Greece’s Problem Not New To Developing World

February 24th, 2010

Niraj Choksi of The Atlantic Online posted a very well-reasoned argument about how Greece’s tax evasion troubles are severely impeding their ability to respond to fiscal crisis. Some clips:

Tax dodging in Greece is so rampant that the Bank of Greece estimates the country could be losing as much as five billion euros a year. While that’s a far cry from the €54 billion needed for 2010, it could result in much harsher cuts as the country tries to get out from under its crushing debts.

That lost tax money would have nullified the need for Greece’s planned 10-year bond issue, which is expected to raise up to €5 billion, or a set of new austerity measures to cut €2.5 billion, which the government will discuss this week with European Union and International Monetary Fund officials.

Despite decent annual economic growth, Greece was receiving less in tax revenue than its EU peers.

And on how the problem could be worse than anyone expects:

Anecdotes suggest that the evasion may be even worse. An anonymous Greek banker wrote in a blogged-about note:

On the official statistics alone, we are comfortably in the world’s top 40 for per capita GDP. But that’s peanuts. Lest we forget, that’s our declared income. Don’t quote me on this apocryphal statistic, but I’m reliably informed that exactly six Greeks declared more than a million EUR in income last time anybody counted. And exactly 85 declared more than half a million. So we’re probably a bit better than top 40.

Either that, or this trading floor alone has more rich people than Greece. Hell, our new recruits for this season alone could probably do it. If you have any doubts about Greek wealth, check out on Bloomberg the balance sheet of the National Bank of Greece, Eurobank, Alphabank and Piraeus bank, the top four. The four of them alone command EUR 164 billion in deposits! Slightly misleading, since they all have operations in the Balkans, but that’s almost one GDP, lying in deposits!!! More to the point, how many Greeks do you know who keep their money in Greece? That’s merely our spending money, it’s a small fraction of our savings and assets.

Greece is a developed EU country inside the Eurozone which has experienced rapid growth in recent years, and it still is losing an uphill fight against rampant tax evasion, and that fight has helped to create its dire fiscal and international situation today.

However, Greece is not the first country to feel such terrible tax evasion pain. Ann Hollingshead has shown on this blog how countries like Mali, Moldova, Thailand, and Costa Rica have been suffering the same pain that Greece now feels for a very long time. Greece’s tax evasion issues are in the headlines because of the inter-EU controversy the nation’s fiscal situation has caused, but the global tax evasion issue in reality penetrates much deeper.

Written by EJ Fagan

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