What if... Greece had taxed its shipping barons?

Greece is once again a thorn in Europe’s side. With the radical left-wing Syriza leading a coalition that wants to end austerity and renegotiate the national debt, which now stands at 175 per cent of Gross Domestic Product, it is threatening to cause havoc to the whole euro project. Speculation is rife that it will either be forced to leave the euro or that it may opt for so-called “Grexit.”

But could things have been different? If Greece had been better able to gather in tax receipts, would it now be facing a much less serious fiscal position? And foremost in the line of companies that have avoided tax in Greece are the shipping firms, vast enterprises that together still make up around 7 per cent of all Greek economic output. In short, if Greece had taxed the shipping magnates, could it have avoided disaster?

To answer this, it is important to understand that until the revolution of the 1820s Greece was part of the Ottoman empire. During that time, it had been for the most part a peasant subsistence economy which had completely missed the Enlightenment. When it won independence through armed insurrection its outlook moved westward. In the century that followed, Greece had to reassemble the disparate bits of its territory that had been subject to the rule of other nations, including Italy and Britain. At times the process of building a new nation had disastrous consequences, as with the failed attempt to claim Asia Minor from the Turks after the First World War.

This left a number of legacies—a culture which to this day remains more Middle Eastern than European; a dominant church that had kept the Hellenic spirit alive during Ottoman rule and which managed to retain many financial privileges under the new Greek state; and a defence budget higher than any European nation as a percentage of GDP, kept so high in view of the Turkish threat. It also resulted in a preferential attitude to the shipping sector, which was instrumental in the fight against the Turks and which has since become a dominant global force. The shipping magnates’ insubordination towards the state and mistrust of authority led to their notorious aversion to paying tax or obeying any rules at all—characteristics that are common to most Greeks.

After the catastrophe of the Second World War, Greek economic growth was strong and apart from the dictatorship of 1967-1974 the economy performed better than most in the western world. Entry into the European Community in 1981 and then the euro in 2001 helped the Greek economy. But its system of clientelism and influence and bribery and corruption, its anachronistic and un-modernised public administration system, retarded progress. The easy, cheap money after Greece entered the euro encouraged huge borrowing and discouraged reform. Vested interests won out over economic efficiency. The bloated civil service didn’t help and when the crisis came there was little to fall back on. Under EU-imposed austerity GDP has fallen by 25 per cent since.

Would Greece have been better off not joining the euro? With hindsight, yes. Should it have reformed and opened up its economy while it enjoyed a boom period? Definitely. Should it have taxed the church properly? A no-brainer—yes. Should government have reformed the various professions quicker and also improved tax collection? Certainly. Should it have changed the tax treatment of shipping activities to retain more of the economic benefits in Greece? It is not clear that it should, as ship-owners could have moved more if not all of their operations abroad at the loss of hundreds of thousands of jobs in Greece itself. Would all of these things have prevented the crisis? I suspect not.

Above all, what the financial crisis of 2008 did, effectively acting as an external shock to the system, is expose the fundamental flaws of the eurozone structure which has derailed growth in the region as a whole. Admittedly Greece could have done a lot better. But it is a symptom, not a cause, of the eurozone’s problems—though admittedly an extreme one.