Tag Archives: Greece VAT

Paying the cost of the crisis

The news earlier this month that Greeks, acting on fears the country might exit the euro, transferred 30 billion euros to foreign banks, many of them in Switzerland, would have left most people in the debt-ridden country perplexed. It is a year since Greece signed a deal with the European Union and the International Monetary Fund to receive a 110-billion-euro bailout to prevent bankruptcy. That agreement came with strict terms and over the last 12 months the government in Athens has imposed the kind of austerity measures that make it difficult for Greeks to imagine that some of their countrymen might have enough spare cash to deposit in Swiss bank accounts.

One of the key features of the loan agreement has been repeated tax increases. Value added tax (VAT) has gone up several times since last year, income tax has been adjusted, duties on alcohol, fuel and tobacco products have been hiked and the tax on pensions has been increased. As a result, Greece now has the third-highest VAT rate in the EU, the second-highest duty on petrol and the third-highest social security contributions in the 27-nation bloc.

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When things fall apart

Illustration by Manos Symeonakis

Amid the upheaval unleashed by the near-collapse of the Greek economy and the austerity measures adopted by the government to halt the juggernaut of bankruptcy, it seemed an odd thing to notice as evidence of how the crisis was affecting daily life. But, somehow, the absence of the young woman who usually sat behind the ticket counter at the metro station seemed poignant. It was a reminder that there are faces to go with every cutback, tax increase and structural reform and how catastrophic policies and lousy leadership have led to the fabric of our society gradually unravelling.

It’s been a while since the ticket office was vacated – the woman who worked there was probably one of about 300 contract workers on the metro system who did not have their deals renewed in September due to public spending cuts. Since then, passengers have only been able to get tickets from one of the four machines in the station. It struck me as the first clear sign that even the things we have come to appreciate will not remain untouched. The Athens metro was one of the few public services Greece could be proud of but the absence of that face behind the glass felt like a portent that the crisis would soon get its bony fingers around the neck of this pristine network as well as so much else. 

There have been other telltale signs that the status quo is being buried beneath the ruins of the crumbling Greek economy: The growing number of people looking through dumpsters, the increasing frequency with which Gypsies drive through neighborhoods collecting scrap metal and how traffic jams are briefer, as Athenians think twice about using their cars because the cost of fuel has risen faster than Greece’s bond spread. As people pay more for their gas or basic goods, which have been hit by rises in value-added tax, so they spend less at shops – retail sales were down by almost 12 percent in August compared to last year. This has led to the crisis leaving the visible scar of empty stores in every neighborhood. 

With the closing down of shops and businesses come redundancies. The most recent figures put unemployment at 12.2 percent, or just over 613,000 people, up a staggering 35 percent since the same time last year. Like the woman from the metro, these are faces now out of the public eye. Instead they can be found in queues at dark unemployment offices or in front of the mesmerizing light of computer screens as they search for jobs. This is a crisis the impact of which can most accurately be measured by what is no longer happening rather than what is, by the people we don’t see rather than the ones we do.

At the metro station, soon after the woman in the ticket booth disappeared, one of the four machines stopped working. It has been sitting idle ever since, blinking an error message like Apollo 13 trying to contact a Houston control room that’s just not listening. A few weeks after the first ticket dispenser went into its death spiral, a second machine started rejecting banknotes. Metro staff taped a handwritten “Out of order” notice on it, advising commuters to use the other two machines. Presumably the engineers responsible for looking after these machines are no longer employed or are so few they can’t keep up. With the government looking to save 850 million euros a month from public enterprises next year, this is the new reality we have to get used to. But the lack of maintenance means that soon none of the machines will be working. It will be impossible to buy a ticket to travel, the system will disintegrate. What happens underground will be replicated above the surface. In the headlong rush to cut, scrimp and save without a thought for supporting or strengthening, things will fall apart.

That is the moment when the last chapter of this crisis will be written: When all the people who have been cheated, betrayed and mangled by the system step into the breach to reorder things. We are not there yet. For the moment, there is an eerie silence on the streets. After a flurry of public protests at the beginning of the year, the situation appears surprisingly calm – by Greek standards at least. To some extent this can be attributed to three bank employees being killed in May when a bank in central Athens was firebombed during a rally. But there is something more than that. There is a feeling of numbness that has seeped into Greece since the beginning of the year. The numbness that comes from realizing that events have caught you unprepared, the numbness of stepping into the unknown and the numbness of fearing for your future. Most of all, though, it is the numbness of seeing things around you being dismantled while you’re powerless to prevent it. This is what has stopped people from raging against feckless leaders, callous bosses and incompetent unionists. 

