The Sovereign Debt Crisis: Why The Greeks Won't Pay Taxes

Most of the attention paid to the sovereign debt crisis in Europe, currently highlighted by trouble with Ireland, is about sharp cost cuts, higher retirement ages, and new taxes. The collection of taxes already in force to improve deficits is hardly even discussed.

In Greece, the tax collection matter, already a sore point as it negotiates future financial matters with the EU and IMF, has moved to the core of the conversation. But, the Greeks have found a way of dodging blame from the problem for the time being.

“We had an un-functioning, strange economy for 20 years and 18 months doesn’t get it back into place,” said Jason Manolopoulos, who helps manage $100 million for a hedge fund at Athens-based Dromeus Capital. “It’s not only tax evasion, it’s that the Greek tax system is so complicated it pushes people into the grey. It’s going to take time,” writes Bloomberg. It would seem that the US tax code is extremely complicated as well. There is a large industry built around analyzing and filing taxes in the America. That is typically not used as an excuse for the large American national deficit.

Greece, as much as it does not want to admit the fact on the global stage, is a nation of tax dodgers who perform their work with as much skill as any people in the world. Bloomberg points out that Greece has among the poorest rates of tax collection in Europe and avoidance remains rife, as more than 33 percent of workers are listed as “self-employed” and yet they provide just 4 percent of revenue, according to estimates from Athens- based EFG Eurobank.

Greece needs more money to survive without defaulting on its national debt obligations. The interlocking fortunes of the eurozone which will survive until the alliance is broken, which it probably will be, make the stability of Greece a necessity. So, it will get its aid one way or the other.

In the meantime, Greece will need to be shamed into placing great pressure on its people and businesses to pay what they owe. That may mean the creation of an army of tax collectors by the central government. Such actions would cause Greek labor riots as does nearly every other action to drive austerity and new taxes in the southern European nation.

Greece has no real incentives to be harder on tax cheats. The aid money it receives is not tied to the rate of collections. It should be.

Douglas A. McIntyre