Editor’s Note: Evan Liaras is the Davis Post-Doctoral Fellow in European Studies at the Institute of European, Russian, and Eurasian Studies at George Washington University. Harris Mylonas is Assistant Professor of Political Science and International Affairs at George Washington University and Academy Scholar at the Harvard Academy for International and Area Studies.
By Evan Liaras and Harris Mylonas - Special to CNN
After reading about the Greek debt crisis for over a year now, you might think you understand what it’s all about. You’re probably wrong. International media focus on how the Greek government and people spend their money. But an equally important problem is the inability of the Greek state to collect revenues.
The story constantly aired by various news outlets is simple enough. Greece, we are told, free-rode on the security offered by the rest of Europe to attract money from foreign investors, and then spent it lavishly on its bloated public sector. In case you don’t get it, BBC’s website has a recurring instructional slide show titled “What went wrong in Greece?” Apparently, Greece’s adoption of the euro “made it easier for the country to borrow money.... Greece went on a big, debt-funded spending spree, including paying for high-profile projects such as the 2004 Athens Olympics.”
This brief media lesson on Greek economics has proven very appealing to audiences abroad for two reasons. First, it rhymes with the stereotype of lazy Mediterranean people conning their hard-working North European partners and then shamelessly asking for a bailout. (Now that Italy may be heading the same way, there will be more of this coming.) It also resonates in the ears of the euro’s sworn opponents, above all in the UK.
Unfortunately, it is only half the story. Greek public debt as a percentage of GDP did not dramatically rise right after Greece joined the euro. Greek debt actually accumulated back in the 1980s and early 90s, years before Europe got its common currency. The size of the Greek public sector (as a percentage of GDP or share of the labor market) is around or even below average compared to the rest of Europe. Greece did try to spend its way out of the global recession in 2008-2009 and ran large deficits; but so did most other developed countries, including the UK and the U.S.
There are two sides of the public finance coin: expenditure and revenue. What is left out is that while Greek public spending and debt crept up, government revenue fell or remained constant in the years after Greece adopted the euro. Between 2001 and 2007 Greece’s average government revenues totaled 39.4% of GDP, whereas the EU average was 44.4%. Taxes are by far the largest component of government revenue. The issue is not unique to Greece. Declining tax revenues were observed in Ireland, Spain, and in the U.S. after the Bush tax cuts kicked in.
In Greece the culprit has been rampant tax evasion by corporations owing millions in taxes and self-employed professionals who can hide their earnings, unlike salaried employees and pensioners. Under international pressure to balance its budget, the outgoing Greek government axed salaries and pensions and slapped new taxes on the bulk of citizens who were not tax-delinquent. This only drove the country deeper into recession and insolvency, making it necessary for EU leaders to write off part of Greece’s debt in July and then again in October.
Whether the government is reluctant to tax the very wealthy (as in the U.S.) or lax in its duty to punish tax evasion (as in Greece), the results are similar. Revenues can’t keep up with expenditures and lenders become uneasy. Meanwhile, those who are taxed too leniently have an interest in shifting public attention towards cutting government spending. The bitter partisan quarrels in Washington and Athens lately have this much in common. Yet, this obvious point is conspicuously absent from reports on Greece in the English-speaking world.
There is no denying that Greece overspent on security for its Olympics - they were the first games after 9/11. There is also no denying that the Greek public sector is very inefficient. But this has to do with how the money is used. Deep cuts will not make an inefficient public sector better. Other reforms, however, just might. Finally, there is no denying that the euro deprived Greece of the flexibility to devaluate its currency. However, Greece’s revenue collection problem has been perennial and is unrelated to the euro. The first reforms Greece’s new government should focus on are the tax and judicial systems.
Casting the crisis ravaging Greece and closing in on Italy as a fundamental story of governments drunk on loans, doling out stacks of euros to their shortsighted citizens is a half-truth. It makes it easy to caricature on a national basis and to categorize Greeks, Italians, Germans or Americans as people who collectively live either within or beyond their means. It also masks the fact that there are differences within each country: Those who benefit the most from high-profile government contracts are the hardest ones to tax when the creditors come banging on your door.
