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Abu Dhabi, UAEThursday 20 September 2018

Green shoots of recovery but little relief for Greeks

For many in Greece there has been no recovery, particularly among the once healthy middle class

Giorgos Kyriazis in his shop in Athens. Courtsey: Marcos Andronicou
Giorgos Kyriazis in his shop in Athens. Courtsey: Marcos Andronicou

In Athens and across the eurozone, there is a cautious sense of optimism over an economic disaster that very nearly broke not just a nation but the European Union.

Nine years after Greece was first plunged into crisis, the country is anticipating a record tourist season this year, giving hope that recovery is finally on the way.

News that Aegean Airlines last week signed a $5 billion deal with Airbus for 42 new aircraft marked only the third fleet expansion by the nation’s largest carrier in almost two decades. Nationwide unemployment is dropping, from 27.9 per cent at the peak of the crisis in 2013 to 20.9 per cent today – although that is still more than twice the EU average.

Athens also appears to be limping away from EU bailout dependency.

Last month, its treasury received a further €5.7bn of a €6.7bn loan from eurozone funds, which the radical-left Syriza government claims sets the stage for Greece to officially leave the bailout programme in August. Also last month, Sir Suma Chakrabati, president of the European Bank of Restructuring and Development, added his voice to a chorus of support for a Greek exit from the programme.

Yet for many in Greece there has been no recovery, particularly among the once-healthy middle class. An old Greek maxim that small business is the cornerstone of the economy has been tested to the hilt. In a country still blighted by corruption and a bloated public sector, the small private businesses have not been given the opportunity to rebuild.

Dr Yianni Malliaris, 42, sits in a well-aired Athens office, the shutters open and the faint soundtrack of the street three floors down drifting in.

The clinical psychiatrist left a post at King’s College in London at the height of the crisis to return to Greece.

He wanted to set up a small psychiatric practice and start a family.

He has no doubts about how important small businesses like his are to the wider economy.

“It’s the least corrupt part, it’s the least burdensome part of the Greek economy and it’s the most hardworking part of the Greek economy.

“To survive as a small-business owner in Greece, or a freelancer in Greece, you have to work twice as hard as people in the UK. Many people do two or three jobs at the same time. All they get is taxes and a bad reputation and nothing else,” he says.

Between 2009 and 2013, an estimated 392,000 small and medium-sized enterprises closed down.

And their troubles have continued, despite Greece’s alleged recovery.

It is the small business owners the cash-stripped government has gone after the hardest, levying tax after tax to raise cash for the public purse.

As Nick Malkoutzis, editor of the Macropolis economic blog, says: “The middle class has taken much of the burden during the crisis, and has been deeply affected by tax increases, wage cuts and unemployment, and the process of reversing this is a very important part of the Greek recovery.”

New taxes hit the middle class especially hard. Reforms to national insurance have turned it into a means-tested system with no ceiling, effectively rendering it a secondary income tax, and businesses have to pay their income tax up front every second year, leaving cash flows heavily depleted.

Dr Malliaris estimates he spends 40 per cent of his time organising his tax affairs. “If you don’t do that, you’ll go out of business.

“Direct and indirect taxes amount to about 80 per cent ... but that’s not based on real income, it’s based on income you don’t have, which is even worse.”

Often, small business throughout Greece will offer two different prices for their services – one with a receipt, the other without.

A transaction without a receipt cannot be taxed.

“They don’t do it to profit, they do it to survive. You can’t survive with 80 per cent tax,” says Dr Malliaris.

Small business owners like Dr Malliaris and other freelancers have been the collateral damage in an increasingly heavy tax regime on Greece’s middle class. “In the UK, I was always focused on my work and doing well for my patients. Here, I turn into some kind of crazy business person trying to survive. I have to learn economics, logistics, accounting. You have to understand the rationality of the system, which I could really do without.

“I add to that worry time, which we shouldn’t actually have. The worry time is an important aspect; it’s becoming the most harmful thing.”

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Although highly specialised and able to attract clients from around the world, there is little incentive for Dr Malliaris to expand his practice.

He would have to pay almost 50 per cent national insurance on the salaries of any further employees – it would cost him €1,500 to pay someone a monthly salary of €1,000.

Instead, he buys in extra services and makes use of zero-hour contracts to keep his taxable income as low as possible. It’s not just heavy taxation that has stunted recovery.

As the crisis unfolded, hundreds of thousands of educated Greeks left the country and, despite signs of economic growth, there are few indicators these people are returning, says Mr Malkoutzis.

“Greece has also seen a significant brain drain. The children from middle class families, where there has been an investment from these households in educating them and giving them useful skills and knowledge, have been lost to a great degree. We’ve had hundreds of thousands of educated young Greeks leave, and now there is a lack of skills in a number of areas in the economy, because until now the jobs simply weren’t there.

“If they don’t feel that they have a future here, then there is a big gap in terms of the human resources Greece can draw on in order to fuel the recovery,” he says.

The heavy taxation has also had the effect of sucking money out of people’s pockets. Nikos Kyriazis, 46, runs a family clothing chain with his father Giorgos.

Giorgos confidently roams the street outside the shop front, pulling in customers and improvising deals to get potential buyers through the door.

In 2005, they had seven outlets across Athens. Now, they have just two. Giorgos manages one, Nikos the other.

“The taxes have taken all the money out of the market,” says Nikos. Business is less than 50 per cent of what it was when they opened before the crash in 2005, and if there is a recovery going on at the minute, they are seeing nothing off it. “We tasted a slight recovery at the end of 2014. We had some encouraging signs there would be a comeback. But elections in 2015 and all the rounds of austerity have killed that. Now, things are as bad as they have ever been,” says Nikos.

“The majority of Greeks are middle class, low income, they used to buy from my store. Now, they don’t have anything to spend.

“In Greece, we say ‘at least I still have my health’ – that’s more important now than ever”.

Unlike other eurozone countries bailed out at the peak of the crisis, Greece will be offered some form of debt relief by its creditors.

“It’s only natural that with such a concession coming from the European side, they want to be sure that Athens complies with certain commitments and fiscal parameters,” says Mr Malkoutzis. That is to say, even after the bailout programme ends, Greece is still going to have to acquiesce to eurozone demands.

Pension cuts worth another 1 per cent of GDP are yet to come, and the income tax threshold is to be lowered from €8,500 to €5,500, substantially widening the tax base. There will also be challenging demands for economic growth – 3.5 per cent of GDP every year until 2022.

Further rises in income tax and national insurance are not out of the question, either.

“Given the huge hit Greek taxpayers have taken over the last eight years, we are going to need many more years before they start to feel they are back anywhere near where they were before the crisis began,” says Mr Malkoutzis.

There are also fears regarding exactly what happens when Greece finishes the bailout programme and European oversight is reduced.

Dr Malliaris fears a culture of corruption might drag Greece back to the abyss again.

“In many ways, having Europe overseeing what was happening here and fixing problems has been a good thing for Greece,” says Dr Malliaris.

“If we lose that, the ones who have access to the government, the ones who have access to the public money, they will continue doing what they knew best: to serve their own self-interests and not look after the interests of the economy or the Greek state. So I hope for the best, but I don’t think we should be left unregulated”.

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