Why the "Memorandum" Will not be Changed

By my count, every single party running in the current Greek elections is running against some aspect of the “Memorandum” (Greek: μνημόνιο). The most extreme parties are the smaller ones, such as LAOS, who state that they will expel the Troika’s monitoring team from Greece and form a grand coalition of southern European states to force the northern states to invest in “development.” Others on the left promise worker ownership of state assets (translation: nationalisation) and, at the extreme left, exit from the Eurozone.

Even the two main parties are hard-pressed to translate their promises of “resistance” or a better policy mix. Antonis Samaras gave a town hall meeting-style event at Lavrio yesterday. He was asked by a civil servant at the Ministry of Economics what could be done to avert the promised lay-off of 150,000 public sector workers. It was an answer he ducked with electoral boilerplate: that we need to re-deploy, hire some, allow natural departures to occur, etc.

PASOK has taken a different tack, promising an exit from the “Memorandum” (translation: an end to austerity) in 3 years: this is legally and financially impossible. The Memorandum stays in place until the loans are repaid or refinanced.

The reason he ducked the question is because the Eurozone creditors, ECB and IMF have put strict conditions on the disbursement of the bail-out packages. These can be seen on the Ministry of Finance’s website in English. These conditions have been approved by the Greek parliament with a majority vote, although of course certain politicians will no doubt claim they were not informed, or lied to, or tricked, or they did not read the Memorandum even while they voted for it.

These conditions were also the product of negotiations between the three parties supporting the Papademos government (PASOK, ND, LAOS). They carry the personal signature of two of these leaders, Samaras and Venizelos. LAOS withdrew from the government and voted against, except two MPs who subsequently defected to ND.

Parenthesis: to suggest, as Mr. Karatzaferis did in his recent press conference, that he was not aware of the conditions of the second bail-out, or doesn’t today understand its conditionality structure, is pure hypocrisy. He was involved in every session of its negotiation. He did, however, withdraw from the government before voting against it.

If we look at the conditionality in the second bail-out, there are a number of clauses which many people, providing they actually read it, will support:

·    Reduction of the public sector through headcount reduction, most of which is through attrition, early retirement and a hiring freeze

·    Reduction in public spending on generic and branded pharmaceuticals and pharmacist margins

·    Restructuring of government operations

·    Better budgeting, auditing and spending controls

·    A clearer plan for privatisation

·    Reduction in employer IKA contribution rates (net fall from 44% to 39% payroll costs)

The irony is that while many of these conditions actually promote smaller government and a free(er) market economy, many of those who profess themselves to be liberals are against them.

The objective economic and restructuring problems that the government faces, however, are manifest:

·    The way in which many reforms have been implemented have reduced middle-class and working-class pensions and wages to unsustainable rates, particularly given the cost of living, poor quality of public sector services, the low starting point of most pensions and wages, and high taxation. This has had the effect of driving hundreds of thousands of people into abject poverty and wage slavery, given that bank loans have remained at current values.

·    The reforms have not been prioritized or implemented correctly, giving the impression that while the government sector remains intact, the private sector is suffering. Nothing could be further from the truth. The government has made efforts to improve state operations, and the total headcount has already declined significantly. Yet many initiatives have been stalled (some due to objective complexity, some due to political manipulation). In fact, had interest and emergency social spending paid by the government not doubled between 2010 and 2012, Greece would be largely in line with its deficit reduction targets at the present time. 

·    There are no victories to speak of which the average citizen can understand or related to. At the same time, the economic cycle continues to deteriorate, with business closures and unemployment increasing. PSI, which is the largest single debt restructuring in history, and which represents a major achievement, is ignored or misunderstood by both voters and politicians.

·    By front-loading cuts in expenditure and higher taxes, accompanied with the longer-term loss of competitiveness and the shorter-term recession, the government is exacerbating both the GDP decline, higher unemployment and lower wages. Unfortunately, this is inevitable (absent nationalisation or expropriation of assets) given Greece’s fiscal situation.

No amount of pre-election promises change the fact that Greece has signed these conditions, and will be expected to adhere to them by its creditors. While minor points may be negotiated, no one is counting on a full renegotiation, or changes to any of the core points. To suggest otherwise is to engage in either deliberate misinformation or very wishful thinking.

We should not forget that the bail-out funds have been granted in their large majority by European taxpayers from other Eurozone countries. Their tax income (through sovereign lending) is paying for the continued operation of the Greek government, including the payment of pensions, healthcare costs, wages, and every other spending line. Some of these countries are actually borrowing at a higher rate and lending Greece at a lower rate, so not only are they increasing their liabilities, but losing money on the loans to Greece in the process.