The views expressed in this article are solely those of Evan Liaras and Harris Mylonas.
© 2011 Cable News Network. Turner Broadcasting System, Inc. All Rights Reserved.
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makes sense.
I have to question the article's honesty or grasp of the facts. It states that tax revenue declined in the US after the Bush tax cuts. In fact, revenue increased substantially after the Bush tax cuts. That should be no surprise, because that is exactly what happened after the Reagan and Kennedy tax cuts as well. I don't think we should trust the opinions of economic illiterates or liars.
If there is anyone economically 'illiterate', it's YOU. Reagan's tax cuts were great- for the top echelons of society. Public debt, on the other hand, skyrocketed. You should know that Reagan had asked for 17, yes, seventeen raises in the debt ceiling from Congress.
It's no different with the Bush Tax Cuts. Revenue dramatically decreased thanks to those cuts- taking Clinton's handsome budget surplus into a deficit.
I truly suggest you rethink your perspective, and perhaps back it up with actual facts (i.e. not FOX News).
Yes, lowering taxes has raised revenues before, and raising taxes eventually had lowered tax revenue.
But this is not the message that pele want to hear. To some it's about their idealized fairness, they just want to see the rich punished. So raising marginal tax rates for the rich is ok even if it slows down the economy and lowers private sector investments.
After all, with fresh new bundles of tax revenue, the government will do an awesome job of redistribution and reinvestment to make up for the lower private business shortfalls. I mean look around you, we get such brilliant successes in Solyndra, green industries, the Greek, Italian, Portuguese, Spaniard civil services have given the world. Bureaucracy works. Just look at how the EU is protecting the consumers from evil bottles that try to fool the naive into thinking that water is a cure for dehydration.
Let's face it, in the end, it doesn't matter if the economy tanks further, that more become unemployed, as long as those greedy rich people are made to suffer, all will be well agin with the universe.
中國人常被稱為「亞洲的猶太人」。
中華民族的悠久歷史和文化，可以追溯到基督降生之前的幾千年。
中國曾在很長的時期內一直是世界上經濟、技術和社會組織最先進的國家。
中國在11世紀所達到的經濟發展水平，任何一個歐洲國家在18世紀之前都沒能趕上。
現存最古老的一本印刷書籍，是公元9世紀在中國印刷出來的。中國的鑄鐵術比歐洲要早1000年。
在11世紀的宋朝，中國就有了鋼鐵工業，年產生鐵十多萬噸。
馬可波羅在中國發現了一個有200萬人口的城市，而當時歐洲最大城市的居民也不超過區區5萬人。
時至16世紀，中國仍具有世界上最高的生活水平。
在明朝統治的最後一個世紀，中國人開始外流，形成首批規模頗大的華人社區。
pretty funny when someone thinks tax cuts increases revenue. lol
"it rhymes with the stereotype of lazy Mediterranean people"
Correction:
"it rhymes with the RACIST stereotype of lazy Mediterranean people"
Correction of an inaccuracy: to say racist stereotype is redundant since a stereotype is already racist.
There are stereotypes that imply racism and others that don't. This stereotype is racist.
Just remember the first to claim racism is typically the racist. Besides i didn't know Mediterranean was a race..... Pretty sure its a region and a culture nothing more.
The Mediterranean is a region comprised by many countries with their populations and cultures.
"Just remember the first to claim racism is typically the racist."
So for you nobody is a racist or everybody is a racist.
I agree with Anon and Frank. Nothing racist about calling Mediterranean people (or at least Greeks) lazy. 1st because it's does not target a specific race and 2nd because it is mostly accurate. I am Greek myself and had lived in Greece for 12 years before moving to Canada. If you wanted to be more polite about it I guess you could replace the 'lazy" description with "feckless"...
Dear GT there are two possibilities.
One, you were born outside Greece and worked for 12 years in Greece, that means you are not Greek.
Two, you lived in Greece till you became 12 years old and then went to Canada, that means you never worked in Greece and came to know that Greeks are ...feckless.
