Beneath the desperate debt crisis headlines, Jeff Randall finds a country mired in fraud and fiddling – and discovers its authorities are powerless to stop the rot
Fists of fury: on May 4, demonstrators took to the streets of Athens, but little has been done to curb Greece's endemic tax evasion Photo: Getty
By Jeff Randall
10:41PM BST 21 Aug 2011
Tavros is a scruffy suburb in the south-western part of Athens, about three miles from the city centre. It is home to the kind of utilitarian office blocks that 1960s town planners thought were a good idea. Many of the buildings are scarred by graffiti and the side streets are strewn with litter.
On a stiflingly hot day, I come here to interview Petros Themelis, a finance ministry official, who runs a call centre that’s part of the Greek government’s battle against tax evaders. The idea is that public-spirited citizens ring up and snitch on those they suspect of tax dodging. This is the human factor in a much bigger war: Greece’s life‑or-death struggle with the Debt Beast.
The state’s accumulated borrowings are equal to about 160 per cent of national output. Greece cannot afford to service the interest, much less repay the capital. The country is, in effect, insolvent. Without the largesse of outsiders – many billions in bail-outs from the International Monetary Fund and the European Union – it would already have collapsed into bankruptcy.
In a last-ditch effort to stave off such an outcome, the Greek government is trying something new – well, new for Greece. It’s treating tax collection as a process that requires more rigour than passing round a church plate. There is much to shoot for: about €30 billion (£26.2 billion), or 12 per cent of GDP, are lost to tax cheats every year.
Mr Themelis’s team consists of three middle-aged men in casual shirts and chinos, manning phones and scribbling callers’ details into log books. The operation resembles a provincial bookmaker’s credit betting office – before computers.
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“Is this it?” I ask. “Where is everybody?”
The boss explains that cutbacks have diminished his resources. Some staff are on holiday, others have retired. As we chat, a tip-off is recorded about a supplier who did €700-worth of work but gave no receipt. At this rate of tax recovery, Greece’s voyage to viability will make the Odyssey seem like a stroll across Syntagma Square.
I’m told by Mr Themelis that Greeks are “addicted” to tax evasion. The system is riddled with wheezes and loopholes. Yet this is only part of the story of how dreams of “new horizons” when Greece entered the euro 10 years ago turned into a national nightmare. Tax dodging is merely one strand of aberrance that is woven into the fabric of contemporary Greece. And everybody here knows it.
Business leaders, a church representative, a retired finance minister, a distinguished academic, an economist, a wealthy writer, a shipping tycoon, protesters on the streets and impoverished folk queueing for free meals all give the same answer to my question, “what has gone wrong?” It’s the corruption, stupid!
Jason Manolopoulos, author of Greece’s 'Odious’ Debt, says the state has become a hydra with seven heads: cronyism, statism, nepotism, clientelism, corruption, closed shops and waste. Kleptocrats have been running the show and their predilection for thieving and bribery has poisoned the nation.
When I mention that we in Britain have similar issues with dissolute politicians – MPs who fiddle expenses – Greeks, rich and poor, laugh in my face. To them, a few thousand pounds here and there for duck houses and dodgy mortgages are barely worth an inquiry. The problem in Greece is of a completely different magnitude.
Pillaging at the top by politicians, doctors, lawyers and even tax investigators gives those further down the ladder a justification for what some call “tax resistance” and others “tax protection”. The result, according to the World Bank, is that the black market now makes up nearly a third of Greece’s economy, compared with 27 per cent in Italy, the EU’s flagship of undeclared earnings.
A sideshow to the epidemic of dishonesty is an explosion of what a local English-language newspaper calls “rubber checks” (nothing to do with tyre testing). In the seven months to July, there was a 43 per cent increase in the value of bounced cheques to €1.38 billion. A survey of Greek small businesses shows that nearly half the companies that accept cheques are in possession of duds.
Listening to the accounts of fraud, seeing how the books were cooked, observing at first hand the chronic inefficiencies of an economy underpinned by fairy tales, one begins to wonder what EU chiefs were thinking of when they welcomed Greece into the single currency. What was their motive for allowing a barely developed weakling to play expensive games with the big boys in Berlin?
Did they really believe that by letting Greece join the eurozone, it would start behaving responsibly? How could anyone in Brussels with even a bluffer’s knowledge of budgets have been fooled by Greece’s numbers racket?
Inviting a country with Greek productivity (soft) to function with a German currency (hard) is not common sense. So why do it? Was faith in “political will” so blind that even the EU’s elite expected financial gravity to be defied indefinitely?
The scale of delusion was such that its cost now threatens to sink the entire euro project. Greece is sucking up emergency funds faster than the European Central Bank can produce them. A brace of €100 billion-plus “rescue packages” has failed to deliver salvation. Yanis Varoufakis, professor of political economy at Athens University, explains: “Greece was not bailed out, it was given an expensive credit card with which to pay off the mortgage, having lost its job.”
The money has gone, but the myths remain. In order to make financial aid for Athens appear more palatable than just tipping taxpayers’ funds into a bottomless pit, the IMF and EU conjured up projections for Greece’s economy. It was supposed to shrink by 3.8 per cent this year, but show a modest growth of 0.8 per cent in 2012.
These “forecasts” formed the basis for prime minister George Papandreou’s revised fiscal policy, the austerity measures that include a 20 per cent cut in public-sector jobs, wage reductions of up to 30 per cent, and a rise in VAT to 23 per cent.
It’s difficult to tell if the IMF-EU calculations were naively optimistic or coldly cynical, but they are already way off target. Greece’s minister of finance Evangelos Venizelos admits that the economy will probably shrink by up to 5 per cent this year, and Citigroup expects an additional contraction of 2.7 per cent in 2012. If that proves correct, Greece will have endured four consecutive years in recession.
Greece’s roof has fallen in. It faces what economic historian Niall Ferguson calls the “metrics of doom”. The country needs growth of about 4 per cent a year just to prevent its debt pile, €350 billion, becoming bigger. Hopes that privatisations can raise €50 billion to close the gap are risible; the programme is behind schedule and bogged down in red tape.
Left to its own devices, Greece will be forced to borrow ever greater amounts of money to service existing debts, which it could not afford in the first place. On current form, by 2040 Athens will be burning 20 per cent of GDP on interest payments. This is not going to happen; the stitching will split long before then.
In the absence of a new eurozone bond, debt issued jointly by all member countries, to which Germany is implacably opposed, the conclusion is unavoidable: Greece is heading for a pyrotechnic default and an ignominious exit from a currency union that it should never have joined. I suspect that Petros Themelis knew that all along.
Jeff Randall’s documentary 'Greek Myths: Birth of a Crisis’ will be broadcast on Sky News on Friday August 26 at 7.30pm
It’s the corruption, stupid! - Telegraph
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