The Greek economy explained

The Wall Street Journal has an article about the cost of doing business in Greece. Here’s my own viewpoint:

The current crisis is a public debt crisis, which means that the public sector is spending more (13.7% more in 2009) than they’re collecting through taxes, which means that every 3-4 months they have to go out to the markets and borrow the difference (and sending the bill to the younger generations).

Now, the reason that this is happening is twofold:

  1. There’s a lot of tax evasion, mainly by professionals (doctors, lawyers, taxi drivers, etc) and things like nightclubs (so you’re losing tax income)
  2. There’s a lot of corruption in the public sector, both by politicians who are bribed for giving out contracts, and by politicians who create highly-paid positions* as favours to relatives/friends/voters (so you’re spending more than you should).

Any sane person could immediately see that the solution is:

  • to increase the financial controls and fines (a lot of the time the tax collectors either get bribed for turning a blind eye, or the case remains in the folders until some future government says «if you come and pay 20% of your debts, I will erase you the rest»), and
  • to put some order in the public sector, seeing who is doing what and for how much money.

Instead, the measures taken are the following:

a) cut 2 salaries per year from ALL public sector employees (similar to me getting a fine for crossing a red light and making everyone of my friends share the cost)

b) cutting pensions both in the private and public sector (this seems irrelevant, but has been necessary for years, they just used the crisis to finally pass this law)

c) make it a bit easier for the private sector to fire people (this IS irrelevant, but was requested by the IMF anyway)

d) increase VAT, which is a highly non-socialist tax, as it is proportional

e) increase taxes on fuel, tobacco and alcohol, which again is a very unfair tax (though admittedly very effective, if you urgently need money)

In the meantime, nothing is being done about the other problems related to doing business in Greece mentioned in the article…

* There was a case last week where a cleaning lady and a telephone girl where each getting 5-6 thousand euros a year, where the average salary is around 1000.

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3 σχόλια στο The Greek economy explained

  1. Then maybe Dimitri, according to people who take decisions, the problem wasnot 2-fold, but rather 3-fold and the third part was that people working for the state were earning a lot and they found this excuse in order to decrease the salaries.
    Hopefully, the goverment will be as acute and successful at the initial two parts of the problem.

  2. Ela Thanasi, as I wrote above, some public servants are overpaid. Not all. So the solution adopted (point a) above) is unfair.

    I can understand the government to a certain extend, in the sense that (as the prime minister said yesterday) you need to save the country first, in order to then change it. So now they’re adopting some unfair measures, and in time they’ll try to fix this.

    Of course there’s grave danger that nothing is more permanent than the temporary…

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