Greece Warns of Going Broke as Tax Proceeds Dry Up
Eini Vourloumis for The International Herald Tribune
Nikos Maitos investigates tax evasion. He said one business owner attacked him with a whip.
By LIZ ALDERMAN
Published: June 5, 2012
ATHENS — As European leaders grapple with how to preserve their monetary union, Greece is rapidly running out of money.
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Times Topic: European Debt Crisis
Eini Vourloumis for The International Herald Tribune
Nikos Lekkas, a government official, said banks had hindered his efforts to collect back taxes.
Government coffers could be empty as soon as July, shortly after this
month’s pivotal elections. In the worst case, Athens might have to
temporarily stop paying for salaries and pensions, along with imports of
fuel, food and pharmaceuticals.
Officials, scrambling for solutions, have considered dipping into funds
that are supposed to be for Greece’s troubled banks. Some are even
suggesting doling out i.o.u.’s.
Greek leaders said that despite their latest bailout of 130 billion
euros, or $161.7 billion, they face a shortfall of 1.7 billion euros
because tax revenue and other sources of potential income are drying up.
A wrenching recession and harsh budget cuts have left businesses and
individuals with less and less to give for taxes — and growing incentive
to avoid paying what they owe.
The budget gap is widening as the so-called troika of lenders — the
International Monetary Fund, the European Central Bank and the European
Commission — withholds 1 billion euros in bailout money earmarked for
government financing while it waits to see whether new leaders elected
June 17 will honor Greece’s commitments.
Even if the troika delivers that money, Greece will struggle to cover
its obligations. It underscored a harsh reality that is playing out in
other troubled euro zone economies. Prolonged austerity is making it
harder, not easier, for governments like Greece to become self-reliant
again.
A top Spanish official acknowledged on Tuesday that Spain could not
readily return to the markets to raise money because investors are
demanding such high rates, highlighting how the debt crisis is spreading to larger economies in Europe.
Chancellor Angela Merkel of Germany said a day earlier that European
leaders needed to find a way to create the political union that the
world is looking for to complement their monetary union. European
officials took a small step in that direction Tuesday by proposing a
central authority for banking regulation, which would require countries
to give up a bit of cherished sovereignty.
An essential element of Greece’s recovery plan has been to collect more
taxes from a population that has long engaged in tax avoidance. The
government is owed 45 billion euros in back taxes, tax officials in
Athens said, only a fraction of which will ever be recovered.
To understand the difficulty, just talk to Nikos Maitos, a longtime
official in Greece’s financial crimes investigation unit.
When he and a team of inspectors recently prowled the recession-hit
island of Naxos for tax evaders, a local radio station broadcast his
license plate number to warn residents.
“One repercussion of the crisis is that people are harder to find,” Mr.
Maitos, an imposing, burly man, said last week in his sweltering office
on the edge of Athens. “And when you do find them, they don’t have
money.”
Even tax collectors, who have had to take large pay cuts, find that
budget reductions make it hard to pay for the gasoline needed to reach
their targets.
“After two and a half years of austerity, it’s really a difficult time
to bring in revenue,” said Harry Theoharis, a senior official in the
Greek Finance Ministry who helps oversee the country’s tax payment
system. “You can’t keep flogging a dead horse.”
Salaries and pensions in the private and the public sectors have been
cut by up to 50 percent, leaving Greece 495 million euros short of its
revenue targets in the four months ended in April, according to the
Greek Finance Ministry. With less cash, consumers have curbed spending,
leading thousands of taxpaying businesses to fail.
Income expected from a higher, 23 percent value-added tax required by
the bailout agreement has fallen short by around 800 million euros in
the first four months of 2012. That is partly because cash-short
businesses that were once law-abiding have started hiding money to stay
afloat, tax officials said.
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