This silence, though, is deafening. It means that anger is building up. If you listen closely, you can hear the whisperings of a gathering storm. This isn’t something that’s happening in the streets or at the squares — it’s taking place in homes, where families are struggling to make ends meet and can no longer feed themselves on the broken promises of the past, it’s happening at cafes where friends meet while dreading they’ll hear more bad news rather than share in some good, and it’s happening in workplaces, where colleagues encounter empty desks rather than the people with whom they shared most of their daily lives.

As we prepare for a new year, when more sacrifices will be made – some fair, others particularly harsh – the clock will not just be ticking for the government, desperate to meet the targets it has been set by the European Union and the International Monetary Fund. Time will also be counting down for the people who feel genuinely wronged by what is going on around them: those who are prepared to pay their share but are not prepared to pay for the failures of others. And, when the moment arrives, we will see again the faces of those who had disappeared and remember the pieces of our lives that were chipped away. Then, we will be spurred on to build things again, only this time fairer, stronger, better.

This commentary was written by Nick Malkoutzis and was published in Athens Plus on December 3, 2010.

Waiting for the great leap forward

Illustration in linocut by Manos Symeonakis

To paraphrase the Chinese proverb, if you wait on the banks of the river long enough, your enemy’s corpse will eventually float by. This essentially reflects Greece’s longstanding philosophy on attracting foreign investment: If we sit back and do nothing, then someone, somewhere, will sooner or later want to give us some money.

At this most crucial of times, it’s the Chinese and their capital that are floating into view but Greece is still having difficulty shaking off its passiveness. It’s perplexing that just a few days before the Chinese Premier Wen Jiabao visits Athens accompanied by Captain Wei Jiafu, president and chief executive officer of the China Ocean Shipping Company (COSCO), the government is allowing creases to form in the fabric of this new relationship rather than ironing out any problems.

COSCO, the world’s second-largest shipping company, is about to complete the first 12 months of its 35-year, 3.5-billion-euro concession deal for one of the container terminals at Piraeus. Secured under the previous conservative government, the momentous deal has been threatened by this administration’s intractability and incompetence.

State-owned COSCO was due to take over control of Piraeus’s Pier 2 on October 1 last year but this was delayed for a month because of a strike by port workers who’d been told by PASOK that the contract with the Chinese would be renegotiated if the Socialists came to power after the September elections. This, of course, never happened as PASOK realized it risked entering a legal minefield and blowing Greece’s reputation to smithereens.

Having shown patience with the strike, COSCO, which has hired 300 Greek workers of its own this year, is now in dispute with the government over its failure to give back to the company some 20 million euros in value-added tax (VAT) payments. The delay is due to the Finance Ministry holding back a series of VAT returns for fear of creating a gaping hole in public finances. Although 20 million euros might seem a drop in the ocean for a huge company like COSCO, it’s the difference between the firm showing a profit or a 10.6-million-euro loss on its investment in Greece for the first six months of this year.

Also, according to reports, the Chinese side has expressed concern that the Piraeus Port Authority (OLP), which operates the other container terminal, is not competing on an equal footing with COSCO and is benefiting from the privileges it’s afforded as a state-owned company. The Chinese were also reportedly surprised by the Thessaloniki Port Authority’s (OLTH) announcement this month that it would hold a tender in October for the 220-million-euro contract to expand one of its quays. Possible Chinese investment in Thessaloniki port was expected to be one of the items to be discussed by Wen and Prime Minister George Papandreou on October 2.

Wen’s trip follows a May visit to Greece by Captain Wei, when the government beseeched him to invest in anything that moved, including the Hellenic Railways Organization (OSE) – although given the slowness of its trains, it’s debatable whether they do actually move. Wei politely pointed out that COSCO was a shipping company, not a railway, electricity or any other kind of firm but promised to convey to the Chinese government Greece’s supposed willingness to do business. This precipitated China’s Vice Premier Zhang Dejiang’s visit the following month, when he signed 14 investment deals.

