Is Greece already seeing some fiscal collapse?

Kerin Hope from the FT reports:

A reluctance to pay taxes was much criticised by Greece’s creditors as one reason why the country needed a big international bailout. Now many Greeks are again avoiding the taxman as they bet the radical left Syriza party will quickly loosen fiscal policy if it comes to power in Sunday’s general election.

A finance ministry official confirmed on Friday that state revenues had collapsed this month. “It’s normal for the tax take to decline during an election campaign but this time it’s more noticeable,” the official said, avoiding any specific figures on the projected shortfall.

However, two private sector economists forecast the shortfall could exceed €1.5bn, or more than 40 per cent of projected revenues for January.

File under “In case you had not been paying attention…”  And here is Antonio Fatás with a Grexit scenario.  That is still not what most people expect, however.


I don't know about most people, but I got my Euros out a few years ago. The property of course cannot be moved. At one point the building we have in Greece was valued at $3M, don't know now, but it's probably still up there.

As for declining tax revenues this month, it's hard to make anything of this since people don't really pay income taxes in Greece, it's all sales tax, so this stat is somewhat useless. Maybe the official is talking about business sales taxes? Why would business owners hide sales tax? Not clear.

What do you mean that "it's all sales tax"? They have high income taxes, payroll taxes, VAT taxes, etc.:

Looking it up, VAT pays 21% of Greek taxes. Income taxes were 56% Score another one for my "Ray Lopez is a 16 year old Filipino boy" theory

So your saying his girlfriend is 8?

Perhaps, but she can probably spell "you're" correctly when asked.

She's also probally a lot less of a catty bitch than you.

Ha, Ha, touché.

When countries have trouble collecting taxes, why don't they naturally evolve towards charging fees for government services, thus at least partially solving the problem of raising enough funds to pay for those services? Is it because those governments provide too few services that people are actually willing to pay for?

Well this wouldn't really work because the strongest supporters of public services at the ballot box (apart from their employees) are the least able to pay for them.
But it does happen in a roundabout sense. Policemen, doctors and teachers stop getting paid and start requiring 'gifts' and 'tips' for their services. And there's co-payment in kind: bring-your-own syringe/textbook/lightbulb.

You answered your own question.

Now many Greeks are again avoiding the taxman as they bet the radical left Syriza party will quickly loosen fiscal policy if it comes to power in Sunday’s general election.

So they see no point paying for people who hate them? They think that Syriza will normalize theft and so they are getting in early? They are saving up for the much higher tax demands to come?

High taxes do seem to have a destructive effect on society when the money is wasted. I wouldn't pay Syriza a cent either. But 40% seems high.

What a shame that the Euro zone let the issue of possible defaults on sovereign debt get mixed up with whether a country stayed in the Euro or not. Greece should have defaulted in 2008 and that would have been issue between it and the banks and bondholders that had lent money to the state. They should have know that lending to a country that does not have its own central bank is risky. And a better institutional arrangement would have found a less costly way for a country to leave the currency union.

Most of the privately held Greek debt has already been written down. What remains is what they owe to other sovereigns in the EU or euro zone.

You call it a shame, but what if it is working as designed? Do you think that the northern functional economies wanted the eurozone spread to benefit lower middle class Greeks? A currency regime has two benefits, it shields a small country from the vicious currency fluctuations that make it impossible for it to participate in a global economy, and it applies a certain discipline upon the polity when they can't print to buy themselves out of their latest cockamamie scheme.

But what in practice it ended up being is a vendor finance scheme. The manufacturing states would lend enormous money on good terms to countries to buy their goods so that they could modernize their infrastructure and economies, or so the sales pitch went. Spain wanted to become a leader in solar generation? Great. The Germans would lend them the money and manufacture the stuff they needed to buy.

This fit all the wonderful wisdom of the age; the manufacturing sector loved a captive market in a time when the Chinese were cleaning their collective clocks. The politicians love the money, they always do, the more the better. The bankers loved the rules that let them lend to infinity and leverage that secure debt to great profits. The EU bureaucrats loved it because that money could be applied to fund their relevance. The economists loved it, well, who doesn't love a natural experiment paid for by someone else.

The Greeks will exit when the banks that loaned them money have had enough time to restructure so that they can swallow the cascading losses as other countries follow suit without going under.

So the Germans did it?

Derek has it pretty right. Greece and the periphery vs Germany and core reminds me greatly of the clients of and Nortel/Lucent- a classic story of vendor financing gone down a shithole.

I was under the impression that solar energy was supposed to be great investment for Spain's economy. Or something. I wonder what happened there.

I don't think Spanish solar energy was a failure. However, it's capital intensive and thus has a low ROI. It was certainly a better investment than solar energy in Germany was, but it was still probably marginal.

