Why is Greece a basket case?

Why is Greece in such a mess?

Well it’s because they are typical lazy southern Europeans isn’t it? They knock off work at mid-day, have long lunch breaks then never really go back. They spend the rest of the day idling in the sunshine.

Or do they? According to the OECD, the Greeks work more hours per week and per year than the citizens of most other member countries and certainly more than anyone else in Europe.

Average hours actually worked

Hours per year per person in employmentAverage hours actually worked

So it’s not lack of a work ethic that’s messed Greece up? Then it must be because their government just spends shedloads on welfare and other social provision.

But that doesn’t really stand up either. Greece is fairly low down in the social spending league table.

Public and private social expenditure

As a percentage of GDP, 2005Public and private social expenditure

What about other public spending? Maybe they just have really great public services.

Nope. In the period before the recession, Greece spent slightly less as a percentage of its GDP than the UK did.

General government expenditures

As a percentage of GDPGeneral government expenditures

Do they just retire earlier than the rest of us then? A bit, perhaps, but only a few months earlier than the Germans and still not as early as the French. Early retirement on its own wouldn’t be enough to completely cripple the economy.

So why the mounting public debt and the threat of default?

Many commentators blame the shortfall in public finances on the Greeks’ refusal to pay their taxes. According to the Telegraph, Greece loses €15bn a year to tax evasion. I couldn’t find any figures comparing levels of tax evasion by country but this Economist article reckons that Greece’s unofficial economy accounts for some 25 percent of its GDP.

Greece is top of the Dodgy Del Boy league, closely followed by Italy, Spain and Portugal.

Richard Murphy puts the figure even higher, at close to 30 percent of GDP, and argues that, if Greece could only collect its taxes, much of its fiscal pain would be relieved.

So the Greek government is hiring more tax inspectors to collect the taxes, right?

Er, no. When you make drastic public spending cuts you sack lots of public servants. Tax collectors are public servants so you sack them too. Logical isn’t it?

One explanation offered for Greece’s culture of tax evasion is the long period of Ottoman rule. After nearly half a millennium of foreign domination, taxes became associated with the oppressors and so evasion became a way of life, or so the story goes. As a government spokesman explained:

Dimitris Georgakopoulos, the man in charge of taxation at the Ministry of Finance, says the attitude dates back to the 400-year-long Ottoman rule over Greece, when people evaded taxes as a form of resistance.

Which, of course, is another great Greek tradition. When things go wrong, blame the Turks.

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8 Responses to Why is Greece a basket case?

  1. Jim says:

    What that all says to me is that the Greek people have no-one but themselves to blame. They vote for governments that spend (it seems) no more than the average of European nations, but are not prepared to pay the taxes to fund such a level of spending.

    Given taxation is largely done by consent (ie if a large % of people are fiddling their taxes, the most efficient tax collection system in the world won’t be able to deal with it), they really are screwed. Half the population is rioting to keep the spending going, and half the population is refusing to pay for it. Not going to end well, whatever happens vis-a-vis bailouts, leaving the euro, defaults etc. The underlying tensions won’t be going away in a hurry.

  2. Pingback: Why is Greece a basket case? - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  3. nuala says:

    Hi Rick
    Nuala here from BBC trying to get in touch for a segment we are doing today on Greece.
    Can you email me on nuala.mcgovern@bbc.co.uk
    It is for this morning so I am working to deadline.
    Thank you

  4. Pingback: GREECE AND YOU SEGONA ENTRADA « Greece And You

  5. “When you make drastic public spending cuts you sack lots of public servants. Tax collectors are public servants so you sack them too. Logical isn’t it?”

    Worse than that. One of the main planks to getting Greece out of its financial situation is, apparently, privatisation. When you have public services provided by public organisations one of the things you can guarantee is that the staff will be taxed. privatisation simply hands the services over to the Dodgy Del Boys who evade tax.

    Any bets on when the third bail out will be?

  6. Colin Talbot says:

    What this illustrates is the importance of a competent, respected and trusted public administration. People will pay taxes if they are convinced that the officials assessing and collecting them are not politically biased or corrupt, if the money will be used for the public purposes for which it is collected and if the public services provided are also unbiased and not corrupt. That is why the most commonly autonomous public agency is the tax collection agency (in the UK the only significant government department that is based on legislation and not the whim of the PM is HMRC).

    I would argue that good public administration and democracy go hand in hand, and the reason Greece has such problems is because of the legacy of fascism and dictatorship. Note that Portugal, Italy, Greece and Spain were all formerly dictatorships, in three cases only a generation ago. Ireland was almost a theocratic state in the 1950s. None if these has really thoroughly thrown off this history.

  7. Pingback: Why Greece is a Basket Case? | Whitehall Watch

  8. Pet says:

    Greece deserves everything and more of what they are going through..
    The people who have put Greece in such a bad position and the ones who have run up the debt should be the ones that should have International warrants issued against them..
    Wherever they have taken teh funds to without paying any taxes should be the ones prosecuted from the UK to Australia to the USA and then some..
    This should then be used to [ay down their debts.. and instill some procedures and sytems.. that are desperately needed..

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