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Thursday
Aug162012

The Greek Bailout Sham Is Getting Gummed Up

“Default is not necessarily destructive,” said Panayiotis Lafazanis, a Greek politician in the left-wing SYRIZA. “It is a weapon of the weak when they reach the point of not being able to pay their debts.” Closer to the truth than anything else emanating from Greek politics. “Not necessarily destructive” for the Greeks—given their current calamity—but highly destructive for the European Central Bank and national central banks that ended up with crappy Greek bonds on their books; and for banks with derivative exposure. Hence the bailouts. They’re an effort to keep the bondholders afloat, not the Greeks—no one wants to recapitalize the ECB.

But there is something the Greeks could do: they could, for example, do their patriotic duty and pay their taxes—rather than asking taxpayers in other countries to do that for them. According to a recent study, Greek tax evasion amounted to €11.2 billion in just one year. Do that year after year, and pretty soon, you’re talking about real money.

By looking at bank records, as a bank would do to grant a loan, researchers determined that the “true income” of the average Greek is a stunning 1.92 times larger than reported income. They’re not just cheating a little bit. They’re massively defrauding the system. The worst tax evaders: independent professionals, such as doctors, lawyers, and engineers. And they’re so well represented in parliament that they were able to derail legislation that would have tightened the noose on them. And if the government used banking data to go after the tax cheats? Wouldn’t work. The wily Greeks “would immediately change their banking practices,” said Nikolaos Artavanis, one of the researchers. “Tax immunity provided by the current tax regulations,” an analyst called it.

Stiffed by its people, the government is out of money, so it just sold almost €5 billion in three and six-month T-bills to its bankrupt and bailed-out banks that then handed this worthless paper to the Greek central bank in exchange for real euros, which they passed on to the government. Of that, €3.2 billion will be paid to the ECB on August 20 for a maturing bond, leaving only a few crumbs for the government and nothing for the Greeks [read.... Greece Prints Euros To Stay Afloat, The ECB Approves, The Bundesbank Nods, No One Wants To Get Blamed For Kicking Greece Out].

But the government is still out of money. It’s desperate. So it announced through the channels that it would no longer pay anyone until it got the next bailout tranche of €31 billion, the one that should have been paid in June, but was delayed till September, and now till October, if it ever gets paid. However, the government will pay salaries and pensions of the bloated public sector.

The payment moratorium—or selective default—has in effect been going on for months. The amount the government is in arrears to its suppliers jumped to €6.6 billion. Hospitals and the social security fund are owed 2.2 billion, military weapons programs are getting shortchanged—they’re still buying weapons?—some interest payments haven’t been made....

And the state-owned health insurer, National Organization for Healthcare Provision (EOPYY) is one of the suppliers that hasn’t been paid, and it’s out of money, and so it stopped paying pharmacists for prescriptions they filled for their insured patients. And the pharmacists are out of money, and they’ve had enough. In 14 prefectures, and soon perhaps nationwide, they’re rebelling against the system that’s so gummed up, and they announced that they’d refuse to issue prescription drugs to insured patients. To get their drugs, patients would have to pay, in the hope of getting reimbursed—in drachmas?

The Greek government is trying to spread the implementation of structural reforms over four years, rather than two. That extension would cost taxpayers in other countries an additional €50 billion or so, the third bailout package, for a total tab of €315 billion—when Greece’s ever shrinking GDP is less than €300 billion. And it still wouldn’t solve the problem of the well-connected elite not wanting to do their patriotic duty and pay their taxes. They’d rather stuff their pockets with euros from taxpayers elsewhere.

Germany and Austria may have their differences, but when it comes to money, they’re joined at the hip. And now the euro debate took on sharp tones in Austria as well. The theme: “Insolvency Procrastination.” Read.... The Euro Revolt Spreads To Austria.

