Renegade Economists 206
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Broadcast Oct, 26th, 2011
Listen to the interview.
K.F: Let’s have a chat with Yanis Tziligakis. He’s a New York based academic – he’s got a bachelors, a masters, and a phd in the field of physics – he’s now realized he’s got to get his head around economics and he’s headstrong into it, in the last 3 years doing some really good stuff on creative commons. We started off talking about Jeffrey Sachs’ new book. He was off to see his speech earlier today. Sachs’ new book is called the Price of Civilization. Anyway let’s get into this right now.
Can you give us a broad brush overview of the Greek economy? How much money do they owe? What’s the next tranche of debt they’re struggling to gain finance for at present? Set the scene for us.
Y.T: the level of the Greek debt is about €350 billion but of course that’s sensitive to the interest rates. Now Greece got about €110 billion bailout from the European Union and this is channeled- it’s been given to Greece in installments so this is exactly what the current problem was because Greece is supposed to be fulfilling certain obligations for each installment to be handed to it. Now as you can understand the problem lies in that those expectations that the Greek economy has to be fulfilling every time the new installment comes due to be paid out is that they are unrealistic. Or let me put it they are overly optimistic.
The Greek government thinks that they can target their deficit by austerity but at the same time losing track of their income – the tax revenues keep shrinking because of the austerity. It seems to me that the battle of tax evasion which is the main affliction of the Greek economy, if not of most of the economies around the world, that’s the battle that is impossible to win without international cooperation and that’s what Greece is lacking right now.
K.F: How do people evade their taxes in Greece? We hear a lot of stories of corruption going on there but tell us some of the stories you’ve heard of how the social contract in Greece is somewhat different to most countries, where only fools pay their taxes.
Y.T: I think the problem of tax evasion is not a moral problem. I’m against this corruption nuance that’s been passed around and I don’t think tax evasion is a corrupt act. I think it’s an act that makes economic sense. It basically shows that the citizens do not trust to give their money to the state. So, actually the Greek citizens have withdrawn their trust from the Greek government way before the markets sniffed something iffy in the Greek economy. Now it’s sort of a vicious circle of merry-go-round.
Greeks are very entrepreneurial people. 80% of the work force are entrepreneurs and only 20% are public servants so that’s another defamation that Greece has been afflicted with that it’s a country of an overgrown public sector – overgrown, overpaid and basically an inefficient public sector . That’s not actually true.
Greece is actually on the bottom tier of the European Union as far as size of public sector workforce and the size of its salaries that are devoted to the public sector. So the tax evasion has a very interesting nuance that actually nobody has picked up yet. The nuance is this – if the Greeks were simply tax evading, Greece wouldn’t have a problem because Greece would have been shrinking its economy and the cost of living in Greece would be going down if the Greeks were simply exporting their money overseas but that’s not really what is happening in Greece.
The money gets evaded to offshore tax havens and mattressed to places like Switzerland, the Caymans – Greeks are champions in offshoring – and the money comes back to the country untaxed – inflating real estate prices – which affects the overall cost of living and the cost of doing business. So that’s how Greece gets doubly hurt by tax evasion.
K.F: Tell us about the size of the Greek property bubble through the 2000s – how high did it grow?
Y.T: Greece’s real estate index inflated from the years 1993 to about 2008 – it inflated about 225%. So Greece has wealth – but it is under the mattress we call “slow turnover yielding capital”. That is called, in common parlance, real estate. Now the tragic-comic aspect to this is that offshore companies hold the bulk of this real estate and they artificially make Greece expensive for its own citizens.
K.F: Phenomenal – and then the property tax system in Greece has the curse of taxing the improvements like it does in so many other countries, so I hear there are lots of unfinished houses with steel turrets poking out of the roof as if the house isn’t really finished (only finished houses pay property taxes on the improvements). Is that one of the common sights around Athens and so forth?
Y.T: The common sight in Athens – but I haven’t visited for a few years – but a number I’m going to give you, Karl, is that a few months ago they had about 200,000 vacant properties – lets say available for sale or rent – I mean that’s an amazing supply of housing, however, the ratio of wages and pensions to rent has been constantly decreasing. In other words it becomes more and more unbearable to come up with the everyday living expenses especially for people who are getting unemployed and especially for pensioners.
Everybody’s talking about unemployment relief and extra relief to the pensioners but nobody can see that an immediate relief, which would be of no cost to the budget of the government, is by taxing rents and thus forcing them (house prices) down.
Another impact of the high rents is also on Greek businesses. About 1000 Greek businesses outsourced themselves – like they leave the country to go across the border – it’s a similar situation between the United States and Mexico. Its almost like it reaches the realm of the tragic-comic in Greece because it looks like Greeks keep shooting their own feet but they don’t seem to realize they are doing that. And it’s tragic for all these Greek companies that Greece is too expensive for them but Bulgaria isn’t. That’s the effect of high rents of an inflated real estate market which affects both workers and businessmen – it affects both labor and capital.
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