Should a new political constellation now emerge and say that Greece will not stick to its promises, despite the fact that its European partners have already complied with theirs (PSI has taken place, the large majority of the two bailouts has been disbursed), then Greece truly has no place in the Eurozone or the European Union.

It would be a betrayal of epic proportions, and would establish the reputation of Greece and the Greeks for generations to come in terms I prefer not to write on this page.

The root causes of the Greek debt crisis remain the same: high public spending and high tax evasion. This has been leavened by all the other issues we are familiar with: corruption, nepotism, recycling political incompetents, a dysfunctional justice system, etc.

These are purely Greek domestic issues and Greek outcomes, and they have to be solved in Greece according to its European obligations. The sooner this is accepted and resolved, the sooner the crisis will end.

© Philip Ammerman, 2012

Pre-Election Madness in Greece

The paroxysm of sentimentality, demagoguery and pseudo-nationalism which has been unleashed by the May 6^th 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 7^th. 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 6^th. 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

First Results of the Immigration "Sweep"

It’s interesting how the illegal immigration subject in Greece flared up out of nowhere earlier this week, and has now nearly disappeared. Based purely on media citations, one would almost think that the problem has been solved. Experience tells us this is anything but the case.

Nikos Malkouzatos published a very balanced article on immigration in Greece in the Kathimerini English edition 2 days ago. It's definitely worth the read.

Kathimerini also published the results of the immigration "sweep" which started two days ago, and was the subject of my blog post on March 29th. According to information from police headquarters: 

·       A total of 1,918 people were arrested during the “sweeps”

·       Of these, 420 were ordered into detention because they were found to be engaged in criminal activity

·       Of the number detailed, 186 were for possession of narcotics, robberies or prior judicial decisions, and 63 arrests concerned prostitution

·       Of the 420, 234 were found not to have valid residency permits in Greece.

I’m not sure if this is clear to readers or not, but of 1,918 people arrested, only 234 were found not to have valid residency papers.

The entire “sweep”, which used blatant ethnic profiling characteristics to begin with (arresting dark-skinned men or women), had a “success rate” of 12%.

I think what is equally amazing is that if 1,918 people were subjected to a preliminary arrest, and then only 420 people were transferred to detention, this means that 1,498 people were let go: 78% of the total.

The real shocker comes when you realize why they were let go. In most cases, these people apparently either had residency permits, or the right to remain in Greece because they had applied for asylum and their decisions were still pending. So either they were arrested for nothing, hence the police are exceptionally badly trained and led, or simply racist, or the asylum policy in this country is in shambles. Or all three.

Once again, I have to question the basic effectiveness of this policy. I am definitely in favour of resolving the public security aspect, i.e. a situation where thousands of illegal unemployed immigrants are squatting in urban centres, creating a health and security risk.

But does this detention policy really solve the problem? If only 12% of the people arrested were actually “guilty” of being illegal immigrants, what does this mean? Were apologies issued to the remaining “legal” immigrants for their improper arrests and treatment at the hands of the police?

What will happen to the remaining people seeking asylum, who were apparently targeted because of the colour of their skin? If past practice is anything to go by, they will be left on the streets until their asylum application is rejected. Then what?

What is the police doing to identify and arrest people who don’t look like south east Asians, but who are in the country illegally from other countries where the population is lighter-skinned? Need I really specify which ones?

Where will the 420 criminals arrested be placed, given that prisons are full? How long will they stay there? When will they be tried? What is the legal consequence? 

What will be done about the thousands of other refugees, legal and illegal, squatting in Athens, who now cannot leave their squats due to their fear of being arrested, and therefore have no means of supporting themselves? Am we to suppose that starvation or invisibility are credible policy alternatives?

What is being done about the thousands of Greek employers, who make it possible for these 1 million illegals to continue their existence in Greece? Clearly, not all illegals are unemployed. A quick drive among the commercial farms around Marathon or a quick glance everywhere around Athens shows you their employment: on farms; as busboys and dishwashers; mucking out stables; cleaning gyms and restaurants and offices; on some of the few construction sites still working; even delivering souvlaki.

Needless to say, I haven’t seen many Greek souvlaki store owners being bundled into the back of a police van in the full glare of national television for breaking employment and immigration regulations. I wonder why?  

Finally, what should be done about the Schengen and Dublin conventions, which force Greece to retain the hundreds of thousands of illegal immigrants caught on Greek territory, but who’s priority is to reach western and northern Europe? Should Greece be forced to keep them, as is the current policy? Or shall Greece simply issue them a residency permit and an airplane ticket to Paris and wish them well?

