So what happens now? Both the Greek public and good chunk of the Greek political establishment seem to be very unwilling to take on the austerity measures and budget cuts that are necessary to get more money.
If they continue with this attitude what happens next?
Violent Clashes As Greeks Protest Austerity Plan.
they’re going to rout you even if you have a 100:1 numerical advantage over them.
I must confess to wanting to watch them burn and see what happens next. What happens if Greece defaults on its debt?
Either that, or the EU kicking them out, would be very, very interesting.
Of course, you know what they say about living in interesting times…
Military coup I expect.
More austerity. If Greece refuse to support current austerity measures, meaning refuse to live within their means, they will be unable to receive further loans and consequentially will be unable to service the existing debt and must declare bankruptcy. Which is the correct thing to do. Everybody known Greece is never going to be able to repay the debt. To take on more new debt to pay for old debt which is already way more than you’ll be able to repay, is absurdly irresponsible towards the Greek people. And in any case is only being pushed through to give the lender banks some respite, so the banks can unhand their toxic Greek assets to various taxpayer funded schemes. At least Merkel wants the banks to accept some risks themselves, instead of just having taxpayers pick up the tab.
After bankruptcy Greece can either write off the debt completely, inform the lenders they’ll be repaid in another currency (Drachma) – they’re still an independent nation able to do what they want, or engage the lenders to find an aggressive write down. Which is all good. The incompetently run banks must take their own losses for their own irresponsible lending practises and missing risk analysis. Weather the inevitable bankruptcy can proceed within the Euro is unknown. However, whether Greece goes bankrupt now or manage to postpone it a little while, they will have to balance their budgets very soon. And that means more austerity.
This, except that “Austerity Measures” IMHO, never work, you adjust your budget, which causes a recession so your revenues decrease and you adjust some more which causes more recession and so on.
Defaulting on your debt, devaluing your currency (which forces austerity on imports only) and things like that seems to be the only thing that works.
I say more power to the Greek people. They’re the only country that’s refusing to accept the dictates of the world’s financial and banking masters as expressed through the IMF. They’re willing to stand up and say that banks don’t rule the world. They’re smart enough to see that if there has to be a default, there’s no benefit to ordinary people of letting the banks sneak in a few more ripoffs in the form of government bailouts before the default happens. Would that there were more countries where people were willing to riot over obnoxious, greedy behavior by major financial corporations.
How’s next Tuesday for people?
They’re not the only people; there’s also Iceland.
There is some speculation a default by Greece could cause a collapse of EU banks.
Certainly not all EU banks are exposed but enough are and as some inevitably collapse you get a domino effect as people lose faith in the system and a run on the banks ensues.
Not saying it will happen but something the rest of Europe can’t simply dismiss and ignore.
While laudable (for certain definitions of ‘laudable’), it’s only half a thought. Let’s say the powers that be finally get the point and decide to do things correctly (for certain definitions of ‘correctly’). Does Greece have a large enough tax base to continue providing benefits? If it does, what kinds of changes to the tax code are necessary? How much can it do without directly confiscating property?
Where does existing and future debt fit into this?
Yes (or enough to make a notable difference) EXCEPT…
…tax evasion in Greece is practically a national sport. Apparently the worst of all Western countries.
Yowza. I daresay the protests have strong justifications if the loan provisions don’t also include strict measures to close/account for the missing tax base.
Apparently those offering the loans don’t believe/trust the Greeks to do anything about it and demanded no figures assuming better tax collection be allowed. It seems tax evasion is embedded in their culture at all levels.
Apparently Greece defaulting might take down US banks. Welcome to the golbal economy and “too big to fail” banks.
As a Greek living in Greece, I can confirm that this is indeed at the heart of the matter.
Salaried personnel cannot evade taxes. These are paid directly by the employer to the tax authorities, along with the social security contributions. So an employee having a gross salary of € 2000 per month actually gets something like 1.500 net in his bank account. Provided that employee has no other source of income, he pays no additional taxes at the end of the year.
The problem is the self-employed such as doctors, lawyers, etc. It is common practice for a doctor to say at the end of the visit “80 € with a receipt, 60 € without a receipt”. The rebate offered by the doctor is greater than the tax rebate gained from declaring the doctor’s visit as an expense, so people usually pick the cheaper option as a, what they think, is a win win situation.
You find instances of doctors declaring an income of 7.000 € per year, when just the rent they pay for their office is twice that amount. But no state apparatus exists to catch these obvious type frauds automatically. If the databases exist, they don’t cross-check one with the other. And in the rare event of a tax auditor visiting that doctor, if for example the overdue taxes are € 30.000, the doctor simply bribes the tax auditor with half that amount, and the matter ends there. Tha tax collector has made an extra 15.000 off his books, the doctor has saved 15.000 in taxes, Win Win!
And that’s just the tip of the tip of the iceberg of tax evasion and fraud here.
Why are people so willing to accept and perpetuate this kind of behavior? Because the general consensus is that the Greek state steals from its citizens (through the corruption of the state officials), so the citizens have no qualms in stealing back from the State.
Therefore, when the Greek government needs to show measures that increase tax collection and reduce expenses, they can only apply those measures to the salaried tax-base, which is shrinking all the time due to the rising unemployment, and to pensioners who get paid by social security.
Do I blame the troika (that’s what we call our IMF, EU, ECB lenders here) for not taking into account increased tax collection in their figures? No. In their place, I wouldn’t do so either.
Am I happy that my disposable income is shrinking all the time from increased direct and indirect taxation? No.
But until the mentality of Greeks in general changes, these problems are not going to go away. And that’s not going to happen any time soon.
income, whether taxed or untaxed, is still income and is part of the economy. so my question is, is tax revenue the real issue? or was it over-extended credit whose proceeds did not fuel revenue-generating investments that would have paid for the loans?
GDP has better then doubled since Greece joined the EU, so presumably its a good place to invest if you just look at it from the return on investment stand point. Which is part of the reason so many people loaned them money.
Increasing tax compliance seems the obvious solution. I guess its easier said then done, but I’d hope the gov’t has at least hired a couple thousand more auditors since the crisis.
Things look like they’re getting pretty nasty if this BBC report is anything to go by.
I was particularly struck by his observation that there’s a sovereignty aspect to the demonstrations. People are sick of being told how their country should be run by international organisations (IMF, ECB etc.) as wellas the nebulous ‘markets’. The current politicians are seen as beholden to the financial system and therefore lack any true legitimacy. It’s far wider than just the debt issue - the whole system is being questioned.
It’s both. In order to join the Euro zone, one of the key criteria was a budget deficit of less than 3%. So in order to join the Euro along with everyone else, the Greek government picked a radically original way to do so. It falsified its financial data.
As soon as it joined the Euro in 2001, Greece discovered the magic land of cheap credit, and they borrowed like crazy. And throughout the years, they claimed a budget deficit of around 3%, give or take.
Two years ago, the current government decided to come relalitevly clean on the real finances, and declared that the budget deficit was not 3,6% but rather 6,9% which was subsequently revised to 9 and then revised to 15%. Now, the EU knew we were lying about the real budget deficit, but they didn’t know the extent of the lying. When the real deficit came to light, it effectively shut Greece out of the international bond markets, and they needed loans from the EU,IMF,ECB to pay salaries and interest and the general state expenses.
One of the pre-conditions of getting the loan was reducing the budget deficit to acceptable levels over the course of a few years. And that’s where the taxation issue comes into play. And until the deficit is reduced to acceptable levels, Greece remains shut out of the bond markets and relies on being lent money, and the conditions attached to these loans.