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Κατηγορίες

Τετάρτη 29 Φεβ 2012

 

 

 

The Greek SMEs are fighting not to enter a new downturn cycle

 

The new situation that the Greek entrepreneurship has been thrown in, will lead the Greek SMEs to unsurpassed dead-end and the Greek economy to a deeper downturn. This will not come as a surprise since the recently adopted measures include: a) increase of taxes, b) reduction of the lowest wage i.e. reduction of available income and consumption, c) decrease of liquidity for enterprises, and d) serious risk of domestic default.

 

Α. THE OVER-TAXATION OF ENTERPRISES

 

The new tax-system reform is the 9nth in two years and imposes new tax burdens on a rapidly shrinking economy; an effort which is condemned to absolute failure, since the tax-paying capabilities of households and enterprises is already vanished. However, new increases of all sorts of direct and indirect taxes on consumption, incomes and SMEs are proposed. Troika’s new proposal is narrowed to more increase on the special taxes on consumption, real estate and the abolition of the reduced VAT at the islands. Moreover, the “unseen taxes” from the retrospective reduction of tax-free threshold, the abolition of family expenses and tax exemptions and the reduction of the tax deduction from receipts will result to additional tax burdens for at least 3,000,000 tax payers of low and medium incomes, depriving households of at least one month’s income. In NCHC, the Troika insisted on imposing economically unjustified measures, leading thus both Greek households and SMEs entrepreneurship to absolute poverty and despair, which seems to be the real target of elimination along with the Greek middle class.

 

 

Β.THE PROBLEM OF FINANCING – LIQUIDITY OF ENTERPRISES

 

The enterprise liquidity problem is now the most crucial issue not only for the development of the enterprises but mainly for their survival.

 

Both ESPA (NSRF) and the following programmatic period must be adjusted immediately to the needs of the market and the SMEs, since the statistics show that throughout the entire Europe the crisis is not temporary. Moreover, it is clear that except from the development programs, the financing of enterprises (for working capital) by the banks must be enhanced. Domestic Monetary Financial Institutions actually refuse to finance new loans, even if the economic indicators of the firms are in a good shape. Annual percentage changes of finance flows for the whole economy are negative from 2009, while in Trade sector from 2010. This implies that banks have actually refused their money-multiplying role, while they focus their efforts on collecting the payrolls from the old loans, causing thus tremendous liquidity suffocation in the Greek market, especially in trade sector.

 

Table 1: Domestic MFI Credit to domestic enterprises by branch of economic activity (millions of euro)

Period Total Trade

 

Outstanding

amounts Flow during

period

Annual %

change

Outstanding

amounts Flow during

period

Annual %

change

 

2006 93.576 - - 23.712 - -

2007 111.289 19.463 18,93 27.672 4.227 16,70

2008 132.458 21.036 19,02 32.985 5.419 19,20

2009 130.043 6.836 -1,82 33.519 1.396 1,62

2010 123.244 1.482 -5,23 25.355 -1171 -24,36

November 2011 121.244 -614 -1,72* 24.954 -201 -2,55*

Source: BoG, IN.EM.Y.

* Compared to November 2010.

In addition to this, the percentage of accepted requests for SMEs loans deteriorated for the whole Europe over the period 2007-2010. The most worth noting retreats in accepted loan requests took place in Bulgaria, Ireland and Greece. In the field of partially accepted loans, Greece performs the worst compared to any EU country. The final outcome supports the idea that Greek firms, disproportionally hit by the global economic crisis, have nowhere to turn to when it comes to liquidity.

 

 

Table 2: Results of Loans Requests for SMEs (as % of total numbers of requests) in

EU Member-States (27)

 

 