So, having cultivated this budding relationship with China, Greece would be expected to prove there is fertile ground for further cooperation. The situation doesn’t require anyone to bend backward but simply to project forward and envision the benefits to be gained from enticing further Chinese investment. COSCO is set to spend a further 500 million euros on improving Pier 2 and building Pier 3 at Piraeus and is interested in investing more than 150 million euros in constructing a logistics terminal in the Thriaseio Plain, west of Athens, to transport goods to the rest of Europe. So, by the time the Chinese premier visits next week, Papandreou and his team have to be clear in their minds about what they want to gain from this relationship and how they can gain it. The visitors from China will have little appetite for any more of the shilly-shallying of the past few months.

Some might argue that if the Chinese were to withdraw their interest, then someone else would step in to fill the void — but Greece has a miserable record of attracting foreign direct investment and the current economic conditions have left few major players in the game. Papandreou spoke this week to wealthy Greek-Americans in New York but they cannot match the financial muscle of the Chinese. Greek-Americans have repeatedly shunned invitations to plough their money back into Greece, which suggests they know their homeland and its traps too well and are reluctant to get involved in political games that only outsiders like the Chinese – who did a deal with the New Democracy government but executed it under the PASOK administration – can avoid getting tangled up in.

Others might express concern about the apparent disparity in the way that China and Greece, as a European Union member, view work-related issues like safety and laborers’ rights. After visiting the Piraeus port earlier this month, the International Dockworkers Council (IDC) described the employment conditions at Pier 2 as “substandard.” IDC complained that COSCO is employing “union-busting” tactics and endangering workers’ safety. Presumably, the Chinese company would respond by saying that it successfully manages ports in other EU countries such as Naples in Italy, Antwerp in Belgium and Rotterdam in the Netherlands without any labor problems. Also, although worker safety is often compromised in the rapidly developing Chinese economy, the Communist Party has shown a growing willingness to address the problem. Deaths in Chinese mines were down from almost 7,000 in 2002 to about 2,600 last year, according to The Guardian newspaper, and Wen recently ordered pit bosses to go down into the shafts with miners in a bid to encourage safer conditions.

Skeptics will also emphasise that the line between a sell-off and a sell-out is extremely thin. COSCO, for instance, has been linked with a 500-million-euro investment in Crete, where it has plans to build a container terminal at Tymbaki, on the island’s southern coast. Locals, who have protected the area from excessive tourist development, oppose the scheme as they fear it will damage the local environment, including endangered sea turtles’ nests. It’s a conundrum for the government: Greece cannot afford to shun foreign investment but is it willing to pay the price of investment at all costs?

These are all questions Papandreou and his ministers will have to be in a position to answer in their talks with Chinese officials next week. Other countries came to terms with these dilemmas many years ago but, as with so many things, Greece is only now facing up to the rigors of reality and time is not on its side. The late Chinese leader Mao Zedong wrote in one of his poems: “Time passes. Ten thousand years are too long. Seize the day, seize the hour.” If Greece doesn’t do so now, it’s possible the only thing floating by will be another wasted opportunity.

This commentary was written by Nick Malkoutzis and was published in Athens Plus on September 24, 2010.

Crisis? What Crisis?

Illustration by Manos Symeonakis

I’d heard it said many times, in many ways but never with such clarity. It fell to Thanassis, an advertising company employee vacationing on Serifos to deliver a wonderfully succinct assessment of the country’s mood. “Everybody is waiting for September without knowing whether it will be a new beginning, or the beginning of the end,” Thanassis, who clearly has a flair for dramatic turns of phrase, told Agence France-Presse. All his experience as an advertising executive didn’t prevent him from not only jumping on this particular bandwagon but riding it all the way into the imaginary Doomsday sunset like a champion jockey.

September is no longer just any month in most Greeks’ minds, it’s a mystical watershed, a moment in time when clocks will stop, spoons will bend and fish will jump out of the sea. Spurred on by journalists and commentators who can’t resist stirring up a hornet’s nest and politicians who are desperate to be part of the madding crowd, Greeks have become obsessed about September being the month when time will catch up with Greece and lash them viciously against the rocks of hardship.

Of course there will be some tough times in September: the government will begin taking on the closed professions as it starts its liberalization program; a drop in tax revenues due to reduced household spending will require new austerity measures that could include more VAT hikes and spending cuts, and, our IMF and EU overseers will be back to check our books. But, hold on a second. Isn’t all this starting to sound a little familiar? Sure, September will bring new hardships but it’s not like January through to August has been a walk in the park. It was only a few days ago that the head of the IMF mission in Greece, Poul Thomsen, said that “Few European countries have produced so many reforms in such a short time.”

