The Greeks Are Being Unfairly Maligned by Global Financiers: The Truth Is Very Different

Beyond the anti-Greek media campaign lies the story of a weary people caught between a corrupt political system and rapacious financiers. Sound familiar?
October 17, 2011  |

Photo Credit: AFP
Yiannis manages a small inn in Crete. The 50-year-old from Heraklion with salt-and-pepper hair and a hefty moustache has a son just graduating from college.

“We tell the young people to leave,” he says quietly. “There’s nothing for them here.” Protests and strikes are sweeping the nation, but Yiannis doesn’t like talking about the economy. I sense a feeling of pride holding him back. But he does offer this insight: “We know that it is the ordinary people, not the rich and the powerful, who pay for this.”

The Lazy Greek Meme

Greece is a land of ancient myth. But more recent myths have made Greeks like Yiannis cringe when foreigners start asking questions.

Greeks are lazy. They don’t work. They’re profligates who are taking down Europe. The caricature has become so common that a recent TV commercial in Slovakia used it to sell beer, drawing a contrast between the virtuous Slovak and the paunchy Greek indulging himself on a beach.

Most foreigners know Greece from holidays spent lolling on its beaches and drifting around its magical ruins. You could easily take it for granted that everybody here is just chilling out. They aren’t. The Greek labor force, comprising 5 million souls, works the second highest number of hours per year on average among countries in the Organization for Economic Development (OECD), right after South Korea. Greeks work 42 hours per week, while the industrious Germans toil just 36.

The average Greek worker earns a bit over $1,000 a month. Private sector employees are the most underpaid in the EU. Even before the harsh austerity measures imposed by the EU and the IMF, the Greeks had already cut the real average wages in the private sector to 1984 levels. This week the Greek parliament is expected to vote on measures that would place 30,000 public sector workers in a “labor reserve” at slashed pay – up to 40 percent.

Greeks retire a bit later than the European average. And the average pension, $990, is less than that of Ireland, Spain, Belgium, and the Netherlands. Thirty percent of the labor force works with zero Social Security or protections, while in the rest of the EU only 5-10 percent of workers are in this precarious situation.

So much for the myth of the overpaid, lazy Greek.

The reality is simple, though rarely admitted – except maybe by Yiannis, who seems to know exactly what’s happening. The “bailout” of Greece is really a bailout of big European banks. A game of smoke and mirrors leads us to think that Greek indolence led to financial ruin. The Greeks have done some things wrong, to be sure. But it was a dangerous mix of stupid economic theories and high-flying finance, fueled by a corrupt government, that exploded the economy. If all this sounds sickeningly familiar, it should. We’re witnessing Round 2 of the Great Global Shakedown by the banks.

Mini-History of the Modern Greek Economy

In modern history, southern economies have typically been weaker than those in the north. They industrialized later and only fitfully; large landowners often dominated them far into the 20th century. Economic growth was painful, marked by big deficits, bloody political conflicts and instability. You can see this in the history of Italy, Spain, and even France to a degree, but especially in Greece. The Greeks got socked in WWII and then creamed again by a brutal civil war (1946–1949), in which American military aid to the Greek governmental army ensured the defeat of the Greek Communist Party.

After WWII, the Truman Doctrine and the Marshall Plan determined relations between the U.S. and Europe. The economic recovery of Germany—designed to benefit American multinationals like IBM, Ford and General Motors – was a high priority. (Watch a fascinating lecture by economist Joseph Haveli here.) Greece mattered to the U.S. as a strategic barrier against the USSR in the Cold War, so it decided to support Greece with economic and military aid, fearing that another communist domino would fall.

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Swiss Banks Tax Evasion Deal To Hit UK Savers

British taxpayers who have money stashed in Swiss banks could see a significant chunk taken by the Treasury after a deal was struck between the two countries.

Existing account holders could be hit by a one-off deduction of between 19% and 34% in an attempt to settle any tax they owe.

Those who have already declared the full details of where their money is and paid their taxes should be unaffected by the plan, which could raise £5bn for Treasury coffers by 2015.

Chancellor George Osborne said the agreement heralded the end of an era when it was “easy to stash the profits of tax evasion in Switzerland“.

