The scene takes place in Hydra, an island in the Saronic Gulf, two hours by boat from Pireas, frequented by Greek high society, including Prime Minister George Papandreou. On an August night, at the end of a dinner in a well known tavern, the owner brings out the bill for her ten guests: 150 euros. The bill is handwritten, that is to say not registered. There is no question of paying by credit card, there is no terminal. So it has to be cash. You don’t have to be a rocket scientist to deduce that the tavern is run mainly as a cash business to evade paying taxes.

The tavern is not an exception, far from it. On the island, it is common knowledge that the restaurants and cafés defraud the taxman, as do the undeclared rooms to rent that double Hydra’s hotel capacity. A typical example is a well-established guest house offereing seven rooms at a minimum rate of 50 euros per night, to be paid in cash with no bill supplied. Taking into account a season that lasts four months, the owner can expect to earn €42,000 (less costs), which is tax free. The same applies to cafes and other businesses. On Hydra alone, millions of euros of revenue are slipping through the tax net, while businesses that actually pay taxes, like the official hotels, have the uncomfortable impression of being fleeced — even more so, now that the rates they pay are increasing.

In spite of all of this, the tax authorities receive relatively few tip-offs (18,500 in 2010 as opposed to 4,500 in 2009). Everyone knows that most of the country’s tax inspectors are corrupt are willing to turn a blind eye in exchange for a fakelaki, a “brown envelope.” That is not to say that there hasn’t been some progress in a number of places, which have broken with a two-centuries-old tradition of massive fraud. For example on the Ionian island of Lefkada, most of the taverns now distribute receipts in accordance with regulations. But above board commerce continues to be an exception rather than the rule: restaurants, taxis, cafes, and all kinds of other businesses are deeply involved in the black economy, whose benefits are plainly visible (luxury cars, new buildings, pleasure boats etc.).

The bottomless tub

According to estimates, it continues to represent 30 to 40% of the Greek economy, and this figure does not take into account the Church and arms businesses that are legally exempt from taxes…

Two years after the onset of the crisis, Greece still appears to be unaware of the seriousness of the problems it faces and the efforts that it will have to make to avoid bankruptcy: a public debt equivalent to 160% of GDP at 360 billion euros, a 2011 deficit that will exceed the desired level of 7.5% of GDP, which, at 14.69 billion euros on 1st July, had already absorbed the bulk of an annual target of 16.68 billion euros…

Reforms have been voted, but the new rules are hardly ever applied. The troika mission formed by representatives of the Commission, the European Central Bank and the International Monetary Fund, which recently arrived in Athens to evaluate progress in the run-up to the handover of the next tranche of aid, will have to accept that Greece is a modern version of the bottomless tub that the daughters of Danaus were forced to fill: demands for further budgetary cuts will serve no purpose in a state that remains dysfunctional. As one official in Paris put it, “We believed that Greece was a normal country, but we were wrong. Its problems will not be solved in one or two years. It will need assistance to build a state that works, and that will take time. This also implies that we will have to continue to protect it from the markets until then.”

Inability to combat tax fraud

On 31 August, the country’s new budget watchdog, which is staffed by independent analysts, said that the country’s debt was “out of control.” There is no doubt that the economic recession has played a major role in this uncontrolled economic slippage — minus 4.5% GDP in 2005 as opposed to an expected minus 3.5%, and minus 10% over the last three years. But several European countries have experienced even more severe recessions (minus 10.5% in Latvia in 2010) and still avoided the situation in which Greece now finds itself.

As the budget watchdog has pointed out, Athens is now paying for its lack of a proper state: “It is clear that the country not only has a problem with the volume of its public debt, but also with its inability to consolidate its ongoing budgetary management. Notwithstanding the huge effort in the field of budgetary adjustment, there has been no primary budget surplus, on the contrary, the primary budget deficit has continued to grow.”

The watchdog notably blames the state’s inability to combat tax fraud. However, instead of tackling the problems of incompetence and corruption in his department, Greek Minister of Finance Evangelos Venizelos was content to publish a statement, which in line with the local tradition of denial, described the conclusions of watchdog’s report as marred by “a lack of experience.” In this context, it is not surprising that several countries, including Finland, Germany, Austria, the Netherlands and Slovakia, had to have their arms twisted to hand over the aid agreed in the new bailout package on 21 July. It now seems that Greece is a special case: unlike, for example, Ireland, which has also received financial assistance but is now on its way to rapid recovery. The question now is: will Athens be able to avoid bankruptcy?

Translated from the French by Mark McGovern