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debates about how deeply involved the national government should be in regulating the national economy and which industrial sectors should be reserved exclusively for state ownership (Megginson and Netter, 2001). It is a matter that concerns the historical argument between laissez-faire and non-market economy. Although it is believed that some industries should be at the helm of the government, the problem with Greece’s economy is that for too long its government has been in charge of too many economic sectors. In 1965, Greece’s state control of the economy, mainly through state own enterprises (SOEs) or credit control via banks, amounted to more than 90% of the overall economy. After rounds of reform, the first of which started in 1990, the state still controlled approximately 75% of all business assets in the country and tightly regulated other sectors of the economy. Even though the number fell to about 50% in 2008, it was still a big proportion (Mouzelis, 1979).
The excessive social expenditure and the non-competitive economy. Whether the
spending behavior of a country is excessive or not is a relative concept. The way the Greek government spent the money, or in particular, on Greece’s welfare system, was not the most prodigal in comparison to some European countries. Percentage wise, Greece’s ratio of social spending expenditures to GDP were 10.3% in 1980, 19.2% in 2000 and 25.7% in 2011, whereas that for Germany during the same period of time they were 21.8%, 26.2% and 25.5%, larger than Greece in size (OECD.Stat). Even at the peak of the crisis in 2011, Greece was below the EU average of 29.1% in social expenditure (Eurostat Press Office, 2013). Yet,
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it certainly has not been able to fund itself. For instance, the revenue for Greece’s national railway system was estimated to be 100 million euros while the expenditure amounted to 700 million. Manessiotis (2011) adds to the criticism that there has been a continuous worsening of the Greek economy competitiveness after the EMU entry, and that Greece entered the EMU without adequate preparation and stumbled into both the debt and competitiveness traps. Featherstone (2011) pointed out that Greece simply did not have the wealth to spend money the way it has done over the past decades and there has been an absence of
competitiveness in its economy. To this facet, one needs to look at the Greek economic structure first.
According to World Bank’s data, Greece’s GDP averaged approximately 303.67 billion USD between 2005 and 2010 (247, 273, 318, 354, 330, 300 billion USD in respective years).
In 2014, the economy of Greece was ranked by size as 44th by the IMF, 45th by the World Bank, 46th by the United Nations in the world, and the 15th of all European Union member states. Greece is certainly not a big economy.
Moreover, service industry constituted the greatest chunk of the Greek already small economy. Data reveals that the percentage of services industry of Greece’s GDP from 2005 to 2010 was respectively 75.4%, 73.8%, 76.2%, 79.1%, 79.9%, and 81.1% (The World Bank Data). The major share of the service industry is comprised of financial service and trade, at 21.5%, with tourism, which is volatile and subject to seasonal changes, at around 18% and
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real estate management at around 14%. Advanced industry and agriculture are usually
symbols or wealthy countries. However, industry’s share in Greece’s GDP in the same period was 19.8%, 22.6%, 20.4%, 17.7%, 17.1%, and 15.7% and agriculture was 4.8%, 3.6%, 3.4%, 3.2%, 3.1%, and 3.3%. In accordance, there are presumably limited cards on the table for Greece to propel economic growth, aside from relying on service industry such as tourism;
the finite contribution of industry and agriculture in the overall economy constrains the country’s options. One research on risk analysis of investing in Greece argues that the Greek economy lacks competitive industry, and to some extent that is hereditary. Greece’s
manufacturing remains a weak spot, and it depends heavily on imports. Also, its exports mainly comprises natural resources, which is already scarce in Greece. Therefore, boosting exports is not going to lead to significant improvements for the Greek economy (The
Department of Investment Services, Ministry of Economic Affairs, 2015).
Tax evasion. One major source of governments’ revenue comes from taxes. The Greek
government, unfortunately, had never been able to bring in enough tax to cover its spending.
Tax evasion in Greece was wild. Described in one OECD report (2009a), “the efficiency of tax collection in Greece in 2006 was the lowest among the Eurozone countries.” Researchers point out that Value Added Tax (VAT) collection in Greece was at a poor level of 75% of the unweighted average for the Eurozone countries, and “for social security contributions and corporate taxes” the number was 87% and 75%, just above the Eurozone average. It was also
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calculated that had all tax collections in Greece reached the Eurozone average of 87%, it was possible to see an extra tax revenue of about 5% of its GDP, which would have turned the budget into surplus for most of the years. There was even estimation that the scale of tax evasion was as high as 4% of GDP on annually (Katsimi, 2010).
Some scholars impute the inefficiency of tax collection in Greece to Greek people’s unregulated nature. Most Greek people reckon it is no big deal not to pay taxes, and the government did not punish people who did not conform to the duty, either. Yet, there are also other reasons factoring in. There have been complaints that paying gradually higher taxes does not guarantee more quality public service (Katsimi, 2010), mainly due to the
governmental inefficiency and corruption. Perhaps people express dissatisfaction towards inefficient governments through not paying taxes.
Another impediment for tax collection in Greece is its disproportional underground economy. Estimations reveal that around 28% of the Greek economy is shadow economy and more than 40% of self-employed income goes unreported and thus untaxed (Artavanis, 2015).
In addition, many people who dodge tax payments are usually people in the higher income bracket such as doctors, bankers, educators, and lawyers. Greece’s Finance Ministry in 2009 disclosed that “in one of the wealthiest parts of Athens, 90 out of 150 doctors had claimed net annual incomes of less than 30,000 euros, with 30 of them claiming less than a third of that”
(13,000 euros is a threshold; people with annual income salary less than 13,000 euros do not
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need to pay taxes.) With scarce income taxes that are on the record and can be taken in, along with the mindset of the Greek people that if the politicians and the rich people are not paying tax then why should they and thereby creating a vicious cycle, it should not be seen as a surprise the whopping inefficiency in tax collection in Greece.
Corruption, political clientelism, and rent seeking. A piece of news report in the Wall
Street Journal says it well: “Behind the budget crisis roiling Greece lies a riddle: Why does the state spend so lavishly but collect taxes so poorly? Many Greeks say the answer needs only two words: fakelaki and rousfeti” (Walker, 2010). Fakelaki means “little envelope”
whereas rousfeti means “expensive political favors” in Greek. It is not hard to smell the sarcasm behind the response for the question.
One statistic that has been brought up the most in scholarly works is how Greece was ranked in Transparency International’s Corruption Perception Index. Greece has the worst rank in Southern Europe in 2010. It ranked the 84th globally in 2011 and slid further to the 94th in 2012.
Bribery, patronage, and other public corruption are said to be also one major
contributing factor for the Greek swelling debt, estimated to be at around 8% of its GDP on a yearly basis (Jin, p. 82). The Greek people joke about being a good citizen; what they usually do is to buy off people for favors, let it be getting licenses, doctor’s appointments, education for children, or permission for constructions. As a result, fees that would normally have been
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generated in the process and the tax that would have been derived are non-existent. Those that are frequently bribed also turn out to be those that constantly commit tax evasion. The phenomenon, subsequently, makes the vested interests even more reluctant to see changes brought about and their interests taken away.