The Greek Prime Minister has to tackle long-term reforms
Wall Street Greek's International & Economic Affairs Columnist Pietro Rabassi bravely engages Greece's Prime Minister Papandreou to tackle the real problem behind the Greek financial crisis, public corruption and widespread tax evasion.
For two-and-a-half millennia Greece has proudly hosted the Acropolis - the symbol of Western civilization. On 28 April 2010 the Greek financial bubble exploded: Greece has betrayed this pride by almost going bankrupt, leading critics to pompously ponder the sale of Greece's ancient and core assets, including the Acropolis and the Greek islands. However unlikely that possibility is, the hope for a long-term recovery is very slim otherwise.
On 2 May 2010 the IMF and the Eurozone rescued the Greek economy. As a guarantee for the rescue package, the Greek Prime Minister George Papandreou elaborated a detailed recovery plan to raise billions of Euros to salvage the Greek economy: public sector employees had their salaries reduced or, for levels below 2,000 EUR, frozen; the retirement age for men and women were equalized and brought on average from 61 to 65; the value added tax (VAT) was increased; taxes were raised on alcohol, cigarettes and fuel. Some measures were applied also to the wealthier population: luxury taxes were increased by 10%; bonuses were to be abolished at public banks and taxed at 90% in private ones; Google (Nasdaq: GOOG) maps have been used to track undeclared swimming pools.
Yet the recovery plan is shortsighted because it fails to solve the deep problems in Greek society: corruption in the public sector and tax evasion.
These two problems are estimated to cost the Greek government up to 20 USD billion per year and to represent up to 30% of GDP.
Have you ever been to a public hospital in Greece? Do you want to avoid waiting longer than a year to have a medical appointment? We have a solution for you: an envelope with a couple hundred Euros. You can be quite confident that the doctor will wisely invest his yearly collection of envelope money to buy a new car or perhaps build a new swimming pool in his villa in Kifisia, one of the luxurious areas of Athens. Why shall he waste time in declaring his envelope money to the Greek authorities? And of course, he knows that all his neighbors have a pool but that nobody declares them: why shall he be different from his neighbors?
Our Letter of Suggestion to the Greek Prime Minister:
Your Excellency, we would like to remind You that it is Your duty to fight corruption in the public sector and to enforce the taxation laws. You should make sure that the rule of law is applied and respected at all levels of society, by the more and less wealthy. This means challenging and changing the current Greek way of life where it is flawed: this may be hard to implement but it is the best long-term solution to avoid future crisis and to establish a more efficient government.
How can You achieve this? There are four avenues.
First, improve the quality of the services Your administration provides by accounting for fraudulent public servants. Only when Your citizens see that the public services are of good quality, will they feel stimulated to pay taxes and co-operate with the government. Let us look at one example. You could hire some young college volunteers or NGOs (rewarded as 'Presidential fellows') to serve on a rotational basis for 6 days a week for at least 6 months in the lobby of major public hospitals. They will invite people to fill out an anonymous survey on whether they have been treated correctly with no corruption requests. If they feel they have been encouraged to bribe, the Presidential fellows will invite them to address the Ombudsman. The Ombudsman will be located in an easily accessible place in the hospital and will report to an anti-corruption team whose chief will report directly to You. This will exercise pressure on the public hospital employees to avoid corruption. If You advertise this, the media will love it and the pressure will be even higher.
Second, to encourage people to declare their assets and revenues, You could grant a tax amnesty on their first declaration. Alternatively, You should train your tax inspectors to detect any immovable asset. You should require tax payers to auto-declare the value of their immovable assets. The State would reserve its right to buy them out at a price 10% higher than their declared value if the market value was different from the declared value. This way, assets will be likely to be declared at their market value!
Third, You could run campaigns in schools, on TV and in public meetings. These campaigns would educate citizens on how important it is to declare their assets and pay taxes: only if they pay taxes, they can expect the government to provide public services.
Fourth, after implementing the other three avenues, You will be able to effect many popular actions for the Greek nation with the billions of dollars that You will have raised. For instance, you might increase the wage of the public servants that have been so angry with You when You cut it down!
If You fail to ensure a long-term recovery, You may really need to sell our beautiful Greek islands. Are You planning to sell the Acropolis soon? Before it is renamed as the AT&T (NYSE: T) or the Bank of China Palace (OTC: BACHY.PK), I would be interested in buying it, not only because it is the symbol of Western civilization, but mainly to save the dignity of our great ancestors and our national pride.
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