Greece has a Byzantine tax system. Corporate taxes are 25% but will fall to 20% by 2015. Tax reductions are generous and tax exemptions are made on -
1) proceeds from the sale of shares that are traded on the Athens Stock Exchange.
2) income from ships and shipping.
3) a dividend received from a Greek company.
4) capital gain from sale of a business between family members, as defined by law.
So we understand why ordinary Greeks are angry at the rich dodgers. Hundred billions are alleged to be hidden in Swiss banks.
I don't know where you got your numbers but low tax rates (for businesses) are not one of the reasons people are angry. That is because they simply don't exist. The tax rate is about 40%.
What went wrong in Greece? Socialism. The politicians made promises to the public sector unions that were simply unsustainable.
Are you paying attention,California? Ohio? Wisconsin? New York? New Jersey? Massachusetts? Maryland? Washington? Oregon?
I don't think so.
I don't agree, look at Socialist Scandinavia, US alone borrowed something like 220 Billion US$ from Norwegian Govt pension fund (raised from taxes). I agree with "j. von hettlingen", Culprits are rich tax dodgers.
I hope you're not comparing US debt or monetary problems with that of Sweden. The US debt is 5 times Swedens GDP at the moment, and taxing the rich in America 100% wouldn't even pay the interest on that debt. In the US, Government spending is the problem, not taxation or the collecting of taxation.
Björn, you're right. The socialism we have in Scandinavia is unique and we're much better off than the rest of Europe!
Paul you are wrong. There has to be tax increase along with spending cuts, one alone wil not do it. The US is alot like Greece, to many rich and corporations paying little or no tax and the middle class picks up the difference.
Scandanavian socialism is only sustainable because of an abundance of black gold balanced with low populations. Eliminate the oil factor, and the generous social system will quickly crumble in Greek (read 'epic') proportion.
Acutally occupado, in Massachusetts we are doing quite well, we have one of the lowest unemployement percentages in the US, and our high tech manufacturing, health services,higher educational services, financial services are doing very well. So go back to your midwestern or southern "paradise" that depends entirely on agricultural subsidies and welfare for your white trash populations.
sucker
balardo
they should have done what Iceland did and told the banks to stuff it since the debt they say they have is fake.
This is a really good article since it points out that the affluent shift the solution to our crisis away from paying fair share of taxes to the debt burden, as though the two were not related; the Super Rich created the debt crises all over the world by using tax shelters and lawyers; the middle class has been cheated for over thirty years.
Typical wealth envy, Frank. The rich could not have used the tax shelters if your and my elected representatives had not passed laws that allowed them to do so. Lets put the blame where it belongs, shall we?
The Congress of the United States.
Frank you are so right. There is no "wealth envy" here. Our jobs – by the millions – over these past 30 years have been slowly filtered away to off shore concerns. I fully understand why an American company would want to do this – obviously for $2 an hour labor, but finally after slowly "boiling the frog in hot water" as the saying goes, now we are faced with 14 million to 20 millions persons who are either unemployed or underemployed. What exactly did these American companies think was eventually going to happen??? I guess they did not either think about what devastation it would do to the "middle class" or nor did they care. But they should care now, because they have created some real economic issues here at home.
True, but one cannot ignore the underlying role of PASOK (the populist socialist party who have ruled for the vast majority of the years after our acceptance into the Eurozone) – and New Democracy (center right party, 2004-9) when they were in power – in crippling Greece via a closed market political patronage economy (funded by drachmas and subsequently the Euro). The parties in Greece function as political machines, doling out largesse for votes and support; much as yours did in America in the past, think Tammany Hall in NYC and Chicago under a certain mayor.
I agree with you Mixali but I think the Greek public should share in the blame. The convential wisdom since the end of the civil war was the welfare state mentality which at the end ruined the country. This stifled personal initiative and made the people live in a financial fantasy land.
I strongly disagree with the contention that Greeks are lazy .According to the OECD , Greeks working in the private sector work longer hours than their Northern counterparts. People should not stereotype but should examine the facts before making such statements which in my view are Intellectualy lazy.
