TYR February 13 2013 reads: Greece imploding

While financial markets continue their upward march, sustained and pushed by unprecedented money creation by most of the western world’s central banks, under the surface, Greece’s economy continues in free fall.

Professionals increasingly failing to pay their tax dues @ Ekathimerini “More and more professionals are withholding value-added tax from the authorities in a bid to maintain cash flows.”…”Financial Crimes Squad (SDOE) inspections last months led to fines imposed for the nonpayment of VAT and the tax on salaried service growing by 51 percent within a period of just one year: In January 2013 the fines amounted to 35.3 million euros, compared to 23.3 million in January 2012.”…”The question now is how these fines will be collected, as experience to date shows that despite the imposition of fines, debtors often fail to turn up to settle their accounts, at the expense of public coffers.”

Construction activity is crumbling @ Ekathimerini “Construction activity in Greece is in free fall, according to data released yon Tuesday by the Hellenic Statistical Authority (ELSTAT). In November 2012, total activity dropped 66.6 percent year-on-year in terms of building permits, 63.3 percent in terms of surface area and 65.4 percent in terms of volume.”

PPC losing millions due to power theft @ Ekathimerini “The phenomenon of electricity theft has grown out of control due to the economic crisis and the inability of many to pay their bills.”…”power theft… has now spread across the country and into expensive areas too, including the northern suburbs of Athens.”
Greece and the troika, dancing in the dark @ Ekathimerini In this article, Nick Malkoutzis argues for a relaxation of the targets imposed by the “troika” on the greek government. He bases his case on an IMF paper concluding that the effects of spending cuts on GDP have been deeper (a higher multiplier) than previously forecast. After two bailouts, it is difficult to assume there will be enough goodwill, or money, left in Germany, the country that in the end is paying most of the bills, for a third one. Some excerpts:
 

“As wages shrink and jobs disappear, nobody is looking forward to the prospect of paying more into public coffers.”

“…the IMF assumed the fiscal multiplier of spending cuts and tax hikes was around 0.5 percent of gross domestic product – in other words, austerity measures equivalent to 1 percent of GDP would produce a 0.5 percent decline in economic activity. The two economists, however, discovered that the real fiscal multiplier was between 0.9 and 1.7 percent of GDP.”

“In Greece’s case, if the accuracy of forecasts is in doubt, surely so must the attainability of targets. Given that this year’s fiscal targets were agreed before the full extent of Blanchard’s research was known, isn’t there a case for revising the goals? In the wake of the admission over the fiscal multiplier, what is the troika’s reasoning behind still favoring a “strong and hard” approach that will see Greece implement some 9 billion euros’ worth of measures (approximately 5 percent of GDP) this year?”

“…The property tax that Stournaras defended this week seeks to raise 3.2 billion euros, six times what Greeks paid in 2009. Greece’s property market is in a state of gradual collapse, construction is on its last legs and consumption is plummeting. Under normal conditions, Stournaras would have rejected out of hand the idea of imposing this level of taxation. But Greece does not find itself in normal circumstances. The tax is not being imposed as part of a recovery plan, it is designed as a tool to help Greece meet the targets agreed with the troika.”

“Speaking in Washington last month, Blanchard outlined that one way of providing relief for countries under a fiscal adjustment program could be to focus on cyclically adjusted data, which factors in the impact of recessions, rather than the nominal fiscal statistics. “We have recommended that countries shift from nominal targets to structural targets,” he said. “Or another way of saying we have suggested that the countries allow automatic stabilizers to work, accepting the fact that fiscal outcome will not be quite what was hoped for.””

“However, as Blanchard acknowledged, it all comes back to the issue of how generous or patient lenders are prepared to be. “The slower you go, the more financing is needed, and there’s not infinite financing,” he said.”

“As Greece attempts to get the program and its economy back on track this year, the warning signs are there that things could go disastrously wrong if all sides persist with the formula that’s been in place since 2010. It was reported this week that state revenues for January were 7 percent below the target and 16 percent lower than last year, as consumption continued to plummet.”

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