Oddly enough, the financiers in Greece remain more or less beyond reproach. They never ceased to be anything but sleepy old commercial bankers. Virtually alone among Europe’s bankers, they did not buy U.S. subprime-backed bonds, or leverage themselves to the hilt, or pay themselves huge sums of money. The biggest problem the banks had was that they had lent roughly 30 billion euros to the Greek government—where it was stolen or squandered. In Greece the banks didn’t sink the country. The country sank the banks.
THE MORNING AFTER I landed I walked over to see the Greek minister of finance, George Papaconstantinou, whose job it is to sort out this fantastic mess. Athens somehow manages to be bright white and grubby at the same time. The most beautiful freshly painted neoclassical homes are defaced with new graffiti. Ancient ruins are everywhere, of course, but seem to have little to do with anything else. It’s Los Angeles with a past.
At the dark and narrow entrance to the Ministry of Finance a small crowd of security guards screen you as you enter—then don’t bother to check and see why you set off the metal detector. In the minister’s antechamber six women, all on their feet, arrange his schedule. They seem frantic and harried and overworked . . . and yet he still runs late. The place generally seems as if even its better days weren’t so great. The furniture is worn, the floor linoleum. The most striking thing about it is how many people it employs. Minister Papaconstantinou (“It’s okay to just call me George”) attended NYU and the London School of Economics in the 1980s, then spent ten years working in Paris for the OECD (Organisation for Economic Co-operation and Development). He’s open, friendly, fresh-faced, and clean-shaven, and like many people at the top of the new Greek government, he comes across less as Greek than as Anglo—indeed, almost American.
When Papaconstantinou arrived here, in October 2009, the Greek government had estimated its 2009 budget deficit at 3.7 percent. Two weeks later that number was revised upward, to 12.5 percent, and actually turned out to be nearly 14 percent. He was the man whose job it had been to figure out and explain to the world why. “The second day on the job I had to call a meeting to look at the budget,” he says. “I gathered everyone from the general accounting office, and we started, like, this discovery process.” Each day they discovered some incredible omission. A pension debt of a billion dollars every year somehow remained off the government’s books, where everyone pretended it did not exist, even though the government paid it; the hole in the pension plan for the self-employed was not the 300 million euros they had assumed but 1.1 billion euros; and so on. “At the end of each day I would say, ‘Okay, guys, is this all?’ And they would say, ‘Yeah.’ The next morning there would be this little hand rising in the back of the room: ‘Actually, Minister, there’s this other one-hundred-to-two-hundred-million-euro gap.’”
This went on for a week. Among other things turned up were a great number of off-the-books phony job-creation programs. “The Ministry of Agriculture had created an off-the-books unit employing 270 people to digitize the photographs of Greek public lands,” the finance minister tells me. “The trouble was that none of the 270 people had any experience with digital photography. The actual professions of these people were, like, hairdressers.”
By the final day of discovery, after the last little hand had gone up in the back of the room, a projected deficit of roughly 7 billion euros was actually more than 30 billion. The natural question—How is this possible?—is easily answered: until that moment, no one had bothered to count it all up. “We had no Congressional Budget Office,” explains the finance minister. “There was no independent statistical service.” The party in power simply gins up whatever numbers it likes, for its own purposes.
Once the finance minister had the number, he went off to his regularly scheduled monthly meetings with ministers of finance from all the European countries. As the new guy, he was given the floor. “When I told them the number, there were gasps,” he said. “How could this happen? I was like, You guys should have picked up that the number wasn’t right. But the problem was I sat behind a sign that said GREECE, not a sign that said THE NEW GREEK GOVERNMENT.”After the meeting the Dutch guy came up to him and said, “George, we know it’s not your fault, but shouldn’t someone go to jail?”
As he finishes his story the finance minister stresses that this isn’t a simple matter of the government lying about its expenditures. “This wasn’t all due to misreporting,” he says. “In 2009, tax collection disintegrated, because it was an election year.”
“What?”
He smiles.
“The first thing a government does in an election year is to pull the tax collectors off the streets.”
“You’re kidding.”
Now he’s laughing at me. I’m clearly naïve.
THE COSTS OF running the Greek government are only half the failed equation: there’s also the matter of government revenues. The editor of one of Greece’s big newspapers had mentioned to me in passing that his reporters had cultivated sources inside the country’s revenue service. They’d done this not so much to expose tax fraud—which was so common in Greece that it wasn’t worth writing about—but to find drug lords, human smugglers, and other, darker sorts. A handful of the tax collectors, however, were outraged by the systematic corruption of their business; it further emerged that two of them were willing to meet with me. The problem was that, for reasons neither wished to discuss, they couldn’t stand the sight of each other. This, I’d be told many times by other Greeks, was very Greek.
The evening after I met with the minister of finance, I had coffee with one tax collector at one hotel, then walked down the street and had a beer with another tax collector at another hotel. Both had already suffered demotions, after their attempts to blow the whistle on colleagues who had accepted big bribes to sign off on fraudulent tax returns. Both had been removed from high-status fieldwork to low-status work in the back office, where they could no longer witness tax crimes. Each was a tiny bit uncomfortable; neither wanted anyone to know he had talked to me, as they feared losing their jobs in the tax agency. And so let’s call them Tax Collector No. 1 and Tax Collector No. 2.
Tax Collector No. 1—early sixties, business suit, tightly wound but not obviously nervous—arrived with a notebook filled with ideas for fixing the Greek tax-collection agency. He just took it for granted that I knew that the only Greeks who paid their taxes were the ones who could not avoid doing so—the salaried employees of corporations, who had their taxes withheld from their paychecks. The vast economy of self-employed workers—everyone from doctors to the guys who ran the kiosks that sold the International Herald Tribune—cheated (one big reason why Greece has the highest percentage of self-employed workers of any European country). “It’s become a cultural trait,” he said. “The Greek people never learned to pay their taxes. And they never did because no one is punished. No one has ever been punished. It’s a cavalier offense—like a gentleman not opening a door for a lady.”
The scale of Greek tax cheating was at least as incredible as its scope: an estimated two-thirds of Greek doctors reported incomes under 12,000 euros a year—which meant, because incomes below that amount weren’t taxable, that even plastic surgeons making millions a year paid no tax at all. The problem wasn’t the law—there was a law on the books that made it a jailable offense to cheat the government out of more than 150,000 euros—but its enforcement. “If the law was enforced,” the tax collector said, “every doctor in Greece would be in jail.” I laughed, and he gave me a stare. “I am completely serious.” One reason no one is ever prosecuted—apart from the fact that prosecution would seem arbitrary, as everyone is doing it—is that the Greek courts take up to fifteen years to resolve tax cases. “The one who does not want to pay, and who gets caught, just goes to court,” he says. Somewhere between 30 and 40 percent of the activity in the Greek economy that might be subject to income tax goes officially unrecorded, he says, compared with an average of about 18 percent in the rest of Europe.