It’s interesting how the Schengen Agreement, which provides for passport-free travel between signatory countries in the European Union, has also become a political issue, with Nicholas Sarkozy recently suggesting that Greece should be expelled from Schengen over illegal immigration. The Greek Minister for Tourism also recently suggested that Greece is “losing” between 3 and 5 million tourists per year over Schengen*, due to the difficulty of issuing Schengen visas. He was comparing Greek arrivals with Turkish arrivals from Russia: Turkey has permitted Russians to enter its country without a visa.

Perhaps this is also part of a solution:

·       Withdraw from the Schengen agreement immediately. It means that Greeks will have to go through a pro-forma passport check to enter the remaining Schengen countries, but this is really not a burden.

·       It also means that millions of German and French tourists visiting Greece will go through a pro forma passport check. However, this already occurs when you arrive in Greece from a non-Schengen country, and it’s really a joke, so it shouldn’t be too painful for our esteemed creditors and their mass tourism operators. If nothing else, it will provide more employment for our hawk-eyed police force.

·       Allow in tourists from selected third countries where a bilateral tourism accord has been signed using a special tourist visa than can be issued be selected travel agencies or airlines. Use this new visa income to partially pay for humane treatment of illegal refugees in Greece, and their immediate repatriation.  

·       Withdraw from the Dublin II Regulation, in which refugees or asylum seekers are transferred to the first country where they entered the EU in order to have their asylum application judged. This is what enables Sweden or France to send back thousands of refugees each year to Greece, and then complain that Greece has a low number of asylum approvals each year.

Unfortunately, the current hash of half-measures, hypocrisy, political incompetence and the wider inability to say “no” to EU treaties which are manifestly harmful to Greece have led the country into this morass. So far, I haven’t seen even the remotest sign that the complex issue of illegal immigration and repatriation is being treated with the seriousness it deserves.

These are human lives we are dealing with, and if we as a society are incapable of addressing real human concerns, fears and aspirations, while fanning the flames of extremism, racism, labour exploitation and xenophobia for political gain, then we truly deserve the situation we are in, and that which is on the horizon.

*It is actually difficult to determine if this claim is true, or if it is the familiar lament of incompetent politicians the world over. Blame someone else. 

Related Posts

The Great Immigration Shuffle

29 March 2012

© Philip Ammerman, 2012

The Great Taxi Non-Liberalisation

Sometimes the sheer stupidity of public policy-making in Greece is enough to make me wonder how anyone can tolerate it. Once of the many such examples is that of the great taxi “liberalisation”, which apparently has been at the top of the Troika’s priority list for the past 2 years.

Visitors to Greece last summer, and followers of Greek affairs, will no doubt remember the incredible damage to the tourism industry caused by striking taxi drivers. The pictures of tourists stranded at harbours and airports made their way around the world. Thousands of tourists left Greece, vowing never to return. The situation was such that striking taxi drivers even tried to prevent hotelliers from arranging private transfers of their guests.

Well, after two separate legal proposals, the third legal proposal was apparently passed by Parliamentary Committee on Friday, and is expected to be voted in full Parliamentary session in the near future. The only problem is that it has almost nothing to do with liberalisation.

According to To Vima, the measures included in the law are the following:

a.     In Athens, the maximum number of taxi licenses is set at 3/1000 inhabitants. This means that there will actually be a future reduction of the number of taxis in circulation, since these are estimated at 4/1000.

b.     In Thessaloniki, the number of licenses will be increased to 2.5/1000 inhabitants, meaning a small potential increase in new licenses.

c.     In other regions, licenses will be increased to 2/1000 inhabitants. Some regions will be able to issue new licenses.

The decision whether to increase to these limits is up to the regional administrator (περιφερειάρχης), who will be able to issue the increases in limits. The Minister of Infrastructure will also be able to review the license limits each two years.

A share of new licenses will be given to people with three children and more, or parents of handicapped children to a degree of 67% or more.

At least 100 licenses for special leasing of taxis will be issued in Athens, 50 in Thessaloniki,  and 10 each in Heraklion, Patras, and Larissa. Priority for this will be given to existing license holders.

It should be obvious to anyone reading this draft law just what a deft job the government has made of “liberalisation”:

·       There will be no large-scale increase in new taxi licenses. This means no competition, therefore no benefit to the consumer at least in terms of better service. This also means no entry of new people into this segment, so no employment impact.

·       In restricting the number of licenses, the government side-steps the issue of transferring licenses, which acquire an informal value in the market. The taxation of this value has been left to a separate law, to be passed in the future.