Member/States 2007 2010

Accepted Partially

accepted

Refused Accepted Partially

accepted

Refused

Belgium 92.4 5.4 2.2 83.1 11.2 5.7

Bulgaria 87.0 9.9 3.1 42.5 22.0 35.5

France 94.5 3.6 2.0 83.3 9.7 7.0

Germany 85.3 8.0 6.7 75.9 15.9 8.2

Denmark 91.8 4.5 3.7 59.8 21.7 18.5

Greece 87.6 11.7 0.7 59.6 29.6 10.8

United Kingdom 88.4 6.1 5.6 64.6 14.7 20.8

Ireland 96.9 2.1 1.0 53.2 20.2 26.6

Spain 87.3 9.7 3.0 59.1 27.8 13.2

Italy 86.6 12.2 1.2 78.4 16.7 4.9

Cyprus 93.2 6.8 0.0 76.7 19.1 4.2

Latvia 89.0 6.7 4.3 63.5 10.1 26.4

Lithuania 89.2 9.0 1.8 58.4 20.4 21.2

Luxembourg 78.8 15.2 6.0 68.4 20.9 10.7

Malta 94.3 5.7 0.0 91.3 6.5 2.2

Netherlands 84.3 8.9 6.8 61.3 16.2 22.5

Poland 91.9 4.3 3.7 85.4 10.3 4.3

Slovakia 89.3 7.0 3.7 76.1 14.7 9.2

Sweden 84.2 7.0 8.7 79.7 14.1 6.1

Finland 98.1 1.9 0.0 95.9 3.9 0.2

 

Source: Eurostat, IN.EM.Y.

 

 

C. THE EFFORTS TO AVOID DEFAULT RISK

 

The reality for the merchants, at least those who survived the "plague" of the past two years, composes a picture of frustration, uncertainty, anxiety, fear, despair and deadlock every single day. Most of them are facing the possibility of irretrievably losing efforts of a lifetime and often the only source of income for the entire family. They also pay poll taxes, exceptional contributions, license taxes, objective criteria and anything else that the hunter of the remaining final drops of enterprises’ liquidity can imagine. At the same time, the rage against the unjust charges, bureaucracy, corruption, inaction and indifference of the competent officers to face the challenges of survival of SME commercial businesses create dilemmas which potentially lead to extreme options. What would default mean?

 

 

 

 

Table 3: SMEs Debt to Financial Institutions, Social Security Funds and Tax Offices

1) Debt to Financial Institutions per sector of enterprise performance (BANK OF G: December 2011) Amounts in millions of euros

- Agriculture 2.009

- Industry 23.405

- Trade 24.687

- Tourism 7.229

- Shipping 18.008

- Constructions 10.553

 

- Electricity, Gas, Water supply 5.927

- Transportations (except Shipping) 1.853

- Other 19.375

- Insurance Companies and other financial institutions 7.081

- Freelancers, farmers and personal businesses 15.359

Total enterprise loans / enterprise debts 135.486

2) Arrears to I.K.A. (Social Security Institution) 11.500

(11-12 billions)

3) Arrears to other Security Funds (O.A.E.E. etc) 3.500

(3-4 billions)

4) Arrears to Tax Offices 41.000

5) Arrears to D.E.I. (Public Power Corporation) 822

Total of Arrears

(1+2+3+4+5) 192.308

Source: IN.EM.Y

 

D. LABOR AND CONSUMPTION ISSUES

 

 

Labor cost and productivity

The results of research studies disagree with the extreme restrictive policy followed by IMF and generally by the Troika within the context of the fiscal rationalization of the Greek economy. Of course, labor cost influences productivity and, as a consequence, an economy’s competitiveness, but is neither the unique nor the stronger explanatory factor. Countries with high labor cost display high productivity rates e.g. Norway, Germany, Belgium and the USA while countries with low labor cost display low productivity rates, e.g. Poland, Estonia, Lithuania and Hungary. It is very interesting to note that South Korea and Greece have almost the same labor cost rate (36 and 37 respectively) but differ much in terms of productivity since South Korea’s rate is 72 compared to 49 in Greece.

 

Due to the combination of the economic recession along with the liquidity problem and, finally, with troika’s lending, Greece proceeded to very wide salary cuts which are much higher than in any other country. With this measure Greece tried to reduce its cash needs and to increase its competitiveness and employment. The very deep recession, which is expected to continue this year, the unprecedented for the last forty years unemployment rates as well as the fall of investments as a sign of lack of trust to the Greek economy do not allow the slightest doubt that the whole project has been a total failure.

