Greek Public Debt: where did it come from?

The Greek debt crisis and subsequent near-bankruptcy led to lots of finger-pointing. But where did the Greek Public Debt come from? Here’s what I think:

  1. military spending: Greece has a disproportionately large military for its size. But the issue is not only the number of soldiers (which -until recently- was purely conscripts), but also the purchasing of weapons systems (planes, boats, submarines, armoured vehicles). It’s ridiculous that not a single journalist has taken the time to sit down and record all the purchases of the last 35 years (that Greece has been a democracy).
  2. public servants: Greece has a disproportionately large public sector. Steps have been taken during the last decade to privatise sectors such as banks, telecommunications, transportation. Nonetheless, the number of public servants during the last 6 years (with a Conservative government!!!) has grown by 60.000. What’s more, the quality of service they provide is very low. Many of them work hard, but many others don’t. Most systems are not computerised, for two reasons: a) doing things by hand keeps many people employed, and b) computerised systems make it easier to detect fraud.
  3. public works: we award contracts to the company offering the lowest price, and then the final cost is 6-7 times higher than the contract. What’s the point in this? And who approves the cost increases? Why can’t we just say «You agreed to deliver this project for this amount of money, now do it, I don’t care how, I don’t care if you go bankrupt!». There’s also the issue of bribing public servants, which is without doubt despicable, but I think it’s minor compared to the over-invoicing going on.
  4. tax evasion: Right now, employees are asked to pay an unjust proportion of the public budget. Large companies (like in most of the world) create offshore headquarters to avoid taxes, and the small enterprise (which otherwise is a huge part of the Greek economy) just don’t declare their income. Maybe it’s time we all paid our portion of our tax burden?
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3 σχόλια στο Greek Public Debt: where did it come from?

  1. «Maybe it’s time we all paid our portion of our tax burden?»

    i see a problem with this:

    by paying your taxes, you will reduce the amount of money in circulation amongst the general public…

    unless the govt re-spends that money back into the economy

    more people will default on loans and mortgages etc because there isn’t enough money to go around…

    even if the govt does re-spend that money alot of it will be siphoned offshore or just wasted in the ways you mentioned.

    so does it really pay-off to pay your taxes…? 🙂

  2. Hi Samy, sorry for the late response (I’ve been on holidays).

    Your point seems valid, but there’s a fallacy!

    The amount of money that the government spends is not very flexible: health, education, military spending, public works, interest to the public debt. To get that money each year, the government has two choices: collect taxes, or borrow.

    Now, borrowing constantly might seem like a good idea at first: the alternative of collecting more taxes would hurt the economy. Borrowing seems like a valid growth policy. However, in the long term the interest you need to pay becomes larger and larger, until at some point the markets refuse to lend you money. The result is what you saw in Greece: the money that you left circulate in the economy rather than collect in taxes will ultimately need to be paid back one way or another.

    What’s worse, if you don’t have a well oiled machine that collects taxes from all levels of the economy, when the crisis comes you only have one choice: increase taxes on the only people who’ve always paid them: employees.

    Doesn’t sound like such a good idea now, does it?

    PS In addition to the narrow sense of «balancing the budget», allowing wide chunks of your economy to evade taxes has the indirect consequence of implying that breaking the laws in general (not only tax laws) is ok, as long as (you think) it’s good for the economy. So you get all kinds of fraud, sub-prime lending, not to mention mafia…

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