Greek debt problems are again coming back onto the radar. Like a far-off iceberg which was already narrowly avoided many months ago, the ship has sailed around and it is beginning to register as a far-off though insistent blip on the screen.
A sad and incredible story is emerging in a spate of recent articles of the continuing destruction of the Greek economy, as the Government’s pursuit of fiscal balance seems to bring about problematic consequences. A few months ago, new tax increases were passed through Parliament which have had the effect of taxing small businesses at very high marginal rates. Many small business owners and self-employed persons complain that they are only able to take home about 30% of their earnings net after tax. Ironically, the easiest way to get around this problem is to officially wind up the business and continue off the books on the black (some call it grey) market. This is risky, of course, but many say that they simply cannot make ends meet on the 30%, and that the government is effectively forcing them off the books. To make matters even worse, business that obey the law face so much competition from black-market businesses that they are often driven out of business, because the black-market firms can quote half-price and still turn a healthy profit.
This is what happens when the European Union demands that huge budget deficits are reduced at any cost – the IMF, interestingly, takes a more relaxed approach. Regardless, the Greek economy is still contracting, albeit at a reduced pace, and very few Greeks are finding that their economic circumstances are getting any easier. The Greek black market is estimated at approximately 25% of GDP, and rising.
Total Greek government debt has continued to rise over recent years, and now stands at about 183% of yearly GDP. The ECB is the major buyer of Greek and Italian Government debt and the specter of a major default by either or both countries over the summer is in view on the horizon.
