More and more Greeks are deciding that leaving their money in a Greek bank is not worth the risk. The Economist reported that households and private firms withdrew €24.6 billion from Greek banks between December and February. The capital controls and bank balance “haircuts” in Cyprus in 2013 set a precedent that some fear could be repeated in Greece if a deal is not reached soon with the country’s creditors.
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RTS recently reported, the Greek minister George Katrougalos saying, that Greek assets in Switzerland could exceed the €1.5 billion figure put forward by the Tages-Anzeiger. While some of this large sum is likely to be undeclared money hiding from the Greek taxman, a growing portion of it could belong to honest Greek taxpayers escaping the risks of Greek banks.
Money is tight in Greece and it is not clear how the Greek government can meet impeding government expenditure and loan repayments without the rest of the world giving it more money. The government announced a tax amnesty at the end of March and raised €50 million in 24 hours according to The Economist. This however is only a stopgap, unlikely to generate enough cash to cover the International Monetary Fund (IMF) loan payment of €450 million due on 9 April 2015.
The financial problems in Greece run deep. The recent tax amnesty reinforces the idea held by some that poor tax collection is at the heart of Greece’s problems, however it probably plays only a small part. Simon Baptist, Chief Economist at the Economist Intelligence Unit, explained in an email last week that Greeks pay a lot of tax. In 2013 actual Greek government revenue (mainly tax) was 47% of GDP. In Germany it was 44%.
So what is at the heart of Greece’s problems? Essentially, the economy doesn’t generate enough GDP to support the country’s spending. Add to this interest and debt repayments for money it couldn’t afford to borrow and the picture gets worse.
With 47% of Greek GDP already consumed by the state, plugging the financial hole with tax hikes would make little sense. Structural changes to stimulate GDP growth and cuts to government expenditure seem to be the only way out. This however is difficult because such changes require taking things away from voters. Things like, jobs for life, rules that protect industry groups and pensions for people still able to work. And this is not what most Greeks voted for early this year.
Greece is not the only country requiring this medicine. Much of Europe is in the same boat. For Greece though, the clock is ticking and as it ticks, cash, the lifeblood of its banks and its financial system, is draining away, some of it to Switzerland.
