Sunday, June 26, 2011

Don't feel too sorry for Greece . . .

. . . because their present economic crisis is entirely the Greeks' own fault. I've been listening to all the pontificating about how Greece can't be allowed to default on its debts, and how we need a "Greek economic miracle", and so on ad nauseam - but it's all a bunch of hooey. (I'd like to use a stronger word than 'hooey', but I'm trying to keep this blog at least relatively family-friendly!)

In October last year Michael Lewis, of Liar's Poker fame, published a fascinating article about Greece's economic crisis: 'Beware of Greeks bearing bonds'. Here's a very short extract from his very long article.

“Our people went in and couldn’t believe what they found,” a senior I.M.F. official told me, not long after he’d returned from the I.M.F.’s first Greek mission. “The way they were keeping track of their finances—they knew how much they had agreed to spend, but no one was keeping track of what he had actually spent. It wasn’t even what you would call an emerging economy. It was a Third World country.”

As it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a piñata stuffed with fantastic sums and give as many citizens as possible a whack at it. In just the past decade the wage bill of the Greek public sector has doubled, in real terms—and that number doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros [about US $141.5 million] against an annual wage bill of 400 million [about US $566.1 million], plus 300 million euros [about US $424.6 million] in other expenses. The average state railroad employee earns 65,000 euros [about US $92,000] a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension,” Manos put it to me. “And yet there isn’t a single private company in Greece with that kind of average pay.” The Greek public-school system is the site of breathtaking inefficiency: one of the lowest-ranked systems in Europe, it nonetheless employs four times as many teachers per pupil as the highest-ranked, Finland’s. Greeks who send their children to public schools simply assume that they will need to hire private tutors to make sure they actually learn something. There are three government-owned defense companies: together they have billions of euros in debts, and mounting losses. The retirement age for Greek jobs classified as “arduous” is as early as 55 for men and 50 for women. As this is also the moment when the state begins to shovel out generous pensions, more than 600 Greek professions somehow managed to get themselves classified as arduous: hairdressers, radio announcers, waiters, musicians, and on and on and on. The Greek public health-care system spends far more on supplies than the European average—and it is not uncommon, several Greeks tell me, to see nurses and doctors leaving the job with their arms filled with paper towels and diapers and whatever else they can plunder from the supply closets.

Where waste ends and theft begins almost doesn’t matter; the one masks and thus enables the other. It’s simply assumed, for instance, that anyone who is working for the government is meant to be bribed. People who go to public health clinics assume they will need to bribe doctors to actually take care of them. Government ministers who have spent their lives in public service emerge from office able to afford multi-million-dollar mansions and two or three country homes.

Oddly enough, the financiers in Greece remain more or less beyond reproach. They never ceased to be anything but sleepy old commercial bankers. Virtually alone among Europe’s bankers, they did not buy U.S. subprime-backed bonds, or leverage themselves to the hilt, or pay themselves huge sums of money. The biggest problem the banks had was that they had lent roughly 30 billion euros [about US $42.5 billion] to the Greek government—where it was stolen or squandered. In Greece the banks didn’t sink the country. The country sank the banks.

There's more at the link.

It seems the private sector in Greece is as guilty of fraud and chicanery as the public sector. Yesterday the Daily Mail published an article titled 'The Big Fat Greek Gravy Train'. Here's an excerpt.

Here, in the suburb of Kifissia, amid clean, tree-lined streets full of designer boutiques and car showrooms selling luxury marques such as Porsche and Ferrari, live some of the richest men and women in the world.

With its streets paved with marble, and dotted with charming parks and cafes, this suburb is home to shipping tycoons such as Spiros Latsis, a billionaire and friend of Prince Charles, as well as countless other wealthy industrialists and politicians.

One of the reasons they are so rich is that rather than paying millions in tax to the Greek state, as they rightfully should, many of these residents are living entirely tax-free.

Along street after street of opulent mansions and villas, surrounded by high walls and with their own pools, most of the millionaires living here are, officially, virtually paupers.

How so? Simple: they are allowed to state their own earnings for tax purposes, figures which are rarely challenged. And rich Greeks take full advantage.

Astonishingly, only 5,000 people in a country of 12 million admit to earning more than £90,000 [just over US $143,000] a year — a salary that would not be enough to buy a garden shed in Kifissia.

Yet studies have shown that more than 60,000 Greek homes each have investments worth more than £1m [about US $1.6 million], let alone unknown quantities in overseas banks, prompting one economist to describe Greece as a ‘poor country full of rich people’.

