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Tuesday
Aug212012

Euro Optimism Surges, A Greek Tax Revolt Flares Up: It’s Decision Time, Again

Euro optimism is once again gushing through the system on the hope that the debt crisis could be wished away with a nod by German Chancellor Angela Merkel or with a wink by the Bundesbank in direction of the European Central Bank, which is dying to print unlimited amounts of moolah to buy sovereign bonds—and old bicycles, if it has to—in order to force yields down for debt-sinner countries like the US Spain and Italy.

There is even hope that sudden German “flexibility” might solve the Greek debacle when Prime Minister Antonis Samaras heads to Berlin for his session with Merkel, based on indications in Germany that those with the power to say “no” are getting cold feet. But there was an incident in Greece that they should bear in mind.

It started Friday on the island of Hydra, a tourist spot of 2,700 souls. Officers of the financial police checked taverns, bars, and souvenir shops for tax violations. At a seafood tavern, an inspector discovered that patrons weren’t given Value Added Tax receipts, though required by law. An old trick: cash income remains undeclared and disappears; the VAT, though collected from customers, also disappears rather than being turned over to the state.

To investigate the case, the owner was taken to the police station, where she fainted. So she was taken to the hospital under guard. Her 25-year old son who worked at the tavern and copiously insulted the inspectors was also arrested—the straw that broke the camel’s back. Enraged, people threw rocks and firecrackers at the police station, shut off water and power, and demanded that the guy be released. Others blocked the port to prevent ferries from docking so that police couldn’t transfer him to Athens. Some forced their way onto a ferry and scuffled with the crew.

The next morning, riot police from the mainland made their way through the shouting people to the police station and freed the officers of the financial police holed up in there. The owner’s son was released because he wasn’t the owner; he claimed he’d planned on issuing receipts to his patrons, or whatever. On Sunday, his mother was taken off the island. The tax revolt in Hydra came at an inconvenient time: just before the all-important meeting in Berlin. So the Greek government was quick to condemn the revolt.

But tax fraud is pandemic in Greece. The financial crimes squad (SDOE) announced today that 4,067 taverns, bars, souvenir shops, and the like on 46 islands and in prominent tourist locations on the mainland had been checked between July 6 and August 19; of which 55.7% had committed violations. It’s been getting worse, in tandem with the economy. Last year, violations were found in 53% of the establishments. And there had been other incidents of revolts, writes Angelos Stangos:

On Lemnos in 2009, outraged business owners tried to push a group of tax inspectors into the sea, obviously in an effort to terrorize them into not running another inspection on the island. The practice has manifested itself in a variety of forms over the years, with a rich array of excuses presented as to why certain people should be allowed to get away with not paying taxes.

Tax fraud from the bottom to the top of society is one of the causes of Greece’s financial problems: the money just isn’t coming in. Now, costly promises politicians made to their voters have to be broken. For years, Greeks benefitted from the artificial manna of cheap euro debt and European Union funding, but the system has run into a wall—and Merkel has an opportunity to decide if taxpayers in Germany and other countries (including the US through participation in the IMF) should fork over endless billions to fund benefits, services, and boondoggles that Greeks themselves refuse to pay for.

The other option is default. “A weapon of the weak when they reach the point of not being able to pay their debts,” said Panayiotis Lafazanis, a Greek politician. Closer to the truth than anything else emanating from his wily colleagues in parliament. The government is already selectively defaulting on its obligations, paying only salaries and pensions of civil servants. Other disbursements have been stopped. And nothing works anymore. Read....  The Greek Bailout Sham Is Getting Gummed Up.

So should Greece, as it has been suggested, follow in the footsteps of Argentina, which rose from the ashes after its default? Not so fast. To stave off another collapse, the government in Argentina is imposing ever more trade barriers and capital restrictions. Read.... Argentina’s Creeping State Control, by stilettos-on-the-ground economist Bianca Fernet.

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Reader Comments (13)

But you know what,Greece is still gonna get a pass. Nobody wants to be the first to stop the can going down the road.
August 21, 2012 | Unregistered Commenterannette
annette. that seems right.

The root of the problems is not just tax fraud and promises as Wold Richter points out.

Behind all this is the fact that Goldman Sachs derivaties helped doctor the level of Greek governement debt to facilitate entry into the Eurozone.

