As taxes rise and companies exit, the Greek economy stalls

The Greek premier’s animated enthusiasm stems from his side reading of certain key economic figures and his realisation, after being more than a year at the helm of a limping government, that despite an avalanche of disasters including the introduction of capital controls last summer and the near bankruptcy of the banking system, that the country has not collapsed. How else could one explain his remarkable and mind boggling observation “that because the economy only contracted by 0.2% last year, instead of the -2.3% predicted by the IMF, it is in a better position of achieving future fiscal targets”. With Tsipras forgetting of course to mention that during 2014 Greece’s economy had returned to growth, registering average +0.6% y-o-y, and it was thanks to this achieved momentum, which lasted during the first two quarters of 2015, that the economy did not hugely contract as feared.
The second half of 2015 was by all counts catastrophic as almost all economic sectors, with the exception of tourism, faced huge liquidity problems with companies closing down and workers being laid off en masse. Tsipras further claims that thanks to his government’s policies, the annual unemployment rate dropped from 26.5% in 2014 to 24.9% last year, forgetting again to mention that public sector companies and state-subsidised local authorities went into a hiring spree while at the same time thousands of skilled labourers and professional people simply left the country. The fact that last year Greece saw a huge jump in tourism earnings, with apparently 26 mln arrivals and EUR 15.5 bln in revenues, is not unrelated to favourable but accidental geopolitical factors as political instability and terrorist threats engulfed rival tourist destinations such as Turkey, Egypt and Morocco.
Although Greece’s Prime Minister is day dreaming of “laying the foundations for a sustainable and inclusive recovery”, the truth of the matter is much different since quite visibly Greece today is a country deep in a crisis which alas is not restricted to the economy. The country is suffering a huge loss of confidence, internally and externally, accentuated by a lack of moral and social direction where everybody is desperately trying to save and protect what little they have left of property and cash to the detriment of living standards, which have been steadily deteriorating for the vast majority of people over the last six years.

Quick completion of ESM
According to Tsipras, “a major milestone for setting Greece on track to sustainable economic recovery” is the quick completion of the first review of the European Stability Mechanism Programme (ESM).
“In many ways”, writes Tsipras, “this is key as it deals with most of the fiscal and financial measures that the ESM programme contains. And our government is eager to complete it soon”. Eager he may be, but protracted negotiations, including an open exchange of accusations with the IMF, have now been dragging on for more than six months – as the review was supposed to have been completed well before Christmas – rekindling strong feelings of a déjà- vu for many people who remember well similar statements and tactics prior to last July’s total capitulation by Tsipras to lenders’ demands and the imposition of one more austerity programme.
Now, Tsipras believes that today’s situation is totally different compared to last year, as he has proved, so he says, his good intentions and credentials to both Berlin and Brussels, proof of which is, he notes, the proposed by his government “ambitious reforms of income tax and a major overhaul of the Greek pension system”. With both actions aiming to deliver total savings of 2.5% of GDP on a sustainable basis.
But Tsipras’ good intentions and promises for a return to a virtuous economic cycle are far from convincing to most economists who follow closely the Greek saga.
“Successive governments during the present crisis period and most notably the Tsipras far left government, have failed to broaden the tax base, opting instead to focus on middle and upper class incomes which are already overtaxed”, said Babis Papademitriou, the highly respected financial columnist of Kathimerini newspaper.
“But by doing so”, added Papademitriou, “in essence the government prevents the citizens from developing a much-needed tax consciousness, leading people to believe that only the affluent middle class and the rich should pay taxes”, which, we may add, is a noted trait and leftover from communist-era administrations. Tsipras’ SYRIZA party, which proudly calls itself radical left, is without doubt a firm believer of such tactics.

Systematic destruction of the middle class
Other government critics claim that the present communist-inspired tax regime aims towards the further systematic destruction of the Greek middle class, as many families have started selling properties, or failing that, simply handing them over to the state in order to meet tax obligations.
“Intended or accidental, the current government’s incompetence is monumental” said John Loulis, a political scientist and author of several books on modern Greece’s economic and political system and a sharp critic of the present government.
But this gross incompetence is not only resulting on serious delays in completing the assessment of the stabilisation programme, with a profound negative impact on investment and business sentiment, but is having catastrophic consequences in the management of the actual economy. The government’s inability to safeguard access to the country’s road and rail system, often disrupted by strikes and lately by refugee flows and sit-in protests, is a case in point. Persistent road and rail transport problems are causing huge damage to companies within and outside Greece. Most notably the closure by refugees for more than 32 days of the train link to FYRO Macedonia at the Idomeni border post has resulted in more than 400 cancelled freight shipments resulting in several million euros in financial losses to companies but also to the state run “Trainose” rail company.
“Greece today”, said veteran political and financial commentator John Marinos, “exhibits most of the early signs of a failed state which just keeps running thanks to the survival instinct and of a small number of dedicated civil servants and increasingly of volunteers in different sectors ranging from transport to health services”.
As public services crumble due to chronic shortages and lack of skilled personnel, taxes and social security obligations for both individuals and companies continue to rise, suffocating a clearly underperforming economy.
Combined with the mass exodus, over the last 12 months, of well qualified professionals but also entire companies, mostly medium sized and export oriented groups, the economy has come to a standstill with most institutions predicting that 2016 will prove to be yet another recessionary year with economic contraction set to move beyond -1.0%.
Tsipras may like to project exuberance and an oversized confidence about the country’s economic prospects but reality tells another story. A walk through Athens’ centre or in the less affluent suburbs or through the dilapidated industrial estates in the periphery tells another story. The “Alice in Wonderland” syndrome of the preset merry-go-round far left, and highly incompetent, government is driving the county once again to the rocks with most people fearing a repeat of last year’s catastrophic scenario.