·       The minimisation of special licenses means that hotels are restricted from hiring cars for VIP transfers or excursions, which will continue to be the remit of other favoured classes (bus drivers and limousine drivers). The small number of licenses available across Greece means that there is no practical benefit of this clause.

As with the flip-flop on the labour reserve which occurred in January 2012, it is hard to exaggerate just how much credibility is being lost here. The government has essentially admitted that after incredible damage to Greece’s international reputation from the previous taxi strike, it will issue a pretend law which is anything but liberalisation.

I can well imagine the Troika reaction—assuming anyone is still paying attention to this absurd demand in the first place. As I have written in the past, there is absolutely no consumer or operator value in a liberalisation if it takes place in a recession, and if it takes place in a sector with regulated tariffs (taxi meters). I seriously question why this issue was put on the list in the first place.

However, if I had to make recommendations for “liberalising” the taxi profession in Greece, it would be based on the following set of regulations:

a.     The number of licenses will be set each 5 years by a public private partnership comprising the local Chamber of Commerce and Industry, the Consumers Association and the Union of Taxi Drivers, with each party having 3 votes. The licenses are owned by this partnership and leased to drivers in exchange for an annual fee. 

b.     The number of licenses in major cities will be based on an average of the population criteria of London, Paris, and Berlin, taking into account the fact that the Greek public transport net remains underdeveloped.

c.     All taxi vehicles must be no more than 5 years old and in good condition. They must pass an inspection each year for technical condition and internal condition. Taxis found to fail the standard will be given 1 month to make repairs, or their license will be revoked.

d.     All taxis will be tracked via GPS as a safety and security measure, and to put an end to unlicensed taxis.

e.     All drivers will have to pass a test of driving, street knowledge, cleanliness, and courtesy every five years, with random checks and customer feedback playing a role in evaluation in the interim.

f.      All drivers must be citizens or legal residents of Greece or the European Union, and must speak fluent Greek and one other language. They must pass a professional drivers’ license.

g.     The tariff will be set each 6 months, and will vary based on fuel prices and consumer price inflation. The same public private partnership that sets the number of licenses will set the tariff.

h.     All taxis must display average tariffs and avoid price-gouging of foreign tourists. Tourists should have the right to complain to the driver or, failing this, to the hotel, police force or other third party, with immediate resolution.

i.       Any taxi driver will be able to negotiate a special tariff with any professional or personal employer, at the discretion of the two partners. A standard written template for the contact will exist. Any disputes will be settled by arbitration by the local Chamber of Commerce and Industry.

j.       Any taxi driver can choose whether to license a 5-seater, 7-seater, 9-seater or 12-seater, or higher, as long as s/he has an equivalent professional driver’s license, and as long as these vehicles are rented by special on-the-spot contract (e.g. to ferry tourists from a hotel to a port), using the same standard template form. Any contracts are to be negotiated between the customer and the taxi driver, with no further state regulation or interference. It is the decision of the driver, with the license being adjusted accordingly. (Licenses will no longer be permanent for standard 5-seater sedans, but can be renewed upon demand).

k.     Any vehicle purchased for the purpose of being driven as a taxi should be free of VAT at the point of purchase. Any taxi over 5 years old should be decommissioned or sold without VAT.

l.       No individual or company should be permitted to own more than 5 taxi licenses.

m.   An independent complaints line will be set up and operated by the Consumers Association and paid for by taxi contributions. This complaints function will have the authority to undertake tribunal proceedings by the Chambers of Commerce or other organisations, and can result in fine or a loss of the taxi license under certain conditions. The GPS track of the taxi should be accessible in case of a complaint or legal action.

This would be something more similar to “liberalisation”, in that it:

a.     Provides the possibility for restrictions on the number of licenses (safeguarding the profession), but providing for increasing supply and demand via changing the mix of passenger vehicle capacities.

b.     Provides price flexibility, which is important for consumers and certain demand categories (e.g. hotels).

c.     Takes regulation out of the dead hands of the government and into a tripartite organisation where different parties are represented.

d.     Addresses the issue of tariff price variability in response to changing energy prices and inflation.

e.     Assures consumers of taxi services modern, cleaner vehicles and better drivers.

f.      Protects the consumer against price gouging-particularly of foreigners or tourists.

The only thing this proposal does not do is end the numerous conspiracy theories circulated by Greek taxi drivers, or their propensity to smoke in their vehicles, or their affinity for Derty FM. I suppose they wouldn’t be Greek taxi drivers if this were any different.

Related Posts

The Great Greek Taxi Strike

17 July 2011

© Philip Ammerman, 2012