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Greeks adjust to PM's elimination of untaxed 'shadow' economy

When people come into the tiny store on the corner of the main street in this working-class town near Athens to buy a newspaper or a package of cigarettes, these days they're greeted with an unfamiliar ritual. Shopkeeper Constantina Drikaki, 65, pushes a button on the cash register and hands them a receipt.

They don't want the slip of paper, and she'd rather not be giving it. But recently a squad of government tax inspectors burst into her store and handed her a €200 fine for failing to document a transaction.

"It was just for a guy buying an ice cream. One single ice cream! Now you have to have papers for everything - it's going to drive me out of business," she says. It means, in effect, that she will be paying tax on all her sales for the first time.

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This is the new reality of the Greek economy, post-crash. The tax-inspector squads and mandatory receipts for corner stores, taxicabs and other traditionally cash-only businesses are among the new austerity measures introduced by Prime Minister George Papandreou in an effort to rescue his country from Europe's fiscal crisis - in part by reducing the size of the untaxed "shadow" economy, estimated to account for 25 per cent of Greece's GDP.

For some Greeks, including those who have fled abroad in recent years, the reforms are a welcome cleansing, a chance for a new Greece to rise from the ashes of the old, corrupt system.

For the 23,000 people who live in Moschato, the collapse of that system had a dramatic effect. Once-secure government jobs became tenuous, loans went into default, people were thrown out of work, homes were lost.

But the recovery has proven to be even more perilous, as people learn to live without a guaranteed government job and are instead confronted with the new reality of higher taxes, a life based on saving rather than cheap and endlessly extended credit, and the requirement to declare all forms of income.

As Mr. Papandreou implements harsh austerity programs in exchange for €110-billion in bailout loans overseen by the International Monetary Fund and the European Union, he is slashing a government payroll that includes hundreds of thousands of people who have essentially been given meaningless work in exchange for votes. He is raising taxes for people and businesses and eliminating vast tax shelters for wealth. And he is increasing the retirement age from 50 (in some fields) to a universal 65 while cutting benefit payments.

This week, Greece completed a special census to determine how many people are on the public-sector payroll - a number that has never been known, making cuts or assessments of their value difficult. Analysts are optimistic that Mr. Papandreou's reforms, now that they have been passed by parliament, are genuine and beneficial.

In Moschato, those reforms make life tough. Most people here are blue-collar government workers, often dependent on the largesse of the party in power. They have lost their job security, and sometimes their job, and they have had to declare and pay tax on hidden savings. The sales tax has risen to 23 per cent, which is even worse than it sounds because many merchants are being forced to pay it for the first time. Income tax is now payable on all earnings.

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Wealthier neighbourhoods are hit hard, too. Scores of senior civil servants were recently forced to disclose tens of millions of euros worth of property each had received through their jobs and pay tax on it for the first time. In Moschato, the amounts may be smaller, but the impact of Mr. Papandreou's reforms is no less real.

"I think it's cost me 40 per cent of my business - people can't just take cash and bring it over here or shift their money between eight or 10 credit cards, so they're cutting their hair at home," says hairdresser Anastasia Politis, 50.

Luckily, she's off the main street, so has avoided the tax patrols - given that hers is also a cash-only business. She's considering moving to Toronto, to join other relatives. "Greeks work very hard there, and they think people back home are lazy. Well, now that everyone's lost their easy money here, I might just go to Toronto."

Debt keeps piling up. Grocer Irene Vassiliades, 49, pulls out her credit ledger every time a customer enters, so frequently are people putting their groceries on the tab because their debts are overwhelming. "Nobody is buying any more than the absolute necessities this summer," she says. "They're coming into the shop a lot more often - they used to live month to month; now they live day to day."

Electrician Christos Papanikolaou, 52, pulls out his own nightmare ledger, topped with a letter from the government stating that it wants him to pay three years worth of health-insurance contributions he had ignored because nobody had bothered asking for them. The total: almost €10,000. "My company is losing money, but now that I owe all this, I can't even afford to go out of business and retire," he says.

Outside the closed circuit of Greece's state-dominated economy, however, there is a quiet mood of optimism in many corners. The reforms seem to be creating a genuine economy, some say, where before there had been only an illusion.

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"In a funny way, I am quite optimistic about what is happening right now in Greece - it's almost like a cleansing exercise, where the government has found the will that it lacked for so many years," says Marcos Varemis, whose online-marketing company, Upstream, employs 136 people. "I think this sobering-up effect is going to be very beneficial for the country."

Mr. Varemis is part of a growing class of Greek entrepreneurs and employees - many of whom, like him, have returned after spending years abroad - who feel it was hard to do business when you were competing with a government sector with unlimited largesse.

"The impact that this had on employees was that each and every one of them had a cousin or a brother who was having a really easy time." Mr. Varemis says. "They were probably making as much or more, they were working a lot less, so employees would ask if they were doing the right thing being in a company where you worked 10-hour days and your pay was based on performance.

"In the last few months, people appreciate a lot more what is going on here," he says. "Because [this company]has withstood this crisis, while everyone else is facing firings and layoffs. In their minds, justice has prevailed in a way."

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