However, tax justice campaigner Richard Murphy told Sky News the deal set an “appalling precedent”.

“Honest taxpayers will now see that it pays – you get a reduction on your tax bill – by cheating, by hiding your money offshore,” he said.

Treasury minister David Gauke disputed the claim, saying that individuals who were being pursued by HMRC over unpaid taxes would be excluded from the deal.

“This is not one big amnesty,” he told Sky News.

George Osborne leaves 11 Downing Street on August 11

George Osborne said the wealthy must pay their fair share

 UK residents with money in Switzerland will also be affected by a new tax deducted at source, which will be 48% on investment income and 27% on gains.

The two countries have agreed to share more information and, as a gesture of good faith, Swiss banks will make an up-front payment to the UK of £384m.

The country is keen to shed its image as a safe haven for money that has not been properly declared to HM Revenue and Customs in the UK.

“Tax evasion is wrong at the best of times, but in economic circumstances like this it means that hard-pressed, law-abiding taxpayers are forced to pay even more,” Mr Osborne said.

“That is why this coalition Government made it a priority to go after those who don’t pay their fair share.

“We will be as tough on the richest who evade tax as on those who cheat on benefits.”

There is a stark choice for those who have abused Swiss banking secrecy – come forward and disclose, or run the risk of losing over a third of your historic Swiss assets.

Paul Harrison, KPMG‘s head of tax investigations

The deal is politically significant because the coalition wants to demonstrate its cuts to some benefits are being matched by equally stringent policies affecting the rich.

Describing it as an “historic” announcement, Exchequer Secretary to the Treasury David Gauke said too many people had abused Swiss banking secrecy.

“The message is clear: there is no hiding place for tax cheats,” he added.

However, experts warned wealthy UK residents may simply transfer their cash elsewhere to avoid paying up.

Chris Oates, head of Ernst and Young’s tax controversy team, predicts more people will move their assets to Liechtenstein.

“This will undoubtedly provide a much-needed boost to the UK’s finances. It is expected to generate billions of additional tax flows to the UK Exchequer,” he said.

Job Centre Plus

The coalition wants to show it is targeting rich cheats, not just benefit claimants

“But HMRC will miss an opportunity to establish whether these individual cases are involved in much wider tax evasion as it will only be based on Swiss assets.”

KPMG’s head of tax investigations, Paul Harrison, said the move was “very significant”.

“It seems there is a stark choice for those who have abused Swiss banking secrecy – come forward and disclose, or run the risk of losing over a third of your historic Swiss assets,” he explained.

“But the authorities need to take care that the innocent and the confused do not get caught up in this.

“There will be people who simply don’t know whether they have a problem and they will need help to sort their affairs out.”

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Analysis: Beyond debt woes, a wider crisis of globalization?

The crises at the heart of the international financial and political system go beyond the debt woes currently gripping the Western world and to the heart of the way the global economy has been run for over two decades.

After relying on it to deliver years of growth, lift millions from poverty, keep living standards rising and citizens happy, nation states look to have lost control of globalization.

world exchange

A television journalist looks at a display board shortly after the local market opened at the Australian Stock Exchange in Sydney, August 5, 2011.

In the short-term, that leaves policymakers looking impotent in the face of fast-moving markets and other uncontrolled and perhaps uncontrollable systems — undermining their authority and potentially helping fuel a wider backlash and social unrest.

In the longer run, there are already signs the world could repeat the mistakes of the 1930s and retreat into protectionism and political polarization. There are few obvious solutions, and some of the underlying problems have been building for a long time.

“In times of economic recession, countries tend to become isolationist and retrench from globalization,” says Celina Realuyo, assistant professor of National Security affairs at the US National Defense University in Washington DC.

“Given the increased number of stakeholders on any issue — climate change, the global financial system, cyber security — it is unclear how traditional nation states can lead on any issue, let alone build consensus globally,” she said.

The financial system, the Internet and even the supply chains for natural resources have quietly slipped beyond effective forms of state control.

These instruments of globalization have delivered huge wealth and kept economies moving with arguably greater efficiency, but can also swiftly turn on those in authority.

