"colony" to be used to describe the situation for
Greece, as it slides into the abyss, from which the
only escape is through armed warfare.
Anyway , for now, check the interesting concepts
from PJ Media. Never heard of it before, and they've
got piss poor editing of spelling, but I hope their
ideas have been properly sourced.
Read 'em: PJ Media
The
Greek Crisis: Yes, It’s That Bad
Greece
today is a broken country, unable to break out of the vicious circle of EU
over-dependency.
By Diran
Majarian
November
30, 2012 - 12:00 am
Greece
is now a virtual EU colony, waiting from
bailout to bailout, each preceded by months of negotiations, more harsh
austerity measures, riots, and an increasingly fractured political system.
The
latest installment has been delayed by a
growing rift between the IMF and their EU partners in Greece’s guardian,
called the Troika. The IMF has looked at the ever-deepening EU recession and
Greece’s inability to pay back debts given its own declining economy. It now
wants to scale down future loans.
The
IMF is hardly being radical. Its incredibly modest goal is that by the year
2020, Greece will only hold public sector loans amounting to 120 percent of its
gross domestic product. That’s double
the international norm. Yet even this basic goal probably won’t hold. In Europe, politics systematically trumps sound economic policy, and the ideology of a single currency zone
precludes any rational discussion.
Germany,
however, has elections coming up, and the government is not relishing having to
tell taxpayers why their money is being
spent on loans to Greece that will never be repaid. So there is now talk of
an amazing compromise in which each EU state will decide how much it can give Greece without facing domestic political
costs. This gives a good view of the EU method in such matters: the issue isn’t really dealt
with, the crisis is kicked down the road, and the political elite declares
victory.
The 44 billion euro loan Greece is expecting
would just cover immediate obligations at best. For example, Greece has
been staving off default by issuing
short-term treasury bills that it dumps onto its commercial banks. It isn’t surprising that this practice has
brought on the insolvency of the banking
system, whose capital
was wiped out last spring in the last debt restructuring. So much of the
new money will be used to refund the
banks, which will then be put under
the control of the Troika. Hence, Wolfgang Munchau of the Financial Times called Greece the
first formal EU colony.
In
this cycle that solves nothing, bailout loans prevent Greece from defaulting on
its foreign debt. As might be suspected, this is a Ponzi scheme that inevitably
will eventually collapse. Greece is loaned money to pay back old loans and the
interest mounts.
Successive
Greek governments (always the same
policies and mostly the same people) are terrified that they won’t receive
the next bailout loan installment and thus won’t be able to pay state employees or debts,
not to mention foreign creditors. No one takes into account the effect of this
mess on the Greek economy or the Greek people in bringing deepening recession
and declining living standards.
Naturally,
the Greeks then miss most of the targets set as supposed conditions to get the
loans, sometimes due to bad administration, but more often due to simple
economics. Deepening recession means declining tax revenues — as incomes drop
and businesses go bankrupt — and rising public expenditure due to mass unemployment
and impoverishment of the population.
On
paper, Greece seems to be making progress as its balance of payments turns
positive. But that’s only because the depression is reducing imports. As for
things that would make a difference — like opening closed professions and more
labor flexibility — these reforms could take a decade to show results and there
is a great deal of resistance to making any substantive changes.
The
popular myth, of course, is that tax revenues are never on target because of rampant tax evasion. One of Greece’s
distinct features is a very
large percentage of the labor force being self-employed. Most businesses are small and family-owned.
This social category forms the backbone
of the Greek middle class. In the U.S. and Western Europe, the percentage
of self-employed is below
10%, while in Greece it is a whopping 30%.
According
to IRS statistics, self-employed people
are prone to heavy tax evasion from systematic understatement of income. That factor would explain most of the tax revenue
shortfall. The EU
authorities would like to eliminate the large number of small businesses, which
they see as inefficient.
Accordingly,
the Greek government in this latest torture cycle to get the next bailout loan
tranche has decided to remove tax
exemptions from self-employed people and tax them at 35%/ 65% marginal rates
according to purported income based on various
arbitrary factors like where they reside and what car they drive.
This
is symptomatic of where things are going in Greece in terms of highly
aggressive taxation. Last year, the
Greek government assessed a real estate tax that was linked to electrical bills. This caused severe liquidity problems with
the Greek Public Power Corporation since people could not pay both the tax
bill and electric bill. The present Greek government is cutting power to these
people and threatening to put their property on auction. Likewise last year,
the government aggressively raised income taxes across the board on businesses
and private income. The result: many businesses faced substantial tax bills
without the income to pay, forcing them into bankruptcy. All this is causing
immense social upheaval and fragmentation of the political system.
The
May elections resulted in a sharp decline of the two major traditional parties.
The socialists (PASOK) fell from 40 percent in October 2009 to only 12 percent.
The conservative party (New Democracy) dropped to below 20%. The main winners
were the Euro-Communist (SYRIZA) and
the far right Golden Dawn party, which is nostalgic for the years of rule by
the military junta when Greece was a thriving emerging market economy with
rapidly rising per capital income levels.
Both
parties attracted droves of Greek youth, but SYRIZA had the edge because many
former PASOK members sought refuge there. There was no majority in the May
elections; but under threats and with media support, the Greek political elite
concocted out of the subsequent June elections — to the great joy of Brussels —
the current ND-PASOK coalition with
basically the same unpopular
pro-austerity program and many of the same people as the previous government.
Greece
is a small, very dependent country. The political
elite are conditioned to think like a client state latching on to a patron with
deep pockets to resolve their problems. Greek politicians think of
state-centered, top-down economic strategies funded by EU loans and
state-sponsored deals with private and public investors. Traditionally,
the Greek public sector has been the
employer of last resort.
An
example of this mentality is the popular concept that Greece could resolve its
economic problems by getting a loan from Russia on favorable terms in exchange
for giving Moscow a naval base.
Another
key element to understand Greece is the rapidly
aging and shrinking population. The
2011 census results were horrible. The economic crisis is leading to increasing
emigration by younger Greeks fueled by 50 percent youth unemployment. These
people have no interest in being burdened by big debts at home and want to seek
their luck abroad.
Ultimately,
the major decisions concerning Greece’s future will not likely be made by
Greeks, but rather by EU policymakers and the politicians of other
countries. They will decide whether
Greece will be allowed to stay in the euro currency zone.
Greece
today is a broken country, unable to break out of the vicious circle of EU
over-dependency. The political elite
have no problem sacrificing a whole generation of their young in this
process; but for the Greek people on the whole, the purported utopia of
European prospects is turning into a bitter, ugly nightmare.