 

 

Table 4: Percentage change (%) of total labor cost in Industry, Constructions and Services

 

Country / Year 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3

Belgium 3,5 3,3 3,1 3,0 2,9 2,6

Czech Republic 1,9 3,0 2,6 3,6 3,6 3,8

Denmark 3,1 2,8 2,5 2,4 1,6 1,9

Germany 0,1 0,4 1,1 2,4 3,9 2,9

Estonia -3,4 -1,0 1,0 1,7 3,5 4,0

Greece 0,1 -3,8 -6,5 -10,5 -4,2 -4,8

Spain 1,0 -0,9 -0,2 0,9 1,1 3,0

France 3,2 2,7 2,5 3,1 3,0 2,6

Lithuania -7,2 -3,2 0,7 0,7 2,4 4,0

Luxembourg -0,3 3,3 3,3 2,5 3,0 2,2

Hungary -3,6 -0,9 -3,2 2,4 4,5 4,5

Malta 1,1 2,1 1,2 2,5 3,0 2,8

Netherlands 1,5 2,3 3,1 2,8 1,5 1,5

Austria 0,1 1,5 1,7 0,7 3,6 4,8

Poland 2,1 1,4 -0,3 3,8 4,9 5,4

Portugal 0,5 -3,0 1,8 -1,1 -2,4 -0,1

Romania 1,6 -1,5 -1,4 -1,4 2,0 8,7

Slovenia -0,7 -0,3 2,7 2,1 3,0 2,0

Slovakia 1,0 4,3 4,6 3,0 4,2 5,9

United Kingdom 1,0 1,2 2,3 -0,6 2,8 1,6

Source: Eurostat

 

Chart 1 which follows confirms the fact that the reduction of labor cost and its maintaining at low levels, does not lead automatically to the improvement of economic and social welfare. The strongest economies of Europe (United Kingdom, France, Italy) display the highest labor cost rates in the manufacturing sector, compared to the German economy. If we accept the troika’s opinion that in order for a country to recover its competitiveness it must reduce its labor cost then it would be enough for the strong European economies to reduce their labor costs in order to improve their competitiveness. Can this really be true? Even now, it is of vital importance for the troika to realize that the reductions of the wages of workers and employees will not lead to the recovery of the lost competitiveness of the Greek economy. On the contrary, they will lead to even deeper economic downsizing with unexpected social consequences.

 

Chart 1: Cost Level per Labor Unit in Germany = 100

 

Source: Christoph Schröder, Produktivität und Lohnstückkosten der Industrie im internationalen Vergleich, Institute der deutschen Wirtscaft, Köln, Dezember 2011.

 

 

 

Why this treatment did not “work” for Greece?

The troika’s hopes for improvement of competitiveness and fall of prices through cuts proved vain. Instead of improving the structures of the Greek Economy and emphasizing on the methods of institutions’ operation, the agenda was dominated, and continues to be, by the issues of the abolition of the 13th and 14th salaries in the private sector of the economy and the further salary cuts. Crucial issues, the solution of which would dynamically support and for a long period the economy, such as the reduction of bureaucracy, the substantial enhancement of transparency, the in-time administration of justice, the encouragement of entrepreneurship, the modernization of the institutional framework, the organization and boost of scientific research and the continuous and high quality training of the employees, the improvement of infrastructure, the completion of the computerization and generally the digitization of the public sector, the creation of a simple and transparent tax system without loopholes and patches, and generally the abolition of all the warps that result in the market by dysfunctions of the state and that could be fixed immediately and without expenses, all these issues were only allusively mentioned or were never mentioned. Consequently, a wrong economic medicine is applied in a country without taking into consideration its characteristics and particularities.

 

In parallel with the horizontal cuts, the Greek government, under the disguise of supporting employment, proceeded to the further flexibilization of labor relations allowing the enterprises to hire new employees with gross salary of 601.11 euros/month (net amount less than 500 euros) instead of 751.39 euros, which is the lowest wage for full employment. The data (Table 3) and the estimations (in the 4th quarter of 2011 and in the 1st quarter of 2012 it is expected to exceed 19% and 20% respectively) for the course of unemployment are especially threatening since it seems that its explosive development is not stopped (Table 3) and at the same time a persistent inflation is detected (Table 4) causing trouble even for the troika, especially after the imposition of the cuts and a number of extraordinary taxes that hit and reduced significantly the available individual incomes. Consequentially, in Greece we can see the coexistence of huge unemployment and persistent inflation when incomes have been sunk without a convincing rendering having yet been offered, thus shaking the troika’s arguments.

