Written in collaboration with Dr. Winfred van de Put
A sunny night in Glyfada, the beautiful people of Athens entrust their elegant cars to valet service, to enjoy a cocktail, good company and the sunset at the beach. The crisis, which prompted some of our friends back home to anxiously enquire about the possible need of sending money or packages, is nowhere to be seen. Yet, this enjoyment of a beautiful evening illustrates the deepest cause of exactly this crisis. Not corruption or tax evasion – both also highly problematic, of course – but inequality within Greece and within Europe is the root cause of the present crisis.
In Europe we are proud that our countries belong to the most equal in the world. We feel we are doing a much better job at this than the United States. A closer look, however, reveals that the inequality of income is just as high as in the US but takes on a different form. The Gini-rate (a much used indicator of inequality) of the European Union as a whole is comparable to the US, but the spending power of the poorest member state of Europe (Bulgaria) is one-third the spending power of the richest (and if everything would be equally expensive, one-tenth). In the US, the spending power in the poorest state is half of that in the richest.
As long as the EU was a cooperation of separate, sovereign states, this disparity was unproblematic. With the establishment of the Euro-zone and the ever increasing importance of European policy for constituent states, however, it did become a problem.
To reach a just solution for the Greeks, it is important to realise why Greece joined the union in the first place (in 1981) and why the Euro-zone was established. Germany and other North-west European countries had production and liquidity surpluses. This may seem a luxury problem, but too much money in the banks limits the economic growth of a country. Both problems were solved by allowing countries with production and liquidity deficits into the European Union and lend them the money to buy North-west European products. Greece was a new market and at the same time the borrower of surplus money, so that Germany’s economy could grow again by way of Greece. Long before becoming minister of Economics, Yanis Varoufakis analysed this fundamental problem and in 2010 gave an indication of the direction a solution could be found, which came to the fore, to no avail, at the negotiation tables.
Of equal importance is the inequality in Greece itself. After the institution of the Euro-zone, prices rose to Western-European heights, while the minimum wage did not rise with it and even spectacularly dropped in the course of the crisis. Whereas Greece had a large middle class in the nineties, the difference between rich and poor has grown steadily since the accession to the Euro-zone. In 2009 27.6% of the Greeks risked poverty and social exclusion (source Eurostat; for the Netherlands, the figure was 1.4%); this had risen to 36% in 2014 (The Netherlands in 2013, 2.5%).
In Greece, as in most European countries, the burden of the crisis is carried by the middle- and lower classes. Rich Greeks pay comparatively low taxes, there is hardly any capital tax, and several lucrative types of income (from shipping business, trade in Greek stocks and at the Greek stock exchange for instance) are exempt from taxation. The consequences of the neo-liberal austerity measures of the European Commission and the IMF are that tens of thousands of jobs were lost, middle- and small businesses were heavily hit by the slump in spending power, and the haphazard and severe tax measures impoverished mainly those in the middle and lower income bracket, resulting in a tragic humanitarian crisis.
In the meanwhile, the rich Greeks cheerfully continue to drink their cocktails. A study of the Greek professor of economics and former minister Tassos Giannitsis pointed out that the tax burden for the poorest Greeks had risen 337% during the crisis, while the rich only saw an increase of 9%. At the same time, European countries like the Netherlands and Germany facilitated capital flight and tax evasion, for instance through catering for “letter-box companies”.
The European Commission and the IMF are not well known for their love of Piketty. However, if the Troika really wants to help Greece, they should follow a course that allows and enables Greece to share the burden of the crisis more fairly and move toward a greater equality. They should introduce a capital tax on a European level, prevent and even reverse capital flight and cut off the routes to tax evasion. This would give Greece a realistic perspective on solving its debts. More importantly, the European project can only survive if European policy is aimed at social justice within Europe.
Image Source: wordlypost.in