Manipulating a corrupt tax system, many of the residents simply say that they earn below the basic tax threshold of around £10,000 [about US $16,000] a year, even though they own boats, second homes on Greek islands and properties overseas.

And, should the taxman rumble this common ruse, it can be dealt with using a ‘fakelaki’ — an envelope stuffed with cash. There is even a semi-official rate for bribes: passing a false tax return requires a payment of up to 10,000 euros [about US $14,100] (the average Greek family is reckoned to pay out £2,000 [about US $3,200] a year in fakelaki.)

. . .

With Greek President George Papandreou calling for a crackdown on these tax dodgers — who are believed to cost the economy as much as £40bn [about US $63.8 billion] a year — he is now resorting to bizarre means to identify the cheats. After issuing warnings last year, government officials say he is set to deploy helicopter snoopers, along with scrutiny of Google Earth satellite pictures, to show who has a swimming pool in the northern suburbs — an indicator, officials say, of the owner’s wealth.

Officially, just over 300 Kifissia residents admitted to having a pool. The true figure is believed to be 20,000. There is even a boom in sales of tarpaulins to cover pools and make them invisible to the aerial tax inspectors.

‘The most popular and effective measure used by owners is to camouflage their pool with a khaki military mesh to make it look like natural undergrowth,’ says Vasilis Logothetis, director of a major swimming pool construction company. ‘That way, neither helicopters nor Google Earth can spot them.’

But faced with the threat of a crackdown, money is now pouring out of the country into overseas tax havens such as Liechtenstein, the Bahamas and Cyprus.

‘Other popular alternatives include setting up offshore companies in Cyprus or the British Virgin Islands, or the purchase of real estate abroad,’ says one doctor, who declares an income of less than £90,000 yet earns five times that amount.

There has also been a boom in London property purchases by Athens-based Greeks in an attempt to hide their true worth from their domestic tax authorities.

‘These anti-tax evasion measures by the government force us to resort to even more detailed tax evasion ploys,’ admits Petros Iliopoulos, a civil engineer.

Again, more at the link.

If you read both articles in full (which I highly recommend), you'll find that this pattern of corruption, fraud, pilfering, dishonesty and larceny permeates every sector of Greek society, from old to young, rich to poor, city-dwellers to country farmers . . . everyone's on the fiddle there, almost without exception. Yet, when the Greek government finally has to face reality and pass measures to restore fiscal order and discipline, what happens?

This happens.

That's right - those who've enriched themselves by 'playing the system' for years now riot at the prospect of not being able to do so any more. Rather than pay back all that Greece has borrowed from others, they insist that they'd rather default on their country's debts. They'd rather destroy their country's financial rating and international credibility than accept financial restrictions on themselves - restrictions made necessary, in the first place, by their own fraudulent lifestyles.

Can you spell 'recipe for disaster'? I thought you could . . .

The trouble is, this might be coming to the USA as well. Remember the Wisconsin protests, earlier this year, over attempts to curb public-sector trades union benefits? They weren't as violent as the Greek riots, but they were pretty bad at times. As measures are taken elsewhere to rein in such 'sweetheart' union deals (and they will be, because this country simply can't afford them any longer), what's the betting that those riding the gravy train will do everything they can to keep it on the tracks - even if it means kicking other trains off those same tracks? Will we see Greek-style riots here?

I wouldn't bet against it, right now . . . which is why it's worth reading the two articles cited above. How many similarities can you find between the financial mismanagement and corruption they describe in Greece, and what we're facing here? I can find more than a few.



Oleg Volk said...

Isn't tax evasion a patriotic duty?

Silver the Evil Chao said...

Whenever I see reports about the Greeks rioting, I always think "That's gonna be us next". Because it's true. People think that they are so entitled that the instant their money stops, they demand to have it.

MrGarabaldi said...

I have commented several times that this will be us in the next couple of years. With the election heating up, I see the chances of conflict increases. The average urban dweller lives for the here and now, they don't think about tomorrow. That being said, I believe that they will riot first especially if the gov't gravy train stops. We have had several generations of freeloaders and moochers and that is all they know.

Anonymous said...

I was amused this AM by a guest on the pre-market financial show on MSNBC who suggested that the French central bank and other French holders of Greek bonds should relocate to Vichy. Their approach to the situation is "Wait until we sell before you stampede to the door, OK?" So much for European unity.