Greek debt crisis: Why Greece is asking for more money – again

Five years into its austerity regime, the Greek government has once again had to go cap in hand to its creditors and ask for more money. There are a few reasons why they still need more money, despite having borrowed 323 billion Euros as of to date.

To read about the Greek economic turmoil, click here. 

The country’s complex tax system seems to be one of its biggest hindrances. To give just an example of Greece’s notoriously inefficient tax system, there are six different rates of VAT (Value Added Tax, similar to Singapore GST, or Goods and Services Tax).

The normal rate is 23%. Then there are two reduced ones for items such as food, fuel and medicine. But the Greek islands also enjoy reduced VAT rates to encourage people to stay there and to help the islands’ vital tourism industry.

That makes six rates in all, and creates plenty of opportunities for dodging tax. A recent surge in tourism on the island of Mykonos for instance seems to have led to lower payments of VAT to the Greek government.

Greece also has a pension system that is amazingly complex, with numerous exceptions for different jobs allowing for early retirement. The pensions are not very generous on average, but the Greek government is spending a lot of unnecessary money to run it – 30% more than the British government does. The whole system is in desperate need of simplification in order to make it cheaper to run. 

Then there are the privatizations, which should normally add to a government’s coffers so it does not need to borrow money. At the start of the crisis, the Greek government committed itself to bringing in 50 billion Euros from the sale of state assets. In total, the government has managed to raise about two to three billion Euros so far, as they keep delaying and cancelling privatization launches.

Furthermore, there are the cuts that have been reversed, such as the reopening after two years of the state broadcasting company, which started programmes again this year.

The problem therefore is not so much that Greece is incapable of reform or does not know what needs doing. It simply has not made serious attempts to fix the structural problems that beset the economy – and in many cases it’s actually going backwards.

It has wasted five years of its bailout doing nothing. And it is not the kind of record that is likely to make the countries that are lending Greece all that money trust them with some more.

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