As a Greek Canadian , I am very proud of the contribution ( social and economic ) of the Greek immigrant.. Most Greeks fared very well in North America.
Hello! I am Greek. I agrre with all you have mentioned. As about lazy Mediterranean people it is the half true. We have the private sector where people work for the lazy public officials. Unfortunately here we have to work in two or more jobs unless we can't survive. Sorry for my pool English.
No need to apologize for your English – very few Americans take the trouble to learn a little Greek, even when they travel there. Besides, your English seems fine.
Nina,
Lack of attention to detail is a real issue in this world today. To say Vcky's English was "fine" shows a sad ignorance...As does the ridiculous argument that Greek should be a common language on the tongue of every American.
Just think. When the GOP regain power, they will start a war with Iran (totally unfunded of course). Then they will draft all the poor people to fight(die) in the war (just like the GOP wants) and give "no bid" contracts to the rich people. Killing two birds with one stone!!! Then we can use Iran's oil to pay for the war. And when the war is over, Iran will sell us cheap oil!!! Just like Iraq........Oh wait........Never mind.
Obama just gave a "on bid" contract award to a campaign supporter to develop a drug that will probably never even be needed.
Clinton gave Halliburton a "no bid" contract to re-build Kosovo.
There IS no more draft, nor has there been one for years. and, if Iraq was all about oil, why is Obama pulling us out without it? In fact, why didn't Bush just seize the oil fields when we first went in?
I think that you have let your partisanship override your common sense.
Its well known that the Greek favourite past time is not paying the tax man.
Visiting Greece you will see many Ferraris,yachts and porsches.
Some points: Scandinavia is no longer socialist. Greeks are not lazy. One thing is to be counterproductive because of bureaucracy and corruption and another thing is laziness. Greeks have a large and wealthy diaspora and that's why you see nice cars and yachts
"In Greece the culprit has been rampant tax evasion by corporations owing millions in taxes and self-employed professionals who can hide their earnings, unlike salaried employees and pensioners."
I have been saying this all along but media fed brainwashed Americans don't want to do the research, you may say, wait, this is on the news, but i would remind you how late into the recession it is.
At this point the damage the news has done to Greeces image has already been done.
I would start worrying about the U.S. now, it is setting itself up for a huge fall.
I agree.
Here the USA is lying to its people.Its wealth and maintainence of its wealth is unsustainable at the expense of the rest of the world.
Using other countries as scapegoats is evil.
The Economist, CNN, BBC, NYTimes and Washington Post have all been reporting on Greece's lack of revenue, tying it in with problems of tax evasion and corruption. It's a fact – tax evasion and corruption has led to Greece's lack of revenue.
Everything went wrong in the Greece Financial system, the reason of the storm. simple .
Mediteranian people are not lazy. Greek people are lazy and theaves.
The greeks stole from their government, and their government stole from Eurupe.
Everyone is happy, except for the european taxpayers who are now told they needs to bailout Greece.
I blame the european politicians that let Greece in the Eurozone. They knew the greeks were lyiing, but they let them in anyway, because "they invented democracy"
Greece doesn't belong in the Eurozone. Kick them out now!
Let them eat tiramisu!!!
But don't give them one more penny of other nation's tax-dollars.
Let Greece fail. Let the next few generations of greeks live in caves for all I care. TEACH them a lesson that they'll never forget for the next 2000 years.
I noticed that these two writers here forgot to mention that Greece, like America has a huge military budget which has went a very long way in breaking that country's economy. The way to save Greece is to leave the Eurozone and go back to using the Drachma, and of course, cut the military budget which only putting money into the pockets of the Americans, the British and the French. But first the Greeks need to wise up and read the handwriting on the wall!!!
The Greek Tax Collectors are lazy!
In the USA the IRS is fanatical and all powerful.
They WILL get the money that they're owed.
Not sure where the authors have been the last two years, but international media has hounded Greece about its corporate tax evasion and lack of revenue. The Economist, CNN, BBC, NYTimes and Washington Post have all been reporting on Greece's lack of revenue, tying it in with problems of tax evasion and corruption.
