The sight of a helicopter can cause panic in the plush suburbs of northern Athens. Residents know it could be a spy machine, hired by the government to take images of their backyard swimming pools.
Tax collectors make doctors and lawyers squirm by asking how someone who claims to be earning only $20,000 a year can afford such luxuries. Of the 17,000 pools spotted, only 324 had been declared.
No wonder Greece's economy has taken a swan dive. It's generally agreed that 3 to 4 per cent of Greece's GDP is lost to tax evasion, says Yannis Stournaras, director-general of the independent Foundation for Economic & Industrial Research in Athens – roughly $11-billion a year. If those taxes came in, almost half the country's deficit would vanish.
Yet that's a small economic problem compared to the armies of Greek public employees being subsidized by a much smaller private-sector base.
Overall Greece has the least efficient economy in Europe, with its layers of bureaucracy, inflexible unions, protectionism and corruption from top to bottom. “We are a Soviet-style economy,” says Mr. Stournaras.
It's only now, a year after a $155-billion bailout from the European Union and the International Monetary Fund rescued Greece from collapse, that Athens is finally accepting that raising revenue and cutting spending is its only route to survival. Yet Greek citizens are resisting austerity measures, blaming them for rising unemployment.
Last Sunday saw 100,000 people protesting, the biggest demonstration since Greece became the first of the euro zone's three bailout cases. While it's generally agreed the government is inept, protesters – often members of unions and the civil service – seem unwilling to ask if they too are part of the problem.
“Greece has been in denial forever,” says Jason Manolopoulos, a managing partner of Swiss hedge fund Dromeus Capital and the author of a book called Greece's Odious Debt. “There was no grasp of economic reality.”
The tale of the fake lake
The stories of waste in Greece are astounding to the point of comedy. Mr. Manolopoulos writes about Lake Kopais, northwest of Athens. A government agency was set up in the 1950s to drain the lake to make way for a road. The project was finished in 1957. The lake no longer exists, but the agency does. It has 30 employees including a driver, and routinely advertises for new workers.
“No one knows what they do,” the head of the government audit office said last year.
But to trace the more fundamental problem, Michael Mitsopoulos, a Greek economist who is the co-author of the book Understanding the Greece Crisis, presents a few simple figures: Out of Greece's 4.3 million workers, about one million are in the public sector, two million work for private companies and 1.3 million are self-employed. The latter typically pay little tax, so the two million private-sector workers have to carry the entire country, including vast numbers of pensioners. What's more, Mr. Mitsopoulos estimates that only about 300,000 of those private-sector employees have both the income and the integrity to pay “substantial” amounts of tax.
Thus, the Greek economy is an inverted pyramid. “You have few people paying on one side and a lot of people taking on the other side,” he says. “This is unsustainable. There has to be a master plan to transfer public-sector jobs to the private sector.”
The EU, the IMF and the European Central Bank – the “troika” that keeps Greece afloat – are insisting on economic reforms as a condition of their support. A second bailout, worth perhaps $85-billion, is being negotiated to prevent Greece from defaulting on its bond payments, an event that could trigger financial chaos across the continent.
