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The real problem with Greece and Southern Europe

woensdag, juni 22, 2011 · Category Economy · comments 7

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What are the problems really? What do we hear on TV every day and what is not being said? Is it a cultural problem? Is it just the simple fact that Greece has been living above their own standards? Do we have to throw Greece out of the EU? Or are we going to keep throwing money at a Greek Government that simply isn't capable of managing its economy? Is the EU really worth while or has it been a facade for other reasons such as exports.

I am trying to look at it from both sides and when I do so I will talk about the Northern Europeans and the Southern Europeans, a difference not to many politicians like to talk about. So let's see.

1. The first problem: Greek government spents more than it receives in taxes

This is a simple fact and this has been going on for decades. Belgium Finance minister Didier Reijnders recently stated in a wide spread interview that this was known already by the EU when the Greeks entered the EU. For more than 16 years Greek deficit has topped the Greek GNP with a now estimated 115% of GNP. Considering current interest rates on Greek bonds (now estimated around 17%) the deficit grows exponentially to an unsustainable deficit.

Between 2011 and 2012 Greek debt repayment is estimated at a staggering EUR 130-160 billion which is almost half the Greeks economy. So who are we kidding if we throw more money at the Greek Government and expect them to pay us back one day? Our we such fools? Or are our politicians just buying time with our taxpayers money to find a clinical and soft as possible solution for cutting Greece out of the EU membership.

2. Greeks don't pay taxes

Yes this remains the bigger problem in the Greek economy, since it is estimated that about 30% of the economy is based on "closed wallet" transactions which we in the North tend to call "Corruption". Public sector is not privatized since the government and opposition depend on the votes of their workers. Greeks stop working in their 50's while we have to extend out working life to 67.

Tv makers from Dutch television EenVandaag, a background news report program showed this problem in a very simple and understandable way, when making a report about the small Greek Island of Skopelos and the new local government concentrating on the local Water delivery company (state-owned of course). The program focussed on the fact that the 5000 inhabitants and hotel owners from Skopelos do not want and haven't paid any off the waterbills they got over the past 20 years, so the local Water company has an estimated EUR 1 million in losses.

The program starts with new government official Thanakis Fadakis on his way to work at 7 o'clock in the morning. His first mission is simply to appear at the office in the morning to check if everybody has come to work. He then made a calculation of open invoices to the Greek Electricity company totalling some EUR 91.000. On the other hand the Water company has outstanding bills of the residents and hotel owners totaling some EUR 400.000, some of whom haven't paid their water bill for over 30 years.

Why? One man restored a road crossing his land and agreed (not on paper) with than local officials that he wouldn't have to pay for his water during his lifetime. Others have the opinion that water is a gift from God so they simply don't understand why they have to pay for it. Hotel owners don't pay because they have giving services such as free food and lodging to government officials visiting the island.

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3. Both government party and opposition are dependent on votes from public institution officials

This problem is directly related with the speed of privatization programs in Greece which is apparantly close to 0%. This is one other big underlying issue that nobody really seems to want to address. Whether your in the Greek government or in the opposition party, Greek democracy is based on given and receiving "favours" in return for votes. Since a large majority of Greeks is working for the government or the public institutions that aren't yet privatised, any measure around privatising public institutions is a painful measure which might end up in loosing the next elections.

Why not let Greece go bankrupt?

And here - in the end - is the bigger EU problem or what is now addressed as "spreading the risks and have European Banks take part of the risk". Yet these same - mainly German and French - banks are reaping in interest rates of up to 16% on Greek Bonds, but their exposure is so large, that if the Greeks go bankrupt, it may ripple a small tsunami throughout Europe and mainly throughout the German and French banks, who at the same time get the highest possible returns on their Billions of Euros of exposure.

European Banks with the largest exposure to Greek Government Bonds:

Dutch Banks ING 1.4 billion
  ABN-AMRO 1.4 billion
French Banks
Credite Agricole 24 billion (Including it's stake in Greek Emporiki bank with a debt book of 21 billion)
  Societe General   
2.5 billion
  BNP Paribas 5 billion
French / Belgium banks Dexia 3.5 billion
  KBC 1.5 billion
German Banks
KfW 8 billion
  Deutsche Bank 2.9 billion
  WestLB 1.7 billion
  Commerz bank  
1.6 billion
  Hypo Real estate 7.4 billion

Insurance companies exposure to Greek Government bonds with large relative to capital: Ageas (15.8%), Mapfre (5.9%), Munich Re (3.5%), ING (3%), Generali (2.9%) and Allianz (2.9%). Almost all these exposures, expect for Ageas, appear well manageable and shouldn't lead to any capital stress.

