Who will pick up the bill for Greece?

14th June 2012

Policymakers often stand accused of indecision, timidity and a lack of imagination so The Value Perspective is happy to salute any instance of bold and original thinking – especially when it comes from one of the eurozone's more dysfunctional members. Unfortunately, not only can such initiatives highlight just how dysfunctional some of those members really are, they can also fall victim to the law of unintended consequences.

Greece's troubles are increasingly well-documented. The economy has severe issues: unemployment stands at 22% with youth unemployment at 50%, hospitals cannot afford to buy drugs, the political system is gridlocked and the make-or-break elections on 17 June may not even go ahead because the people who are supposed to run the polls have threatened to go on strike.

The retirement age in Greece has become a byword for the country's malaise with some 600 different categories of workers able to retire on full pay at the age of 50, ranging from the armed forces and the police to somewhat less life-threatening occupations, such as radio presenter and hairdresser. Meanwhile a yet more fundamental issue for the country's leaders is its inability to collect its taxes.

Stories such as the scarcity of Greek doctors who declare more than €10,000 (£8,000) of income are commonplace and so the Greek government came up with a foolproof plan – or so it thought. Reasoning anyone who used a lot of electricity would have a big house and therefore should pay more property tax – and vice versa – it decided it would relate property taxes to electricity consumption.

The government saw this as an eminently sensible and equitable course of action but it had not fully grasped just how much its citizens dislike paying tax. A legal challenge saw an uncharacteristically swift judgement from the Greek courts rule that people could not have their electricity cut off for non-payment of their electricity bills – and so many Greeks stopped paying their electricity bills.

So not only were much of the population not paying property taxes, the unintended consequences of trying to make them do so were, first, they were not paying their electricity bills either and, second, the Greek government in due course had to bail out a number of the country's utility companies.

Greece has a number of issues, none of which would be easy to solve even in benign conditions.

Continue reading…

 

More on Mindful Money:

Moody’s downgrades Spain’s debt rating to Baa3

Is Greece the word? Or should Germany leave the euro?

Why a banking union won’t solve Europe’s woes

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