Is it possible that a quick dip in the Aegean and a couple of tequila slammers over the summer has made us forget all this? Don’t we remember how many experts predicted Greece would be bankrupt before the summer, the euro was facing imminent collapse and the EU would implode? Well, here’s some news: the euro has gained 10 percent against the dollar over the past two months, the risk premium on Spanish, Italian and Portuguese government debt has dropped and data published earlier this month showed the German economy grew by 2.2 percent in the second quarter of this year, its best performance since reunification 20 years ago. Sure, the spread on Irish bonds inched up last week and Slovakia says it won’t stump up the cash for Greece’s rescue package but it’s far from the apocalypse many dreaded.

Most bold predictions have been undone and, if anything, several months on from when the debt crisis began, the only thing we can say with any confidence is that there are more unanswered questions than when we began. It seems certain as we continue this fascinating journey into uncharted territory that September will not be a new beginning or the beginning of the end; it will be just another month in a long, hard slog as we adapt to a whole new set of parameters.

Each bump along the road will not only jolt us but it will enlighten us and, hopefully, inch Greeks closer to achieving a more stable and fairer future, free from the favoritism and myopic thinking of the past. To appreciate how the crisis has shaken things up, we only need to look at how Greece has gone from being an inert country not just gathering dust but accumulating it in huge piles, to one that finds itself at the coalface of the global economy. It used to be that reforms only existed so we could create more shelves to put them on but this year we have seen changes pushed through with breathtaking speed. Not too long ago, Greek prime ministers seemed to only venture abroad if the shopping was good but now George Papandreou is racking up more air miles than George Clooney as he seeks to preach the good word about Greece’s gallant fight with its economic demons and grab a seat at the table where the big players take decisions.

The crisis has been good for Greece. It’s created the best chance the country has of achieving catharsis and tangible change. Critics, though, will argue the process is devalued because Greece is following the instructions of foreigners. In fact, New Democracy, after almost a year in opposition, has decided this is the government’s Achilles heal. Lately, the conservatives have taken to calling Papandreou and his team “the memorandum government” in reference to the agreement Greece signed with the EU and IMF to obtain 110 billion euros in loans. Yes, it’s taken nine months to come up with this dazzling repartee. However, if the wisecrackers at ND headquarters could sew their split sides back together for a moment, they’d realize that after the flaccidness of their five years in office, it really doesn’t matter where the instructions are coming from. What counts is that the status quo, which worked in favor of the few, is being confronted. It’s natural that only outsiders could instigate this challenge since our own decision makers – some of the members of the current PASOK government included – were draughtsmen of, and shareholders in, the previous, failed system.

New Democracy, like all the political parties, is preparing for the November local elections, which are expected to be a litmus test for Greek politics. Some big name politicians want to avoid throwing themselves at the mercy of the electorate and the big parties intend to take a much more low-key role than usual, allowing local politicians to form their own alignments and groupings. The fact that rather than being drawn to power, politicians and parties are daunted by the prospect of being scrutinized or having to answer to the public is evidence of how the crisis is reordering things in Greece.

So, this September, instead of being cowed by the doom-mongers and naysayers, let’s take heart from the potential of our situation. Like so many other European countries, for Greece the next decade will be about taking steps to bring its debt and deficit under control. With that come some very harsh measures, as we already know, but, unlike other European countries, it also presents Greece with the opportunity to right wrongs, correct injustices and rebuild our dilapidated structures. That’s why we should not fear the crisis, but embrace and master it – it could be the only opportunity we have to press reset rather than the self-destruct button.

This commentary was written by Nick Malkoutzis and was published in Athens Plus on August 20, 2010.

Missing the trees for the forest

Illustration by Manos Symeonakis

In a country where residents wake up in the morning not knowing if an illegal strike will take place and deprive them of the capital’s metro system, and visitors show up at its most revered archaeological site only to be turned away by protesting employees, it hardly seems that the prime minister’s priority should be to attend an island gathering of big thinkers. Discussing theoretical permutations when there are practical problems to deal with somehow doesn’t appear very fitting.

Rather than tackle more mundane issues in Athens, Prime Minister George Papandreou chose this week to visit Poros for the Symi Symposium, a brainchild of his which sees some of the world’s top politicians, economists, academics and opinion leaders gather in Greece every year. Like cicadas striking up across Athens, you could hear the disapproving tut-tuts of his political opponents but especially his government colleagues. In Papandreou’s absence, his PASOK party embarked on a new bout of schizophrenic infighting.