Complete lack of any effective tax revenue collection.
Coupled with engrained government corruption.
.
Greece went wrong because the Greeks – or about 80% of them – are 'kootee-ponoree' – 'dumb & corrupt' (not dumb & evil just dumb & corrupt). Only dumb & corrupt people pay employees extra if they report to work on time; only dumb & corrupt people hire 37 people to drain a lake in 1957 – they drain it in 2 years – and then they continue to maintain those positions for another 60 years; only dumb & corrupt people pay 900 times more for the cost of the same drugs that cost 900 times less in Italy and the rest of Europe; only dumb & corrupt people buy and issue brand new school books every year for the public schools; only dumb & corrupt people allow anyone convicted of a crime that calls for up to 10 years in jail buy their way out of going to prison so they can continue to rob & steal for a mere 3 euros a day i.e., if you do a crime that is punishable by 5 years in jail you simply pay the government 5 x 365 x 3 euro & you don't go to jail. Only dumb & corrupt people allow their politicians to pass laws giving them immunity for any crimes they get caught commiting. Only dumb & corrupt people allow the people working in the customs department to steal 40% of the countries customs duties every year. Only dumb & corrupt people refuse to elect any politicians who promises to clean up corruption. This is why no Greek politicians have ever campaigned or promised to eliminate corruption if they are elected. Only dumb & corrupt people don't care if 90% of the gas stations steal between 5-10% at the pump. Only dumb & corrupt people elect politicians who sit and read and see instances of all the looting of the public treasure – one way or another – and never speak out about it because of their justifiable fear of being ostrasized and ruining their careers. Only dumb & corrupt politicians sit by and watch and their ship – their nation – being stripped, being plundered, being embezzeld, being looted and never say a word. Only dumb & corrupt people have a law that encourages people to burn down their national forests because there is a Greek law that allows people to claim, take possession of land in a forest that has suffered a forest fire and burns; only dumb & corrupt politicians allow 2,000,000 homes to be built illegally with out government permits, etc. etc. etc.
how true... cannot agree more... can only add
Only a dumb person can believe that he can eliminate a corrupted regime so easily.
If you were an honest person in Greece there would be two routes to follow.
The first one "shut up, comply or perish" and the second "immigrate to some other country".
What you stated is overwhelmingly correct. How does one change the mentality that is so woven into the Greek way of life? They distrust the Xeni and worst of all each other.
This article is absurd. Its well known by anyone who has followed this story that the Greek tax system is a mess. The issue for Greece as with the US is insufficient wealth generation to pay for all the free stuff. Taxes are a legitimate but relatively minor part of the problem compared to the spending and lack of growth in the private sector required to pay for all the free stuff. Defense spending for the US is insane also as the US cannot afford these marginal wars and acting as policeman for the free world. The causes are numerous not the least of which is the practical death of the manufacturing sectors (which employs many) due to the big free world market and the rise of China, Korea, SE Asia and India. There has been a huge shift of wealth to China and the rest of Asia without a commensurate reduction in expenses at home. Until the US starts to use its huge leverage as the major market of the world to protect its workers – this downward spiral will continue. There is no such thing as an open free world market – just the dummies who believe it and have their economies hijacked.
That is correct. Globalism was doomed from the start, and we need to stop it now. It's really dumb.
But the cheap money at low Euro-risk-free rates allowed Greece to avoid addressing the problem earlier; all countries (including the US) that do this will eventually face a day of reckoning...
What a shame that this great county is in turn mole! Taxes is the issue, 95 percent don't pay there proper taxes cause they don't have too.....US gives money and homes to anyone asked...
The US, who used to be the center of the universe and the super power of the world have fallen asleep! China, is wide awake and is ready to take over!
Greece and Italy will be happy to open there hands to China!
Greeks. Greeks went wrong in Greece. That and socialist eurotrash.
