Brookings: Greece Like Hotel California, Can Check Out But Never Leave

In this Thursday, Aug. 16, 2018 photo, a woman walks in an arcade with shutter shops, because of the financial crisis, in central Athens. For all the official pronouncements that Greece's eight-year crisis will end together with its third, and last, bailout program on Monday, few Greeks see cause for celebration _ although, undeniably, the economy is once again stirring. (AP Photo/Petros Giannakouris)

Prime Minister and Radical Left SYRIZA leader Alexis Tsipras’ boasts he’s bringing Greece to recovery with the end of more than eight brutal years of three international bailouts of 326 billion euros
($376.88 billion) are too rosy, the Washington, D.C.-based think tank the Brookings Institution said in a look at the legacy of austerity and what’s yet to come.

It was written by Theodore Pelagidis, an economics professor at the University of Piraeus and senior fellow at the institution and who served as an external expert in the internal evaluation office at the International Monetary Fund.

Coining a phrase from the popular music hit Hotel California by The Eagles, he said Greece is still in a vulnerable position and reliant on the Eurozone, weighed down because of a tax avalanche imposed by Tsipras on orders of the Troika of the European Union-European Central Bank-European Stability Mechanism (EU-ECB-ESM) that in the summer of 2015 put up a third rescue package, for 86 billion euros ($99.48 billion) he said he would never seek nor accept but did both.

Also remaining, despite the bailouts, is the country’s notorious reputation for a labyrinthine and inefficient bureaucracy, the black market economy, corruption and tax evasion, a backlogged court system and obstacles to foreign investors Tsipras said he wants but which some hard core elements in his party don’t.

Pelagidis said social security taxes – which many companies duck – makes it too costly for them to do business and that despite the big tax hikes, including driving the corporate rate to 29 percent, expected revenues are off with the unfair assessments driving more to be tax cheats.

“It follows that the government, to achieve the promised 3.5 percent primary surplus of GDP, will choose to double down on taxes. Indeed, the SYRIZA government seems to do that with some enthusiasm, as overtaxation and a primary over-surplus above 3.5 percent aligns with the leftist ideology of extended income redistribution,” he said.

“The much vaunted debt burden is not the biggest obstacle to recovery—the worst culprit is overtaxation and sky-high, non-rewarding SSCs (social security contributions.) Together, they cancel any possible increase in disposable income, erode the taxable productive base of the economy, reduce hiring, and push wages down,” he added.

The high taxes and SSCs also destroy the incentives for work and new investments, major reasons why some 500,000 young people fled to other countries looking for work and a better life, he added.

The tax system in effect can wipe out a professional’s entire income he said, giving the example of someone making 100 euros ($115.68) and paying 45 euros ($52.05) income tax, 28 euros ($32.39) toward SSCs, 10 euros in solidarity tax ($11.57,) and a “tax-payment in advance” for the next year that evaporates the remaining 17 euros, ($19.67), leaving them nothing. “And we expect this country to recover by attracting foreign investments?” he asked.

With the bailouts gone and the creditors going to scrutinize the economy for years – with the loans not paid off until 2060, he said that Greece is indeed like the Hotel California depending on staying with the euro.

“The Eurozone is ‘…such a lovely place.’ But maybe this is only because there is no other place to go,” he said.