Is Greece really that poor?

Nikolaos Salavrakos - EU Member from the Greek LAOS party - explained in a personal opinion piece, that in his opinion it is mostly bad management from Greek government and "what we would call corruption" leading to low tax revenues. For example: The Greek state owns some 71.000 real estate assests estimated at some EUR 272 billion.

Turning to the Greek private sector we can conclude that Greeks themselves aren't really that poor. When the global financial crisis hit our economies we all felt a little pain. The Greeks with their closed economy and strong domestic private household ownership felt less "pain". First of all the majority of Greek labour is not mobile at all like we are used to. Second: Family links and private household ownership is much higher than in the North. We (North) tend to buy houses which are really owned by the bank, while Greeks tend to own the house they live in without or with small mortgages. Greek household ownership reached 80% in 2001 while in Germany, The Netherlands, Denmark and other Northern countries this figure is more between 46-60% with the remark that we usually haven't paid back our mortgage. Last but not least; private savings are high. According to Bank of Greece statistics private savings across the Greek Banking sector was around EUR 230 billion in february 2010.

The solutions

1. The EU (mainly Germany, France and some smaller Northern countries like the Netherlands and Belgium) is pushing mostly for drastic expense cut-back measures that would eventually bring the Greek budget to a balance. Spent less and earn more through higher tax revenues. This filosophy however is mostly based on our own "Calvinist" culture and doesn't take into account the Southern mentality at all. It also doesn't address the real problems and last but not least this measure overlooks the simple fact that without investments in public and private sectors there is simply no way the tax revenues will increase, nor will the unemployment rate decrease or more jobs being created.

2. Former finance minister and now CEO from Government owned state bank ABN-AMRO stated another solution that might not even be such a bad idea. Call in the Dutch IRS or Tax office as Interim Tax Officials to teach the Greek IRS how to collect taxes. When I heard him say this, I guess I had some kind of a wry smile on my face, because essentially what he said is true. If there is any Tax body in Europe that knows how to collect taxes, the Dutch Tax Officials will certainly be among the top 3 in the world.

3. Let Greece step out of the Euro. The loss within the EU will be felt in terms of taxpayers money, but once Greece is out they will have new monetary options to use like a strong devaluation of the local coin to stir up exports and Foreign investments.

We - the Northern Europeans - love the EU, simply because it ment and still means a relatively smooth expanditure of our export markets. Or haven't we understood that the EU is simply a free market zone giving the stronger Northern economies the possibility to sell more to the weaker economies? Countries like Greece can in no way compete with the Northern economies and with the EU and its rules and regulations behind us it is a small effort to kill all local competition.

Of course we love the EU for this as long as the Southern and new Eastern states obide by our (EU) rules. Yet now that we are faced with huge debts and potential loss of our Taxpayers euros, we need to first impose on them (The South) our way of handling and balancing the budget.

I hope the Greeks themselves and other economies alike, while take measures into their own hands and say farewell to Northern (Mainly French - German) domination.

Related: The Greek Fiscal Crisis: Is there a way out?

Comments

1. by sangmane about 6 years

I think all euro countries should help greece out of its problems. Sooner or later Greece is gonna be a great countries and will play a significant role in Europe.

2. by Huizenga about 6 years

It is no different in the USA. We have Mississippi, Alabama and Louisiana. It seems like a latitude or temperature issue. If that is the case then global warming will ruin us all. Seriously, there is an Equatorial phenomonon here that needs to be studied.

3. by Eugene about 6 years

filosophy? Is that the specialist study of pastry?

4. by madhulika about 5 years

In a age of globalisation how can you think of isolating any country.instead of this we should talk of cooperation so that countries like greece could be pulled out of the crisis.

5. by bill about 5 years

we should help greece!

6. by Dean is here about 5 years

let them falter.....i refuse to pay till im 67 years of age to watch all my savings and hope for my future and my daughters future because some small little crap country cant pay there bills and refuse to collect taxes,,,,coruption is rampent and the germans have every right to cull the country,,,thin the heard of lazy bums ...grow up speed up and pay your taxes....get on with this ,,,,pay your bills numb nut greeks,,,,wont be the first time you have failed,,,ahhhhh history repeats itself once again,thank you so so so so much ,enjoy your early retirement

7. by justsomeone about 4 years

This article is truly pathetic but thank you for letting us know what you really think. Implying that Greeks stop working at 50 while you work till you're 67 is not only a lie, it's stupid. My father is 72 and he wakes up every morning to go to work. You really have no clue what you're talking about.

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