Again, maybe this is half of the story (or 1/3). If one wonders why is there so much tax evasion, the reply will be that the tax rate is very high (45%). This means that a company had to tax evade and have a black pool of cash for the tax-auditors who would "visit" the company. And it is these tax-auditors' colleagues at the ministry of finance suggesting legislation, who were (are) keeping the taxation system so ridiculously complex, which in combination with the 45% makes sure that tax evasion is maintained. A solution may be to cut rates to 20% and simplify the legislation from the thousands of pages today, to 50 pages max.
It is like having a driving code of thousands of pages, with new ones issued on a daily bases. There is NO WAY that you will be found 100% compliant by the traffic police, and you will not miss the ticket. Or... the traffic policeman will tell you "well well, if you give me X $ may be the light that you crossed would be deep dark orange instead of red".
Q: What really went wrong in Greece?
A: Easy. The Greeks.
I think that the Greeks culture of not paying taxes is deeply unpatriotic and has gotten them in the mess they're in, it has less to do with the Euro as they cooked the books to get in in the first place , and they will now be rewarded for their corruption by having most of their debt wiped out .
It should also be mentioned that Greece 'cooked the books' in order to get in the Euro in the first place. Inflate your income, hide your debt, and you too can qualify for a mortgage. Sound familiar?
and you know who was the Chief Cook.... Goldman....
The socialist chickens have come home to roost.
I hope someone assassinates the new Greek dictator.
I AM BAFFLED WHY NOT ONE GREEK POLITICIAN HAS BEEN HELD ACCOUNTABLE FOR THE FINANCIAL FRAUD AND MESS THEY HAVE CREATED - WHY HAS THE EU COMMISSION NOT ASKED FOR AN INQUIRY WHO STOLE THE FUNDS??
Cause the EU Commission may also be involved: seems the current chairman, Baroso, did not take action against the previous Greek prime minister Karamanlis for sending false data, in order to gain his support and get re-elected as chairman back in 2009.
Also, these politicians are the ones who approved purchases from outside Greece, such as weapons systems from Germany and France. Germany and France were happy when the false data were getting public and Greece was able to borrow more, paying for the imports. Check for the story of the tilting German submarines, were millions of Euros went to bribes (more than 150M) from the German company. Also check for the Siemens scandal in Greece, the toxic bonds scandal where toxic bonds were sold to Greek pensions' funds by foreign banks/funds.
So, it is not "it takes two to tango" but "it takes people from all over the world to dance a big syrtaki".
Jeff
Cause the EU Commission may also be involved: seems the current chairman, Baroso, did not take action against the previous Greek prime minister Karamanlis for sending false data, in order to gain his support and get re-elected as chairman back in 2009.
Also, these politicians are the ones who approved purchases from outside Greece, such as weapons systems from Germany and France. Germany and France were happy when the false data were getting public and Greece was able to borrow more, paying for the imports. Check for the story of the tilting German submarines, were millions of Euros went to bribes (more than 150M) from the German company. Also check for the Siemens scandal in Greece, the toxic bonds scandal where toxic bonds were sold to Greek pensions' funds by foreign banks/funds.
So, it is not "it takes two to tango" but "it takes people from all over the world to dance a big syrtaki".
Funny how nobody responded to this. Guess to complicated for everyone lol .
The writers are all jacked up. They realize Greece's public sector is "VERY INEFFICIENT" but believe that has nothing to do with their problems... well, when you waste money, run out of it, then claim you don't have enough...
I'd like to know what part the sale of worthless US derivatives (mortgage-backed securities) had to do with the downfall of Greece and other European countries. Worthless securities had a major role in the problems of Iceland.
I also fail to understand how the writers underplay the monumental ineffectiveness of the Greek public sector.
And I also fail to understand how they completely ignore the second most important problem, in my view: The inability of Greece to create wealth or to allow the creation of wealth. The Greek State sabotages its own citizens and enterprises by retaining hundred of barriers to entry to all professions and making it absurdly difficult to start and to (legally) operate a business.
It's possible I don't quite understand this situation. However, I have alway expected the Euro to implode and take all economies using it with it. I don't see any way that a currency can be used as the offical tender in any area not under a single government. At best it puts the poor countries under the thumb of the rich countries without giving them a way to push back. At worst it forces outright control.