I disagree with Derek.
For various reasons, Spanish firms and the government behind them thought solar would be a good idea. The Germans probably thought these guys know what they are doing, so they (and many others) lent them the money. There is no evidence of them intentionally supporting a bad investment.

Sadly, the markets have problems charging countries like Greece higher interest rates, since 'activists' clamor 'it's racism!!' when the southern countries are charged disproportionately higher rates.

It took the collapse of 2008 to stop the clamor from this fringe. But don't worry they will be back.

All the discussion about Greece inside and out are just variations on free lunch economics, economic theories that were seen as absurd before the 70s and 80s.

Since the 80s, taxes are theft, and that is now something held as a sound economic principle by the left and right.

Since the 80s, deregulating, borrowing and spending, and then defaulting on debt is virtue.

Since the 80s, central banks printing money to create wealth by asset price inflation is the solution to pretty much every problem.

Since the 80s, lower wages and lower employment is the way to boost profits and create wealth, and wealth causes consumer spending that causes job creation.

Since the 80s, economics as zero sum has been discarded because to argue that GDP is driven by consumer spending which is driven by labor income implies that the only way to grow GDP without government intervention is by wage growth.

Since the 80s, the policies that dominate are to cut labor income and then offset that by cutting taxes and then increasing spending by borrowing lots of money never to be repaid to boost demand for production. The Reagan administration was the big advocate of cutting taxes and and increasing spending to increase demand to grow GDP - he justified the borrow and spend as in the Constitution and in the American DNA, failing to acknowledge the Constitution replaced the Articles that were fully borrow and spend to fight for independence and defend the 13 States, which had defaulted on the debt and thus could not borrow any more to defend against the British or others.

We have currently the free lunch solution of lower and lower labor incomes to create viable economies for a nation with little to export.

We have a political party running on borrow and spend and default.

We have economists saying Greece should exit the Euro and print money to grow the economy while being buried in debt that is increasing in the amount of printed money to repay it.

None of these policies does anything to address the fact the Greek economy is in trouble because labor income is too low to drive GDP growth and without GDP growth, investing in new productive capital assets, which costs a lot in terms of labor income paid, is contrary to the principles of profit seekers. Profit seekers never want too much productive capital assets because that drives the price of those assets down below the labor costs of replacements. This is the situation Keynes described and thus became forever famous.

Until economic policies are laid out that pay workers more to drive GDP growth without defaulting on debt, the policies are free lunch - they are money for nothing.

So what you're saying is that it's necessary to pay labor more so they can be taxed more to drive GDP up. What do you mean by "labor"? Is labor anyone who gets a check for 40 hrs. of work? Is labor a salaried manager at a supermarket? Or is labor only a truck driver or cow herd that needs to wash his hands at the end of the day? Don't workers seek profits just as much as their employers do? When a worker sells his home does he sell it for what he paid for it or does he try to get the market price?

" a nation with little to export."

According to the always reliable Wikipedia, the US is the third largest exporter in the world.

That canard always bugs me, that the US 'doesn't make anything', that we don't manufacture 'like we used to'. We do, more than ever even in real terms...we just employ fewer people to do it.

Mr. Reagan's been out of office for 26 years and is dead.

Running down memory lane here, the ratio of federal borrowing to domestic product (acceded to by the Democratic congressional caucus) scarcely exceeded 0.06 during his administration; high, but been met and matched in the last six years again and again. His successor acceded to a tax increase in 1990. The ratio of federal debt to domestic product did begin to decline - about five years later when the Democratic congressional caucus had had their hand yanked out of the till. Funny thing about that.

Fatas makes an interesting argument. Clearly we shall see, and clearly Germany is playing a serious chicken game for the coming negotiation, out of which the most likely outcome remains some sort of fancy muddle-through, although certainly the Germans do not want too nice of a deal for the Greeks for the reasons Fatas states.

Regarding Greek trade, I do not see the numbers for tourism, which are very important, but in terms of its exports, the biggest at 14% is lubricating and petroleum oils, second is Medicaments at 5.1%, then fresh, dried, or prepared fish at 3.8%, then worked aluminum and alloys at 3.5%, then prepared or preserved vegetables at 2.1%, and then worked copper and copper alloys at 2%. I don't think this is a list most are aware of, although I suspect tourism beats all of them, but is not on the list not technically being an export.

Also, Germany and Italy compete for being the most important trading partners of Greece, each receiving about 11% of its exports. Germany is first as a source of imports, followed closely by Italy, with Russia coming up closely behind in third place, but is near zero as a recipient of exports.