Just as Egyptian President Hosni Mubarak discovered that shutting down the Internet was not enough to prevent social-media fueled protest overthrowing him, the world’s most powerful nation states are confronting their helplessness in controlling markets and financial flows.

Technology and deregulation allow both information and assets to be transferred around the world faster than ever before — perhaps faster than states can possibly control, even with sophisticated laws, censorship and other controls.

The broad consensus at the 2009 London G20 meeting has already been replaced by a much uglier tone of polarization and mutual recrimination at both domestic and international levels.

Where once they would have lobbied quietly, Russia and China now angrily criticize the United States, with Russian Prime Minister Vladimir Putin describing it as an economic “parasite.”

In the United States and Europe, far right groups including the Tea Party, euro-sceptics and nationalist forces look to be rising, sometimes potentially blocking policy-making. On the left, calls grow for greater controls on unfettered markets and capital.

Over the past year, global currency valuations have become the source of new international tensions as major states accuse each other of “competitive devaluation” to boost exports.

In cyberspace, nations worry powerful computer attacks on essential systems could one day spark war, with rows over cyber spying already fuelling mutual distrust.

CENSORSHIP, CONTROLS IMPOSSIBLE?

It’s unlikely that nations can genuinely pull back from globalised systems on which they have become reliant.

“The Net sees censorship as damage and routes around it,” computer science guru John Gilmore said in 1993. In the modern, high-speed globalised system, one could say the same of attempts at financial and economic restrictions.

Many areas of the global economy have also become effectively “ungoverned space” into which a host of actors — from criminals to international firms such as Google and Goldman Sachs to countless other individuals and groups — have enthusiastically jumped.

International companies and rich individuals move money — and even entire manufacturing operations — from jurisdiction to jurisdiction to seek low wages, avoid tax, regulation and sometimes even detection. In many states, that helped fuel a growing wealth gap that is self producing new tensions.

Some argue demands to impose new controls may miss the point. In any case, many of the current crises in the system are the result of attempts to control or distort markets and economic flows.

“Ironically, the theory was always that.. the (euro) single currency would stop the unpleasant capitalists from destabilizing Europe,” says Charles Robertson, chief economist at Russian-British bank Renaissance Capital, pointing to its intention of freeing European states from never-ending local foreign exchange hassles.

“So the short answer is no, without massive capital controls, states cannot stop this.”

Arguably, the wider global financial system has similar inbuilt problems and imbalances — but after decades of being largely ignored, they look to be unraveling rapidly, by the same fast-moving markets that previously fed them.

That is a problem not just for already struggling Western countries but the emerging powerhouses some hoped would replace them as a source of global leadership.

UNSUSTAINABLE SYSTEMS UNRAVEL?

“For most of the last decade, growth and economic activity in many places has been driven by forces that were inherently unsustainable,” says Simon Derrick, head of foreign exchange at Bank of New York Mellon.

“What’s happening now is these… are coming under pressure and it’s getting to the stage where that can no longer be ignored. But none of these issues are going to be politically easy to do anything about.”

Low U.S. interest rates and taxes particularly after 9/11 and the dot-com crash fueled the asset booms that produced the credit crunch.

But they were only sustainable in part because U.S. government spending — including on expensive foreign wars — was effectively underwritten by emerging economies, particularly China, buying up their debt.

Beijing could make those purchases because it was earning billions from soaring exports underpinned by what most observers agree was an unrealistically low-pegged currency.

Those dynamics fueled record economic growth that help to maintain domestic stability. If that slows, some worry unrest could return — particularly if Chinese Internet controls and other domestic security measures prove as unable to control dissent as the admittedly less sophisticated systems of North Africa.

Critics say most attempted financial crisis fixes — bailouts and stimuli– have simply “kicked the can down the road,” providing short-term relief but little more.

“Nobody’s kicking a bigger can with more force than the Chinese government,” wrote Ian Bremmer, president of political risk consultancy Eurasia Group. “The entrenched dominance of their state-led economy has created the greatest near-term buffer to instability in the developing world… (but it is also) by far, the most unsustainable and volatile long-term.”