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Author: saunafool Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 461029  
Subject: Greece Might Just Be Greece Date: 2/15/2012 3:33 AM
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We keep hearing that Greece is the first in a long line of dominoes to fall in Europe. It is a compelling and frightening prospect--particularly for someone like me who lives in Europe with a business depending on Europe not collapsing. (I don't need Europe to thrive, just survive.)

I was watching the French news last night, and as the crisis has dragged on, EU monitors have found out just how dysfunctional Greece is.

* 98% of new construction--even today 2 years after the crisis began--takes place without a construction permit, without registering the property with authorities. Thus, no property tax.

* Wide swaths of business work in an all-cash economy, paying no VAT.

* High income and connected people simply pay bribes to friends instead of paying their income tax.

The list goes on, but what it implies is something more than a lack of budget balance. It implies a non-functioning state, unable to collect taxes on the books.

And this is what sets Greece apart from everyone else in Europe. Their problems are an order of magnitude greater than any other country. Italy might be a screwed up, corrupt, chaotic wonderland, but they are as efficient as Scandinavians compared to the Greeks. France might have budget problems, but they are professional and effective bureaucrats. Spain, Portugal, and Ireland are suffering from the collapse of the property markets, but at least they are somewhat able to function.

Greece is in a class by itself.

What is the path forward? Unless Greece can form reliable institutions, it doesn't really matter. If they leave the Euro, they will just have hyperinflation until their populace is reduced to a 2nd-world standard of living. At that point, maybe the country goes back to what it was in the 70's--a cheap holiday destination--and things start to recover. The protests and violence on the way down might preclude that outcome, however, because people generally want to be safe when they are on vacation.

If they stay in the Euro, they will eventually have to take their marching orders from Brussels in return for repeated bailouts. The cost of the bailouts will likely result in a government imposed from Brussels with hopefully functioning institutions. In a culture where the dominant mode of operation is to dodge taxation, that will be a long, difficult, and likely unsuccessful endeavor.

My vote would be to create a mechanism for them to drop out of the Euro and let them deal with the resulting chaos themselves.

As for the bankers who will lose hundreds of billions on Greek bonds. Let them eat cake.
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Author: joelxwil Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 385543 of 461029
Subject: Re: Greece Might Just Be Greece Date: 2/15/2012 11:10 AM
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Hard to see why anybody ever loaned them money. Ah... those clever bankers.

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Author: SuisseBear Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 385570 of 461029
Subject: Re: Greece Might Just Be Greece Date: 2/15/2012 2:34 PM
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oh and never mind this

Greece’s economic freedom score is 55.4, making its economy the 119th freest in the 2012 Index. Its score is 4.9 points lower than last year, reflecting declines in six of the 10 economic freedoms with particularly acute problems in labor freedom, monetary freedom, and the control of government spending. Greece is ranked 39th out of 43 countries in the Europe region, and its overall score is below the world and regional averages.

and this:

Greece's ranking on Transparency International's closely watched Corruption Perception Index (CPI) worsened in 2011, with the country taking joint 80th position out of 183 countries on the list, which was published on Thursday. Its ranking puts it on a par with El Salvador, Morocco, Peru and Thailand.

http://www.heritage.org/index/country/greece
http://www.athensnews.gr/portal/1/51068



If they stay in the Euro, they will eventually have to take their marching orders from Brussels in return for repeated bailouts.

Except Europe won't stomach repeated bailouts... agree, better for them to default, exit, and devalue.

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Author: DavidAnglin Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 385571 of 461029
Subject: Re: Greece Might Just Be Greece Date: 2/15/2012 2:39 PM
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Saunafool,

well said...

jan

:^)

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Author: jwiest Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 385574 of 461029
Subject: Re: Greece Might Just Be Greece Date: 2/15/2012 3:19 PM
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If they stay in the Euro, they will eventually have to take their marching orders from Brussels in return for repeated bailouts. The cost of the bailouts will likely result in a government imposed from Brussels with hopefully functioning institutions. In a culture where the dominant mode of operation is to dodge taxation, that will be a long, difficult, and likely unsuccessful endeavor.

My vote would be to create a mechanism for them to drop out of the Euro and let them deal with the resulting chaos themselves.

As for the bankers who will lose hundreds of billions on Greek bonds. Let them eat cake.


Agreed. This is not something that can be solved soon, and there will be a new generation wondering why they have to pay for the sins of their fathers. Is there a successful historical precedent for this kind of inter-generational saddling?

As for the banks, they deserve everything they can lose. Without that kind of lesson they will just do it again.

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Author: Knighted Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 385605 of 461029
Subject: Re: Greece Might Just Be Greece Date: 2/16/2012 12:47 AM
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* 98% of new construction--even today 2 years after the crisis began--takes place without a construction permit, without registering the property with authorities. Thus, no property tax.

* Wide swaths of business work in an all-cash economy, paying no VAT.

* High income and connected people simply pay bribes to friends instead of paying their income tax.


I don't buy your argument. You're attempting to imply that Greece's woes are due to generally low taxes. Sorry, but that does not compute. Greece's tax revenue collected as a share of GDP is close to 40%. For comparison, US tax revenue collected as a share of GDP is "only" about 30%. It's not a tax problem - it's a spending problem.

Claiming that Greece's downward spiral is a tax problem would be like an individual going out and spending twice what he is earning in salary for decades straight, then claiming that the company is to blame for him being broke because they didn't pay him more.

Greece knew exactly what it was collecting in tax revenues yearly, whether the rich were paying their "fair share" (boy do I love that term) in taxes or not. Greece irresponsibly chose to ramp up government spending regardless of this, burying themselves ever deeper in debt. And this wasn't an overnight process. Greece has been accumulating massive debt for decades.

http://2.bp.blogspot.com/-7KXHAuORi4w/TbS897oFTGI/AAAAAAAAAl...

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