 

 

 

 

 

Table 5: Unemployment evolution in Greece (%)

Age/ Year 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75+ Total

2006 32.0 23.2 13.8 9.3 7.9 6.3 4.9 4.7 4.2 2.3 1.6 0.0 0.0 8.8

2007 24,9 21,5 14,3 9,0 6,9 5,7 4,7 4,1 4,1 2,1 1,6 1,0 0,0 8,1

2008a 27,8 22,7 14,1 9,2 6,9 6,1 5,0 4,7 4,0 2,4 1,3 0,0 0,0 8,0

2008b 26,0 19,7 12,8 8,4 5,6 5,2 3,9 4,1 3,4 2,7 1,1 0,0 0,0 7,2

2008c 21,2 21,3 12,5 8,2 5,9 5,2 3,6 4,0 3,4 2,4 1,8 0,0 0,0 7,2

2008d 29,3 22,0 13,0 8,8 7,4 5,4 4,6 4,8 4,0 2,4 1,1 0,0 0,0 7,9

2009a 33,2 24,3 14,7 10,3 8,9 6,5 6,4 5,8 4,8 2,9 1,1 0,9 0,0 9,3

2009b 31,1 23,5 14,0 9,4 8,2 6,4 5,6 6,3 5,0 3,3 0,8 1,0 0,0 8,9

2009c 28,0 24,2 15,2 9,9 8,4 6,6 6,2 6,1 5,4 3,7 0,9 1,0 0,0 9,3

2009d 31,6 27,9 16,2 10,6 9,4 8,1 6,9 7,0 5,9 3,7 1,0 1,4 0,0 10,3

2010a 33,8 30,4 17,7 12,8 11,3 8,9 8,2 7,8 6,7 5,0 1,3 1,4 0,0 11,7

2010b 37,4 30,6 18,3 13,2 10,6 9,1 8,2 8,1 6,9 4,6 1,6 0,8 0,0 11,8

2010c 37,5 31,8 19,8 14,0 11,2 9,4 8,3 8,6 6,6 4,5 1,9 0,9 0,0 12,4

2010d 47,8 35,4 23,2 16,1 12,7 11,0 10,0 9,3 7,9 5,1 1,9 1,5 0,0 14,2

2011a 56,2 37,5 26,3 18,2 14,6 12,2 11,2 10,6 8,8 5,8 2,7 1,6 0,0 15,9

2011b 54,7 41,4 27,7 18,6 14,4 12,1 11,7 10,7 8,9 5,8 2,5 0,3 0,0 16,3

2011c 53,5 43,6 30,2 19,9 15,5 13,5 12,3 12,0 9,2 6,7 4,3 1,8 0,0 17,7

Source: EL.STAT

 

Table 6: Inflation Evolution in Greece (%)

Year Inflation 2011 / Month Inflation

1999 2,6 January 5,2

2000 3,2 February 4,4

2001 3,4 March 4,5

2002 3,6 April 3,9

2003 3,5 May 3,3

2004 2,9 June 3,3

2005 3,5 July 2,4

2006 3,2 August 1,7

2007 2,9 September 3,1

2008 4,2 October 3,0

2009 1,2 November 2,9

2010 4,7 December 2,4

Source: Bank of Greece (BoG)

 

 

 

Labor productivity is not independent from the amount of the employees’ wages. It has been proven that higher wages lead to enhancement of labor productivity either through the improvement of the employees’ psychology which leads to stronger labor efforts or, through the more deliberate management of the enterprise, to reducing unproductive activities.

