Tuesday 1 May 2012

Pre-Election Madness in Greece

The paroxysm of sentimentality, demagoguery and pseudo-nationalism which has been unleashed by the May 6th elections in Greece is truly staggering. 

At the risk of sounding like a broken record, it is clear that neither PASOK or New Democracy (nor any other party) have an integrated, means-tested policy proposal for solving the deficit of justice, public sector efficiency, corruption and the real economic crisis in Greece today.

PASOK comes nearest to a low-scale, incremental plan which may lessen the shock of planned mid-2012 tax increases and budget cuts. However, PASOK's plan is based largely on a re-negotiation of the fiscal adjustment schedule, increasing it from 2 years to 3 in the hopes of lessening the impact of further cuts to pensions and salaries. 

It promises government restructuring, but doesn’t indicate what would be restructured. It promises to deal with the commitment to reduce the public sector by 150,000 workers by transferring workers within the government to “where they are needed”. It’s not clear, however, that this will solve anything, since (a) total headcount must be reduced, and (b) the problem is efficiency and productivity (and costs), not headcount.

The main problem with the PASOK plan is that it does nothing to redress the very urgent economic crisis which is evolving. There are no practical proposals (beyond the mythical absorption of EU funds) to deal with business closures or unemployment. There is no real plan for investment promotion. PASOK is silent on the main political weakness: assuring privatisation targets are met, with all this means for pro-PASOK union movements in the public sector.

My impression is that Evangelos Venizelos is the most realistic politician today, at least in terms of what can be done based on commitments to international partners. He has, after all, negotiated many of them, and to his credit he is not running on a demagogic platform to withdraw from the Memorandum, or to promise unrealistic pre-electoral benefits.

Unfortunately, the same cannot be said of ND leader Antonis Samaras, the man most likely to be charged with forming a government on May 7th. The “Zappeio IV” proposals include a range of useful measures, including e-government, lower tax rates, a tax amnesty, a “New Start” for taxes, etc. The problem is that tax reductions, while necessary in some areas, are going to immediately impact the budget, and therefore Greece’s progress in meeting its fiscal adjustment targets.

We are also asked to believe that by reducing taxes, more Greeks (and foreigners in Greece) will be tempted to pay their fair tax assessment. There is very little historical or actual evidence for this.

The problem in Greece is not so much total tax levels, but tax evasion and the burden of taxation. If we take corporate taxes, for instance, Greece is actually quite competitive, with a 24% corporate tax rate, and no dividend taxes (depending on the mix of wages, dividends paid and total profits). This is very competitive—far more competitive than the United States or Germany, for instance. Some areas, such as social insurance taxes on labour, are far too high: ND has no proposals for them.  

A far greater problem is the burden of taxation. Tax evasion among companies and self-employed professionals is rampant. The idea that by reducing taxes, there will be a higher tax compliance (even with the electronic cross-checks proposed) is difficult to accept at face value. The other problem is that taxes on individual salaries workers is commensurately too high. Since these salaries are “immovable” (they are taxed at source), they are easier to tax, and today most government revenue in Greece (as in the United States) comes from individual income and indirect taxes, not corporate taxes.

This certainly needs to change, and there are some useful proposals in “Zappeio IV”. However, these are far outweighed by the other public spending promises made, including a minimum monthly pension which is far higher than the current minimum wage; additional benefits to families with three children or more, and that perennial favourite, additional benefits to farmers. 

This is as classic a case of political triangulation as we are likely to see, but because it sounds good doesn’t mean it can be paid for, let alone accepted by Greece’s creditors.

It is also truly sad to note the rabid fear-mongering over illegal refugees, which has reached fever pitch in the media these last few weeks. A recent press release by New Democracy is indicative of how deliberately misleading the debate has become:

·       Τροφοδοτείται το παραεμπόριο, το οποίο έχει καταστρέψει χιλιάδες μικρομεσαίες επιχειρήσεις. Ο τζίρος του παραεμπορίου, σύμφωνα με τα στοιχεία του ΟΟΣΑ, υπολογίζεται ετησίως στα 25 δισ. ευρώ, στερώντας από τα δημόσια ταμεία έσοδα ύψους τουλάχιστον 9 δισ. ευρώ από ΦΠΑ, δασμούς και ασύλληπτη φορολογητέα ύλη.

·       [Illegal migration] supplies illegal commerce, which has destroyed thousands of small and medium enterprises. The turnover of illegal commerce, according to OECD statistics, is estimated at EUR 25 billion, eliminating public income of at least EUR 9 billion from VAT, customs and unrecoverable taxed items.

The OECD report on the informal economy and the sub-segment of counterfeit products refers to items such as counterfeit products, including counterfeit CDs and DVDs, cigarettes, liquors, fashion items, software and a range of other items which are brought into Greece by well-organised networks of primarily Greek businessmen, or are created within Greece itself. It also refers to other items, such as the illegal fuel sales which are estimated by various sources to amount to approximately EUR 1 billion per year: this is an all-Greek enterprise which has nothing to do with immigrants.

The trade in counterfeit products in Greece is a serious one. However, it is dominated by Greek retailers and intermediaries, not Nigerian street vendors. This is seen, for instance, in the widespread availability of counterfeit Louis Vuitton bags or brand-name items in high street retail shops in Monastiraki, Corfu, Chania, Rhodes, and everywhere in Greece.

It is seen in the bootleg DVDs and CVs for sale in the same places. On university campuses, trade in hacked MS Office and other applications is everywhere. There are even illegal products for sale at our neighbourhood “laiki” in Geraka.

Yes, legal and illegal immigration definitely plays a role here. But the role played by Greek retail networks is far greater. And no one mentions that the main consumers of counterfeit products are, of course, Greek.

This trade in illegal commerce has been going on for years, and has been covered by a corrupt and dysfunctional justice and tax system which spans both ND and PASOK governments. It is protected by corrupt customs officials, who know exactly when and where counterfeit products are imported into the country, and who they are delivered to. It would be relatively easy to stamp out illegal retail by simply enforcing laws which are already on the books, and by implementing retail audits and a real investigation of the customs authority.

It is truly sad to see a political party stoop to such depths in an effort to win votes. Unfortunately, the issue of illegal immigration has become a front-page item, as parties on both the left and right strive to show their anti-crime and anti-immigration credentials.

I would be much more wiling to believe this if I saw an equivalent crack-down on the employers of these illegals, i.e. the farmers who employ hundreds of thousands of immigrants; the households who employ cleaning ladies, etc. Any economic transaction takes two parties: a supplier and a purchaser of services. Focussing solely on the supply while ignoring the demand is a recipe for failure. 

Ultimately, Greece will elect a new government on May 6th. Its ability to implement new policies will be severely constrained by the lack of financial resources and by the commitments already signed with international creditors. Yet the expectations that have been raised by this campaign, and the deliberate attempt to create divisiveness, fear and hatred which we see expressed in a variety of media, both against illegal immigrants, but also against European creditors, will remain with the national consciousness for years to come. None of this bodes well for the future.

© Philip Ammerman, 2012

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