our new lifestyle, we opt for the second.

Before not long debt payments catch up with you and suddenly the walls around your compound serve as a prison. That is if your better half is not insisting on sustaining the fictitious standard of living – at least outside your compound here people can see you making a retreat behind the walls less than a pleasant experience.

By the end of the day you may lose your inheritance, your family and your pride as the debt collectors give you no breathing space within which to manoeuvre.

That in a nut shell is what happened to Greece.

It was invited to the European Community in 1981 and 20 years later join the Eurozone, the group of western European countries that use the Euro as their currency.

With that the Greeks embarked on a huge public spending spree – of course to keep up with their wealthier European neighbours, the spruced up their infrastructure, paid for an extremely expensive Olympic Games in 2004 and raised public service salaries by as much as 50%.

"Things may have worked had the global financial crisis not rolled in in 2008 and exposed how the Greeks were living way beyond their means. As if that was not enough they were hiding debt off the books and tax evasion is a national past time. Which was a double whammy because not only were their repayments mounting but their taxes collections could not honour their obligations...

If they were a person, Greece would long have been declared bankrupt and their assets parcelled out to willing buyers to pay off their debtors.

But Greece is a country – and thankfully not Uganda, so they were bailed out twice in 2010 and 2014, with conditions attached. Among  the conditions were that they would collect more tax, privatise their public enterprises and cut down on public spending.

Politics did not allow them live up to the conditions and in fact in January the Greeks voted in a government that had pledged to throw out these austerity measures and tell the EU to jump in the Mediterranean.

By the time of writing this column a Friday deadline was looming. The Greeks had blinked earlier in the week and suggested they may accept some extension to the debt. Germany, the EU’s economic loadstone, said without accepting the full conditions for another bailout they would veto any rescue plan.

However observers were already saying it would not be as much of a tragedy if the Greeks left he EU as compared to the last two times. Previously they owed a lot of private banks money, defaulting on the debt would have infected the rest of Europe. Now the debt -- €320b (sh1,070b)  or four times the size of the  East African Community economy is owed  mostly to governments, who are better placed to survive a collapse.

"It is easy to see how they got to where they are. There are only two ways to spend money to consume it or to invest it. The latter gives you a good chance of ending rich, the former is guaranteed to pauperise you...

The Greeks are learning the hard way.


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