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Reader Comments (10)

Oh please now it's "patriotic" to pay taxes. Maybe in Stalin's Russia. If they reduced taxes to a flat level of 10% you we probably see greater compliance.
August 16, 2012 | Unregistered CommenterLiberty
I totally agree, they let the rich off the hook (not the only country) by not forcing them to pay taxes. Tax Evasion is HUGE in Europe and hardly mentioned. Many rich Germans live in Switzerland to avoid taxes, as do many French. Even more French are looking to relocate because of Hollande, this sh*t has to stop.

Individualism has hit Western Europe and its the worst thing that could have happen in this time of need. Moving to a Federal Union if done right wold largely not allow tax evasion and still live in the EU.

Greece needs to be default to teach the banks and investor class a lesson, but during that time they need to get serious about collecting its taxes or removing citizenship from those people that refuse to pay.
August 17, 2012 | Unregistered CommenterAnthony
Don't worry about the ECB. It's solvency is a meaningless concept since all of its liabilities are in a currency that it can print without limit. Central banks not only don't need equity, they don't even need assets.
August 18, 2012 | Unregistered CommenterChris Mahoney
A patriot does pay taxes, tautology. Lower or higher rates of taxes do not presuppose compliance.

Tax calculation on income uses tax rates, allowances or alternative tax regimes to obtain the maximum gain for income, present and future.

Helmut Schmidt, former German Chancellor, recently said in a Bild interview Ja. Die Griechen hätte ich nicht in den Euro aufgenommen. Yes, I would not have admitted the Greeks in the Euro.

The admission of Greece into the Eurozone was wrong, and the solutions are moving the Eurozone into deeper and long lasting problems. The title of this Post says it The Bailout Sham. That it is, the consequences will be unkind, that is calculable, for the guarantees are in place.
August 19, 2012 | Unregistered CommenterJuno
Have you already seen this:
http://www.faz.net/aktuell/wirtschaft/schuldenkrise-ezb-plant-offenbar-zinsschwelle-fuer-anleihekaeufe-11861048.html

If they do it this way no need for the ESM anymore - anyway outcome for Germany would be the same either way...
August 19, 2012 | Unregistered Commenterzorro
Zorro - yes, I read it with interest. Thanks for the link. German speakers should read it. To do this successfully, they have to buy sovereign bonds of these countries. Lots of them. For this to work, they have to threaten to buy all the bonds out there, if they have to. €2 trillion for Italy alone. I doubt the Bundesbank would nod. But if the ECB isn’t willing to go all out, and the markets figure that out, it won't work.
August 19, 2012 | Registered CommenterWolf Richter
Wolf - the Bundesbank is strictly opposed to it but can't do anything to veto that decision. The ClubMed votes in the ECB have the majority and Weidmann's vote doesn't count.
August 20, 2012 | Unregistered Commenterzorro
Zorro - True, the Bundesbank has one vote, just like Cyprus, and that has been complained about. But it owns 27.1% of the ECB, its public voice counts a lot in the investment world, and it's already fighting the plan:

http://www.bloomberg.com/news/2012-08-20/bundesbank-steps-up-ecb-bond-plan-criticism-rift-widens.html

BTW, Merkel has somewhat nodded towards the ECB about bond purchases .... So this will be interesting to watch.
August 20, 2012 | Registered CommenterWolf Richter
It looks like Spain is saying that it not apply for assistance unless that assistance is open-ended. Since Spain is TBTF, it has a lot of leverage, maybe more than Germany.
August 20, 2012 | Unregistered CommenterChris Mahoney
There's a quote going around the www blogs to the effect: " If "something" is too irrational to continue, It won't" or what ever. Two points: The govts. of the world have shown where their loyalties lie( to self), by maintaining salaries and pensions and any other obligations be damned. No cuts, anywhere.

The taxpayers on the hook for these salaries, pensions and benefits have shown where their loyalties lie, (to self), by implementing tax avoidance strategies rather than fund lavish lifestyles of their masters.

I see a problem with the 1st point of elitism and as a taxpayer understanding of the 2nd point. Let the cutting begin.

God Bless America, RICO all banksters and their ho politicians and IMPEACH the liar, Eric Holder.
August 22, 2012 | Unregistered CommenterGreg Hall

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