Europe
2:00 am
Mon September 19, 2011

Greece Scrambles To Show It Can Cut Budget Deficit

Originally published on Tue August 7, 2012 1:43 pm

It's a critical period for Greece: It has to convince international lenders that it can slash its budget deficit before getting a vital $11 billion installment of last year's $150 billion bailout deal.

Prime Minister George Papandreou canceled a trip to the U.S. to hold an emergency Cabinet meeting Sunday on finding more cuts to plug this year's budget shortfall. Greece has blamed the shortfall on a deeper-than-expected recession — the unintended effect of a year and a half of draconian austerity measures.

Pressed by its European Union partners, the government announced yet another emergency tax last week. Officials hope the levy on real estate will rake in close to $3 billion.

In a country where 85 percent of citizens' wealth is invested in houses and apartments, public outrage is intense. The new measure has been dubbed the "monster tax."

Elinorosson is a middle-class neighborhood in Athens where Stella Kasdagli and Alexandros Karamalikis were able to buy an apartment a few years ago.

Kasdagli, 30, is the managing editor at the Greek version of Cosmopolitan magazine. Her 35-year-old husband lost his job as a record producer and is now a stay-at-home dad, raising their 13-month-old daughter, Stefania.

Up to now, Kasdagli says, they felt like the lucky ones. "Until now, the impact has been mostly in our minds — fear about future," she says.

"But this year you paid more taxes," Karamalikis breaks in. "Stella paid more taxes. I didn't pay because I didn't have any money."

The couple, much like other Greeks, has been hit by two additional emergency income taxes in just a year and a half on Kasdagli's gross income of $54,000. The extra property tax will force them to dip into their savings.

"That's why I say I can absorb the loss, because I have these savings," she says. "If I didn't have them, it would be difficult."

Karamalikis says that when the crisis hit, they agreed with the government's call for sacrifices. Despite austerity measures, the situation had worsened by the second year, with even more need for belt-tightening.

"It is like medicine that you give to a sick person, and he doesn't feel any better," he says. "We don't think that is the right way to fix the problem, and certainly it is not the fair way to fix the problem."

Judging from comments on social networks, a growing number of Greeks say they won't pay the property tax.

Karamalikis worries about retaliation from Greece's international lenders, who are expected to decide next month whether to release the bailout funds.

"We are frightened every day that if we don't pay the taxes, they will not give us the money and the next day we will be bankrupt," he says. "We are not sure if this is true, but we cannot take the chances. I don't know; no one knows."

One Greek who has decided not to pay the property tax is George Katrougalos. He's a constitutional lawyer who says it's unfair and unconstitutional because it's retroactive, and that it's also a trap that leads to no growth.

"You can ask sacrifices from the people, provided these sacrifices are going to lead us somewhere," he says. "And the only thing that can lead us out of the trap is either have renegotiation of the debt or a clear default. Default would be better — better than the impasse."

The Greek government has adamantly ruled out this option. Meanwhile, international lenders are demanding even bigger spending cuts — reportedly including massive public sector layoffs, a 40 percent reduction in public sector wages, and new taxes on gas, alcohol and tobacco.

But, as Katrougalos says, the government is losing ground. And growing divisions among European governments over Greece's fate have made its people more skeptical about the effectiveness of a seemingly unending series of austerity measures.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

STEVE INSKEEP, host: Okay, so that's the European big picture. Now let's get an update on the relatively small economy that sparked this crisis. Greece needs the next $11 billion in the European bailout. To get the money the government is trying to convince international lenders it can sharply reduce its budget deficit. Greece's prime minister aborted a trip to the United States to find more budget cuts. NPR's Sylvia Poggioli reports.

SYLVIA POGGIOLI: Greece has blamed the shortfall on a deeper-than-expected recession - the unintended effect of a year and a half of draconian austerity measures. Pressed by its European Union partners, the government announced a week ago yet another emergency tax: a levy on real estate aimed at collecting close to $3 billion. In a country where 85 percent of citizens' wealth is invested in houses and apartments, public outrage is intense, and the new austerity measure has been dubbed the monster tax.

Elinorosson is a middle-class neighborhood in Athens where Stella Kasdagli and Alexandros Karamalikis were able to buy an apartment a few years ago. Thirty-year-old Stella is managing editor at the Greek version of Cosmopolitan magazine. Her 35-year-old husband Alexandros lost his job as a record producer and is now a stay-at-home dad, raising their 13-month-old daughter Stefania. Up to now, Stella says, they felt like the lucky ones.

STELLA KASDAGLI: Until now, the impact has been mostly in our minds, I mean, fear about future and...

ALEXANDROS KARAMALIKIS: But this year, you paid more taxes. Stella paid more taxes. I didn't pay because, again, I didn't earn any money.

POGGIOLI: Like other Greeks, this couple has been hit by two additional emergency income taxes in just a year and a half on Stella's gross income of $54,000. And this extra property tax will force them to dip into their savings.

KASDAGLI: That's why I say I can absorb the loss, because I have the savings. If I didn't have them, things would be difficult.

POGGIOLI: Alexandros says that when the crisis hit, they agreed with the government's call for sacrifices. But by the second year, the situation was even worse, with more need for belt-tightening.

KARAMALIKIS: It's like a medicine that you give to a sick person, and he doesn't feel any better, and you keep giving him the same medicine. We don't think that is the right way to fix the problem, and certainly, it's not the fair way.

POGGIOLI: Judging from comments on social networks, a growing number of Greeks say they won't pay the property tax. But Alexandros worries about retaliation from Greece's international lenders.

KARAMALIKIS: Because we're frightened every day that if we don't pay the taxes, they will not give us the money, and the next day we'll be bankrupt. We are not sure if this is true, but we cannot take the chance. I don't know. No one knows.

POGGIOLI: George Katrougalos is one Greek who has decided not to pay the property tax. He's a constitutional lawyer who says it's unfair - unconstitutional because it's retroactive, and also a trap that leads to no growth.

GEORGE KATROUGALOS: You can ask sacrifices from the people, provided that these sacrifices are going to lead us somewhere. And the only thing that can lead us out of the trap is either have renegotiation of the debt, or a clear default. Default would be better. It's going to be better than the impasse.

POGGIOLI: Greek government adamantly rules this option out. Meanwhile, international lenders are demanding even bigger spending cuts - reportedly including massive public sector lay-offs, a 40 percent reduction in public sector wages and new gas, alcohol and tobacco taxes. But as lawyer Katrougalos says, the government is losing ground, and growing divisions among European governments over Greece's fate have made the people here more skeptical about the effectiveness of a seemingly unending series of austerity measures. Sylvia Poggioli, NPR News, Athens. Transcript provided by NPR, Copyright National Public Radio.