Greece, the cradle of democracy, is shaping up as the nail in the coffin of the Euro. And it's getting worse, Greece is going broke faster than we thought. The New York Times reports that Greece might run out of money as early as July. Despite thelatest bailout of 130 billion euros, or $161.7 billion, Greece faces a shortfall of 1.7 billion euros because tax revenue and other sources of potential income are drying up. "In the worst case, Athens might have to temporarily stop paying for salaries and pensions, along with imports of fuel, food and pharmaceuticals. Officials, scrambling for solutions, have considered dipping into funds that are supposed to be for Greece's troubled banks. Some are even suggesting doling out i.o.u.'s….A wrenching recession and harsh budget cuts have left businesses and individuals with less and less to give for taxes – and growing incentive to avoid paying what they owe,'' reports the New York Times.
Bloomberg reports that the election on June 17 is actually curbing tax collection. It cites Greek studies showing that tax evasion increases by an average 0.2 per cent of annual gross domestic product in periods around Greek elections. What happens is that the bureaucracy that relies heavily on day-to-day control by politicians slows down and tax collectors perform fewer audits.
And if Greece leaves the Eurozone, it will not be the end of the country's problems. In a briefing published this week, Open Europe says: "Due to a likely bank collapse and urgent cash shortage, Open Europe estimates that if Greece left the euro now, it would need between €67bn and €259bn in external and immediate short-term support, not including support in the longer term or contagion costs to the rest of the Eurozone. This support could potentially be split between the IMF, the Eurozone and non-euro countries, with the UK possibly underwriting between €4bn and €6bn of the entire rescue package."
There are no simple solutions here.