Professor George Bitros: Rescheduling of the Greek Debt is a Matter of Time

23 July 2010 / 14:07:48 GRReporter

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In an interview with Maria S. Topalova the well-known professor at the Economic University of Athens admits that the Euro should be back where it started - $ 0.80 and this will benefit not only Germany but also Bulgaria, Greece, Spain

- Mr. Bitros, do you think that the measures taken by the Greek Government are sufficient to reduce unreasonable spending in the public sector?

- Let’s divide the measures taken into two categories. These are the measures which the government hopes will bring sufficient state revenue to reduce budget deficits. They include the VAT increase, the elimination of Easter and other bonuses, housing measures, regularization of illegal buildings, etc. Of course, these measures are implemented gradually, and therefore their results will appear gradually. We do not have the results so far. These are, say, the measures for increase in revenues. On the other hand, they are about to take and different structural measures – they speak of privatization, liberalization of professions. Of course, they have not yet begun to implement them, but at some point they – I mean the Government – have made specific commitments to proceed to all those processes. These measures are expected to regain the competitiveness of the Greek economy, to improve exports and balance of payments. The budget will take a breath through improving the balance of payments and the increase in revenue.

- I'll repeat the question for the public sector. It should be reduced, it is quite clear. Are the measures announced enough to reduce the public sector?

- My opinion, many people don’t share it, is that ultimately the public sector should not be kept in size. The number of employees in the public sector will be reduced. We will see whether this will happen smoothly, as the Government plans it, ie by appointing only one employee against five that go into retirement or will happen a little more forcefully through dismissals or at least by not renewing fixed contracts of employees. I think the government postponed it for next year as currently it has other priorities. In my opinion, the public sector will not be the same after the end of this program. It will be much smaller, more organized, more efficient, and only this optimization will start to optimize the salaries of the employees in the public sector.

- The second reason for the large deficit of Greece is tax evasion. In your opinion is there a cure for this disease, dominant in the Greek society?

- Surely there is a cure. There is no need to find new ways to cope with tax evasion. We can learn from Western countries, from what they have done to reduce it. Tax evasion indicates the ineffectiveness of the Greek state. It exists because the Greek state has not done its job well. What's your impression - that there would not be tax evasion in America or Sweden or Germany if the state has failed to implement laws? Taxes are being hidden everywhere. The state has one obligation - to apply the laws it has created. And to apply these laws procedures and monitoring are necessary. And the Greek state has failed there, ie there were no procedures for law implementation or monitoring. If you catch 10 people who evade taxes and send them to jail, I'm sure the others will think twice and three times before absconding taxes. There was a period, a much longer period, say 50 years after the war, when the state was turning a blind eye to tax evasion. And it was very tactful to infringers – no penalty, no nothing for them. I think tax evasion in Greece will cease if the state, by using the procedures of the new legislation, catches those who evade taxes and punishes them for example, as in other Western countries. Of course, there is some tax evasion everywhere, even in America, even in Germany. Informal economy is part of the economies based on market mechanism, because while the country imposes restrictions the market finds ways to avoid the government constraints. And this leads to tax evasion and corruption. The big problem in Greece is not tax evasion, Greece's biggest problem is government spending. There is no way to close the “scissors” of deficit without reducing public expenditure. The state tries to reduce tax evasion by law enforcement and it is good. And where tax evasion is crossed, of course, the rates should be reduced in order to create incentives in people to declare their income. However, the funds raised from tax evasion won’t be sufficient. This has huge side effects on the economy, because the cut of tax evasion is increasing tax revenues, but since it takes revenue from the private economy the demand falls resulting in a recession. The best, most effective method is to reduce government spending. The state spends a lot of money, spend it aimlessly and inefficiently. Therefore, the government should reduce its spending, and not only reduce it but make it more efficient.

- Yes, but how can this happen?