Greece needs years not months to sort itself out

GREECE'S foreign minister has complained that the country's economic crisis is being made worse by the "negative stereotyping" of his country. He has a point, but so, too, unfortunately, do the country's critics.

I visit Greece often. Last week, after writing about the euro and its troubles for The First Post, I flew there again. I knew things were bad, but talking to friends I was shocked at the speed with which it seems to be descending into chaos.

While the world worries about whether Greece will default on its international debts, a form of internal default is already underway as the government runs out of cash.

A doctor told me that she has not been paid her salary for July and August, and does not know if she will be. A friend revealed that her child's school started the year without any text books, and the principal says he will not be able to provide photocopy extracts for much longer because he has no money for paper.

Businessmen complained that the government has not been paying its bills for months, and then often only in part.

Meanwhile the government's attempts to raise money are becoming ever more desperate and arbitrary. Another friend complained that the taxman is demanding an additional one-off contribution from him, largely on the basis that he owns a two-litre car and a 19ft motor boat. For the two together, he is being asked for an extra 1,700 euros in income tax.
 
The latest wheeze is an emergency property tax, to run for two years and to be added to electricity bills. If implemented, many bills could double over night. Ask whether it will be implemented, however, and people shrug their shoulders. Two previous attempts to introduce new property taxes in 2009 and 2010 failed due to civil service obstruction, and the power workers union have already announced that they will not handle this one.
 
With a system like this, it is not surprising that tax evasion has become part of the national culture. For many people it is the only way to survive. According to the power union, 150,000 homes across the country have had their electricity cut off so far this year, even before the new property tax is added. Even more ominously, 60,000 of them have not applied to be reconnected.

But the scale and breadth of the problem is still shocking. Last week parliament was told that the country's 15,000 worst evaders, those who have been identified as owing at least 150,000 euros each, had been given until the end of the month to settle their debts. Needless to say, no one is holding their breath.

At the other end of the scale, a 10 per cent VAT increase on restaurant meals, introduced at the beginning of September to spare the tourist season, is being boycotted. None of the restaurants I ate in had introduced it. Even if they had, the proceeds might well not have found their way to the Exchequer. The VAT office in Corinth is reported to have collected just 18,000 euros in the last six months.

A British businessman with knowledge of the Greek fuel industry told me last year that 30 per cent of the duty on diesel and petrol collected at the pumps never reaches the government.

Yet despite the dearth of cash and repeated promises to cull it, the bloated public sector has reportedly grown by 20,000 since the crisis began. When the so-called Troika – the IMF, European Commission and European Central Bank – discovered this a few weeks ago, the government hurriedly promised to lay off 10,000 public employees immediately, and another 10,000 within a year. No one is holding their breath on this either.
 
To answer the foreign minister: one can hardly blame Greece's creditors for losing patience, for they have been sorely provoked. But the creditors also need to understand that the country is slipping dangerously close to breakdown. If they really think it is crucial for the euro that Greece remains a member, they will have to accept that sorting out its problems will take years. It certainly cannot be done in months.

And if the Greeks are to leave the euro, then it is in everybody's interest that a way be found to ease them out with the least disruption possible. Demanding that they should somehow turn themselves, overnight, into the fiscal equivalent of the Germans is not just wildly unrealistic, it could soon become deeply destructive as well. ·