In fact, the past few days have epitomized Papandreou’s premiership — like the schoolchild who wants to sketch freely but is constantly forced to paint by numbers like the rest of his classmates — the PASOK leader’s attempts to allow his grand visions to take flight are repeatedly grounded by the complications of the day-to-day running of the country.

Yet, it seems churlish to criticize a leader for wanting to inspire and be inspired by great ideas or for broadening his contacts and the country’s allies by meeting with foreign leaders and experts. After all, his predecessor was castigated for remaining rooted to the spot, like a homing pigeon that didn’t have a message worth delivering.

Free from the burdens of protesting Culture Ministry contract workers and striking air traffic controllers, Papandreou was able to tackle meaty subjects at a symposium whose title alone — “Fast Forward: Progressive Ideas for Greece, Europe and the World” — projected positiveness. One of his big ideas this week was to express support for a Tobin Tax, also known as a Robin Hood Tax.

The idea — to impose a tax of as little as 0.1 percent on financial trades — was first proposed by American economist James Tobin in the 1970s as a way of reducing the volatility of currency exchange rates and, more significantly for today’s leaders, to “promote autonomy of national macroeconomic and monetary policies,” in other words to deter speculators.

As you might expect from a Nobel Laureate, Tobin had the intelligence to understand that the timing of his proposal was unfortunate. The idea of taxing transactions at a time when neoliberal economic policies were taking root meant that his plea fell on deaf ears. “It did not make much of a ripple,” he acknowledged some years later. “In fact, one could say that it sunk like a rock.”

However, the crises that have shifted the world’s economic paradigms over the last couple of years mean the idea is being floated again, especially as it would allow governments to build up funds that could be used for a number of things, from bailing out banks to driving development. The Tobin Tax sounds like something from Lord of the Rings and for years it seemed a work of fiction but now there is growing momentum toward making it become a reality.

“The proposal for the imposition of a tax on financial transactions, a so-called ‘Tobin Tax,’ which will bring in funds that we can invest in our economies, is very significant and one which we will insist on because investment is vital if we want to exit the current crisis,” Papandreou told his audience on Poros.

This week, both the French and German finance ministers Christine Lagarde and Wolfgang Schauble declared their support for such a levy (also known as a financial transaction tax or FTT), ahead of an Ecofin meeting where they raised the issue with their European counterparts. In declaring his support for the levy in the same week, Papandreou appears to be aligning himself with Europe’s big players. Isn’t this just what we want from a Greek leader — for him to put the country at the forefront of developments and progressive thinking rather than bringing up the rear?

You would think so but Papandreou’s attempt to grab at these big ideas somehow leaves a nagging feeling that he is overreaching, perhaps unaware of the full implications of what he is promoting. For instance, there is a strong counter-argument to the Tobin Tax. Some financiers claim it goes against the principles of wealth creation and would simply drive business to other countries where the levy does not apply. Sweden, where Papandreou spent part of his youth, applied such a tax on trades of local stocks and derivatives in the 1980s but the scheme was abandoned in the 1990s because many investors simply traded from other countries and the revenue generated by the levy did not meet expectations.

By declaring his support for a Tobin Tax, Papandreou may be showing that he’s in step with other leading thinkers but at the same time he is opening himself up to another, even more damaging, accusation that is often leveled at him — that he has a knack of identifying good ideas but just not the ones that would help overcome the problems he has to solve.

Papandreou’s statement of support for the levy came on the same day that Greece announced it had managed to slash its budget deficit by 46 percent during the first six months of 2010 compared to last year, but that it had fallen well short of its target to increase revenues by 13.7 percent. While public spending cuts seem to have done the trick, the idea of raising taxes, VAT in particular, has not had the desired effect.

Papandreou’s government had to scramble to rescue public finances but in its rush to do so, little thought was paid to the fact that hiking taxes when people are pushed for money leads to them spending less and will ultimately prove counterproductive, as the government collects less revenue. PASOK has not been able to find a way to compensate for this. It makes Papandreou’s bid to chase the world’s rich when Greeks become increasingly poorer seem like irrelevant folly rather than visionary politics.

Herein lies one of Papandreou’s greatest challenges. As he leads his band of not-so-merry men into the battles ahead, the prime minister must find a way of balancing his love of the broad, theoretical political brushstrokes with the need for precise, effective interventions that will address the pressing problems Greece faces. Anything less, and he’s in for a rather lonely and painful ride through the glen.

This commentary was written by Nick Malkoutzis and was published in Athens Plus on July 16, 2010.