Those derivatives and other innovative lucrative hedging derivatives are the deep and unseen source feeding fraud and lies as well.
August 21, 2012 | Unregistered CommenterJuno
Yea Wolf lets blame the taverns for this global financial circus. Meanwhile the Wall Street cabal is partying and ripping off tax payers flesh and you blame the taverns?? You miss a very important point regarding the Germans. This race is again at the center of a global turmoil! Again! Greeks should had from the very beginning made an aggressive return to drachma. That would have teached all these sick minds a good lesson. It seems only Iceland had the balls.
August 22, 2012 | Unregistered CommenterMark
Restaurants and bars should not charge VAT. Their profit margins are very slim. Food and drink is essential to keep money flowing in small communities. How long would it take for patrons money to gather VAT, a few hours, when the owners go to the market to buy drinks and pay VAT at the market?
August 22, 2012 | Unregistered CommenterSusan
The only "tax fraud" is by governments demanding money from people at the point of a gun.
August 22, 2012 | Unregistered CommenterGeorge Silver
The reason business owners object to tax inspectors is not that they do not want to pay their fair share of tax, but the fact that tax inspectors are very corrupt. When they perform an inspection, even if the business is 100% law abiding, they will find some insignificant reason to impose a heavy fine. Then they will suggest to the owner that if he/she pays them a bribe they will erase the fine. Since the bribe is usually less than the fine, naturally the owner will succumb, since he has nowhere to turn for protection.
This has been going on for years. Tax inspectors are of the richest people in Greece sucking the blood of the mainly small businesses. The govn't has done nothing because most of the tax inspectors have been appointed by the govn't in return for votes! Now the corrupt Greek govn't suddenly "discovers" the various scandals and publicizes them in order to justify the painful austerity measures they pass which are killing our economy and our nation. Not all Greeks are tax evaders! We do not want handouts! We are mostly hardworking people. The banks and corrupt politicians brought our nation to its knees like they did to Ireland and many other countries( where people pay their taxes).
August 22, 2012 | Unregistered Commenterstacy
The Greek Prime Minister is in Germany today (22 August) with a new twist : his country needs time to carry out refoms, he is not asking for money.

But time is money. and after two years when inspectors from major lending institutions find no substantial reform, Greece has hopefully finally run out of time, and money.

Schade, Germans will be the bad guys for having given Greece a chance.
August 22, 2012 | Unregistered CommenterPermafrost
Apparently Mrs Thatcher was a bit incomplete in her analysis. The problem with socialism isn't always running out of other peoples' money, it's also when the other people won't part with their money.
August 22, 2012 | Unregistered CommenterJB McMunn
Stacy - Good point. I've written about corruption in Greece before. And it's not just in Greece. But it's a bigger problem in Greece than it is in most other European countries. That still doesn't solve the problem of tax fraud and the problem of not paying taxes and expecting taxpayers in other countries to do that for them. Of course, if Greece could print its own money, like the US or Japan, it wouldn't have that problem (though it would have some other problems).
August 22, 2012 | Registered CommenterWolf Richter
Isn't the term "Tax Fraud" an interesting one. When governments become too intrusive, bloated, revenue craven to the point of bankruptcy, the thought of the individual is to keep his money for food on the table. In the eyes of the statist, keeping food on the family table is secondary to keeping food on theirs. The "tax" police are the mafioso stand-over merchants of their bosses.
Tax fraud is initiates from the halls of government, not from the hearts of the family man who has a need for a well functioning community.
August 22, 2012 | Unregistered CommenterSergio.
"You miss a very important point regarding the Germans. This race is again at the center of a global turmoil!"

This racist comment is the dumbest I've read so far on TP. And there were a lot of dumb ones.
August 23, 2012 | Unregistered CommenterVerySeriousSam
Mark: your comment about balls and cabals.

Taxpayer flesh is being ripped off by their own governments, not Wall Street.

Wall Street area began as a hosptial, then a prison no less, then a school, and now an address for those who (try to) manage or make money from market anómalies.

Do you use Wall Street as a synoným for the failure of governments in the Eurozone to let banks bear the cost of their poor banking practices ?
August 23, 2012 | Unregistered Commentergan ainm
Juno, there is a misconception about the GS derivative deal. It was a Euro-Yen currency swap, key word Euro, ie a year after they dropped the Drachma and 4 years after Greece's assessment year (1997) for entry into the EMU.

Tax evasion is a problem but there are deeper ceded issues. In this instance it's nothing but a flea on the elephants back, we're talking perhaps low 10s of millions of euros in missed taxes, at a stretch. Of course I don't condone tax evasion, but in the scheme of things and considering the economy has tanked 27% GDP from it's peak (Great Depression levels!) efforts are needed more urgently elsewhere.

There are that many problems, I guess it's like trying to put out a dozen fires with a handful of extinguishers. Which one take preference?
August 25, 2012 | Unregistered CommenterNiko

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