As has been pointed out many times- a Greek government default does not have to equal Euro expulsion/departure. To my mind, this only has to happen if the Greek National Bank tries to illegally bail out/fund its sovereign by printing unauthorized Greek Euros. It appears Syriza has won the election, at least on the surface it appears that way. It is going to be a fascinating Winter and Spring in Euroland.

Venezuela without the oil. Fascinating.

This can't be emphasized enough. The Fatas piece linked to seems to assume that all the Euros in Greece just spontaneously catch fire or something if Athens defaults without German permission. If they repudiate their debts, it may be that no one will lend to them again, but that may worth enduring--and it can be endured, if the Greeks can keep up a primary surplus. It's a matter of choosing the least-bad alternative. At the same time, the Eurozone has no legal mechanism for expelling a member state. So the questions of default and the Euro are separate.

I also wonder- have the gates been closed preventing Greeks in Greece from converting their financial assets into German Euros? Or is every single former "Greek" account carrying an asterisk in some European bank?

If it was your money, where would you park it? The Greek gov't us highly likely to take some of it (a la Cyprus), the Germans might, the Swiss or British probably not.

Horrible political culture, no civic spirit, and incipient demographic implosion. They do it to themselves.

Horrible economic culture, too.

And the fact that Greece owns the largest merchant marine in the world?

'In recent years and in terms of ship categories, Greek companies have 22.5% of the world's tankers[6] and 16.8% of the world's bulk carriers (in dwt).[6] An additional equivalent of 20.05% of the world's tanker dwt is on order,[6] with another 12.1% of bulk carriers also on order.[6] Today, shipping is one of the country's most important industries. It accounts for 6% of GDP,[6] employs about 160,000 people (4% of the workforce),[2] and represents 1/3 of the country's trade deficit.[2] Earnings from shipping amounted to €15.4 billion in 2010,[6] while between 2000 and 2010 Greek shipping contributed a total of €140 billion[6] (half of the country's public debt in 2009 and 3.5 times the receipts from the European Union in the period 2000-2013).[6] A European Community Shipowners' Association report for 2010-2011 reveals that the Greek flag is the fifth-most-used internationally for shipping, while it ranks first in the EU;[6] the same ECSA report showed that there are approximately 750 Greek shipping companies in operation.

Counting shipping as quasi-exports and in terms of monetary value, Greece has ranked 4th globally in 2011 having "exported" shipping services worth $17,704,132; only Denmark, Germany and South Korea have ranked higher during that year.'

Odd to see Greece keeping up with Germany and South Korea in such a major economic field, isn't it?

Very different though I think. The Koreans build ships, the Greeks operate them , from what I understand.

No. The problem is the euro.

The did not end up with a huge problem with tax evasion or with public debt at 150% of gdp because of the Euro.

Well, if you are so smart, go try to make a living there...

Why? Place is a latrine.

The pity for Greece is that the previous performance of the military was deficient. The Chilean military had the sense to hire people who could, after an interval, renovate the house. Not bettin' on their Greek counterparts.

Just so we're clear, a big reason Greece is still in the euro---and why even Syriza won't pull the plug on the euro---is that nobody actually wants an army irate about being paid in worthless drachmae burning the house down (again) and sending Greece on an express train out of the free world. Putin and the Golden Dawn might benefit from such an outcome. I can't think who else would.

Depends on who the military hires. The practical comparison is not between the military and Swiss politicians. It's between the military and Greek politicians. If their fortunate, they can locate someone on the Salazar-Kivimaaki axis.

Surely then the proper comparison should be between the Greek army and Greek civilian politicians. Judging by past performance the first item on the agenda of Junta 2.0 would be score-settling with communists and Turks, not economic reform.

Their crappy political culture implicates the military as well. Then again, Uruguay and Chile had a class of elected officials shot through with the terminally ineffectual and obnoxious reds. The military improved on that in both loci. To what extent can Greece get lucky?

High taxes means less wealth for economic growth and less capital investment for employment increases.

Anyone else suspect they might follow the example of Brazil under Lula and quietly continue "austerity" while pretending it is something else?

Austerity under Lula? Are you dreaming???

Silva and his cabinet followed in part the lead of the previous government,[25] by renewing all agreements with the International Monetary Fund, which were signed by the time Argentina defaulted on its own deals in 2001. His government achieved a satisfactory primary budget surplus in the first two years, as required by the IMF agreement, exceeding the target for the third year. In late 2005, the government paid off its debt to the IMF in full, two years ahead of schedule.[26] Three years after the election, Lula had slowly but firmly gained the market's confidence, and sovereign risk indexes fell to around 250 points. The government's choice of inflation targeting kept the economy stable, and was complimented during the 2005 World Economic Forum in Davos.

Mandatory budget surpluses and debt repayment sound a lot like austerity to me. What am I missing?

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