 

Based on the data of the Annual Manufacturing Research (AMR), the participation of labor cost in the creation of the Gross Added Value tends to shrink throughout the years, a fact that limits the participation of employees in the production cost and hence the anticipated positive result in terms of productivity, if, of course, the troika’s economic theory is accepted. At the same time, it must be understood that for many reasons, the Greek Economy has been based on the existence and operation of many small and medium sized enterprises where there is no great discretion for reducing labor costs. On the contrary, the adoption of an especially austere economic policy leads with mathematic accuracy to recession, to a self feeding bronchus of falling incomes and consumption, increase of layoffs, poverty and criminality by retaining or/and increasing the deficits with a constant reduction of GDP.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

APENDIX OF MEASURES IN THE NEW MEMORANDUM

 

 

1. Codification of tax measures

 

 The establishment of a single VAT coefficient of 19% or 21%, compared to the three coefficients of 23%, 13% and 6.5%, which are in force today. The proposal for a generally applied 21% VAT coefficient, establishes contemporaneously a reduced coefficient of 11% for specific branches of the economy like hotels, food and medicines. In case of adoption of a 19% coefficient, the reduced one for tourism and hotels reaches 9%.

 The further reduction or abolition from taxed income of interest payments for primary residence housing loans.

 The abolition of bond interest tax exemption for banks and insurance companies.

 The doubling to 20% of deposits’ and bonds interest tax coefficient.

 The abolition of very low coefficients for the Aegean islands and the establishment of a tax on wine.

 The imposition of VAT on all rents for professional premises.

 The annual increase of the “real values” of properties and the chain-linked consequences on 16 taxes that burden real estate.

 The rise by 25% of the tax coefficient for general partnerships.

 The inclusion of the farmers to a VAT system for annual receipts from the sale of their products above a certain limit.

 The abolition of tax exemption for agricultural lands held by individuals and the imposition of tax on land patches, fields, and lots which are outside the city plan.

 The creation of a better control mechanism for issuing receipts and better way of VAT collection, hopefully according to our proposed way.

 The assignment of income inspection to private firms - individuals for 900,000 free-lancers, who will provide the “tax certificate”.

 The abolition of favorable arrangements whether concerning due debts or income tax self-assessment, or settlements of outstanding tax cases. The reduction of the installments from 48 to 24 for individuals owing more 10,000 euros and firms owing more than 75,000 euros.

 Fall in the number of installment for SMEs debtors to internal revenue service and insurance funds.

 Immediate hearing of the cases concerning overdue debts.

 Tax fines will be imposed depending on the case and according to the IMF list. The list provides the following fines: For overdue submission of tax statement, up to the amount of 1,000 euros, for paying lower tax, a fine equal to 10% of the difference between real and declared incomes or 50% if the hidden income is thought significant, plus a monthly late fine of 100 euros, while the fine will equal to 5% of the not-paid tax.

 Penalties will be imposed in case of withholding, revealing secret data and not conforming to the VAT requirements. For the first violation, the fine will be 1,000 euros, for the second 2,000 euros within a three-year period and for each following three-year period 5,000 euros. In case of VAT violations, a fine of 100% of the due amount that corresponds to the VAT amount of the invoice or the transaction will be imposed.

 

2. Social measures:

 Salaries’ reduction in the private sector through lowering the minimum wage by 20-22% and a matching haircut to holidays, numbers of days offs and maturity allowances, instead of full abolition of the 13th and 14th salaries.

 Shocking reductions of supplementary pensions by at least 15%, while a scenario implied main pension reduction even by 10%.

 Reductions and terminations of social allowances and benefits for the unemployed, families with three-children, large families and disabled; the issue of Aftereffect of collective labor agreements is still pending.

 Reductions of the amount of health and medical care expenditure to the levels that the insurance funds can cover.

 Shutting down regional services, agencies, and 47 public organizations. Abolition of 180 tax offices and 50 customs offices and restructuring procedures while abolition or mergers will take place in schools, technical education institutes, universities, health centers, hospitals, police stations and other services, creating serious problems especially in border and island areas.

 Layoffs of 50,000 employees from departments, agencies and institutions of the state, including teachers, professors and military officers, of whom 15,000 until Easter, while the total number of layoffs by 2015 is estimated to reach 150,000 in narrow and wider public sector.

 New reductions in 2012, by an average of 20%, of wages and salaries of military, police, coastguard, fire fighters, teachers, judges and other public officials (special wage rates).

 Deductions from earnings between 10% and 50% for employees of DELP, banks and public entities that have entered the stock market and especially Public Power Corporation, Public Water Company in Athens and Thessaloniki, Greek Organization of Football Prognostics S.A (OPAP), Hellenic Petroleum, Postal Bank, ATE Bank, etc.

 

 
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