Galery

1

Victoria Mindova

In the critical hours before the vote on the final version of the austerity plan we turned to the Professor of International Financial Markets and Financial Law Emilios Avgouleas from the University of Manchester. He is the Director of the LLM Programme and analyzes the latest developments exclusively for GRReporter.

Infrastructure investments, lower taxes, credit expansion and clever privatizations, coupled with generous cutting of public expenditure are the foundation of Greece’s success and growth. Without them, the country will face the disastrous solution to introduce the drachma again and the consequences will be hyperinflation, deep recession and a new form of the euro area, in which there will be no room for weak and uncompetitive countries.

The mid-term recovery program has to be voted this week, no matter that it has a lot of opponents both in the parliamentary group of PASOK and the opposition party. Do you think that the bill will pass through and what would be the consequences if it is rejected?

Much ado about nothing! The plan is not only unfair it is also ill prepared and ineffective. Taxing income in a high tax evasion country is meaningless. The government and the Troika ought to target, for tax purposes, accumulated wealth that may not be justified by disclosed income and not disclosed income, as the plan does. As much of this vast wealth is ill-gotten, being the product of corrupt practices, looting or tax evasion, it should be taxed at punitive rates. This punitive taxation programme should include all deposits held by Greeks abroad which are the product of activities carried out in Greece and real estate that is held in offshore companies, which is used for commercial or residential purposes Note that this is not the usual ‘why don’t you tax the rich?’ cliché. The Greek tax base is very thin. It has to be broadened substantially for the country to become fiscally sound. But through a progressive tax rate and clever and modern mechanism to catch foregone revenue not through a flat tax per capita, as envisaged in the plan, which is a fiscal practice more closely associated with the Ottoman Empire rather than modern western democracies.

Under what conditions do you think that Greece would gain the right to go back to the capital markets in the end of 2011? In other words, where were the main shortcomings of the current policy, which led to the need of Memorandum 2 and the mid-term recovery program?

None the chances are zero. The reason that the memorandum has failed and so will the next one is that the Troika has ignored two fundamental truths. First, that the Greek problem was not simply one of liquidity but one of solvency. Second, that the Greek fiscal crisis was not just an issue of bad systems and some corruption which if addressed properly the country would produce balanced budgets. On the contrary the Greek budget problem is essentially a problem of governance. The Greek republic has been captured by a kleptocratic business and political class and the two main political parties. As a result, corrupt practices and cronyism are at the heart of all forms of public activity from public investment to tax collections. For instance, the two political parties do not curb public sector wastage in order to maintain their armies of client-voters. Also, the ministers shy away from a restructuring of the banking sector that is desperately required if the country is to return to growth. The Troika seems blissfully and rather willingly oblivious to the above truths calling also for futile policies, such as a widespread privatizations programme at firesale prices, which shall push Greece further into economic and fiscal crisis, since those state owned companies are also major contributors to public coffers through large dividend payments. 

How do you find the public spending to taxes mixture of measures in the mid-term recovery program? In your opinion, is there a way to optimize the spending and reduce the tax burden?

Greece needs a transparent, cleverly structured, and competitive privatizations programme, which on the one hand reduces debt and on the other attracts foreign investors for public companies and other public infrastructure projects at competitive prices. The country desperately needs a fresh injection of foreign direct investment in the areas that it is competitive. It also needs a healthy banking sector that will stimulate growth through credit expansion, namely, extension of credit to worthy businesses. If wastage in the public sector is slashed – e.g., Greece has 5 state owned TV channels - then it is possible that in certain areas taxes can be (and should be) lowered. However, high taxes are not the reason for the country’s plight and the failure of the memorandum. The policies were misconceived from the outset because they exhibited a very flawed understanding of the true illnesses of Greek economic, political, and social life and thus they pursued the wrong remedy.

Even if the mid-term program passes through, the government does not have the public support to introduce the reforms. Do you think the elections will prove compelling to the end of this year and what change they will bring?