Business Regulation
RED TAPE BLOCKING THE WAY TO PROSPERITY...
In general, the rather high rating of Greece is justified. Compared to former times, the Hellenic Republic currently has a quite open and pluralistic political landscape with widely independent political parties representing every political ideology. There are high constitutional obstacles for banning political parties. Elections are widely free and fair. However, parties are obliged to print their own ballot papers and distribute them to polling stations at their own cost. This discriminates smaller parties relative to partially state-funded big parties. If one takes the frequency of going to the polls as an indicator of political freedom, Greeks were among the most free in 2015, being called to the national ballot box three times – twice for parliamentary elections and once for a
referendum, in which the Greek people found themselves in the rather unusual position not only of having to vote on a highly technocratic and complex matter but also on an agreement which was not valid any more at the time of the vote, because European leaders had withdrawn their proposal. There were also doubts about the clarity and neutrality of the phrasing of the referendum’s question, thus constraining the alleged political freedom that comes with a plebiscite. In the only seven months lasting span of the first Tsipras government, the administration took no initiative of abolishing the Greek peculiarity of “enhanced” proportional representation, which bolsters the strength of the leading party by a bonus of 50 extra seats in Parliament. Although this non-proportional seat allocation is highly questionable with regard to the accuracy of political representation and political freedom, no governing party has an incentive to repeal a law which had just secured it fifty additional seats. It must be added that the current complex proportional system which favours the winning party was imposed many decades ago, when only two big parties existed. This system was supposed to give exit in a situation when the score between the two major opponents is tied. This way, the first party could get a confidence vote and form a government even with a short head. Today, one-party governments belong to the past and therefore, this anachronistic system should be substituted by a new functional one which is more proportional and more democratic.
Another factor which limits political freedom is the ubiquitous power of the Greek Orthodox Church. Due to the prevailing influence of the church, quite a lot of taboos still exist in Greek society which cannot be tackled by politics. Examples are LGBT equality, various privileges for the church itself as well as the conflict with Macedonia which also has a religious element. To make matters worse, some of the church’s most prominent representatives constantly and publicly interfere in the process of shaping the public and political opinion. It is estimated that around twenty percent of the Greek electorate can be directly influenced by statements from the clergy.
With a score of 4.90 for “Press Freedom”, Greece ranks among the worse of the Balkan countries – there is quite a number of countries doing better (Croatia, Serbia, Montenegro, Bulgaria) and basically only FYR Macedonia doing worse than Greece. Ever since the outbreak of the crisis, Greece’s score with regard to media freedom has constantly dropped to its current nadir at 4.90. There are serious problems with the legal framework itself. Technically speaking, all TV stations transmit illegally because since 1989 (when TV frequencies were opened to private corporations), no bidding procedure has taken place and no fees have been paid to the state. The SYRIZA government pledged to propose a draft law to put an end to this chaos, redistributing frequencies from scratch and asking the
holders to retroactively pay the bill since 1989. This would increase public revenue and legal security but it would be very expensive for the media enterprises which face severe economic threats due to the crisis. Also in 2015, quite a significant number of journalists were physically attacked by members of neo-Nazi “Golden Dawn” (“Chrysi Avgi”). Golden Dawn’s leaders and members openly target journalists and call their supporters for “action”. On the other side, anarchists have attacked reform-oriented journalists and politicians (such as Kostis Chatzidakis, MP, and Konstantinos Bogdanos from SKAI TV), causing injuries. ESIEA, the Greek journalists’ union, has banned membership to several journalists who openly disagreed and criticized the union’s conformist position, showing severe reluctance towards reforms.
In the Freedom House’s Freedom of the World report for 2015, Greek judiciary is described as “independent”. However, other findings show that Greece is still below EU standards in the field. Fraser’s Economic Freedom of the World report actually shows decline after 2000. Friedrich Naumann Stiftung’s extensive interviews with Greek researchers into the field, held between 2014 and 2015, showed that there was a lot of - mainly indirect - political, business or other outside influence on courts. Corruption is also a serious problem. Backlog of cases and - sometimes deliberately – prolonged trials undermine citizens’ trust in the judiciary. The situation in 2014 has only slightly improved as compared to 2013. To it, conditions in prisons are bad, with a huge overcrowding and
occasional maltreatment of detainees. In detention centers for refugees and asylum seekers, the situation is very bad. Living conditions are often inhumane, while the bureaucratic proceedings with asylum applications are slow and slipshod.
Greece is better than the world average in fighting corruption. But as a full member of the EU since 1981 it is, together with Italy, Bulgaria and Romania, at the bottom of the list of countries with which it should compare. It was ranked 69 out of 175 countries or territories surveyed in Transparency International’s 2014 Corruption Perceptions Index (with the score 43). During 2014, the government initiated some reforms, but which, as analysts reckoned, only “cracked the surface” of the widespread system of oligopolies, professional licenses or otherwise closed markets, crony business activities, furnished public procurement, tax evasion or numerous other manifestations of inequality at the market. The system that resulted in plenty of rich individuals or other well-off citizens,
alas, who failed to adequately contribute to the public revenue, resulted in a gigantic debt, which endangered the future of Greek economy and finance. The new, ultra-left oriented government, which took office in January 2015, was promising to revolutionize the system, make the wealthy pay their share of the tax burden and abolish privileges. However, they represented some special interests as well, thus did not tackle any of the deep causes of crisis. It was only upon the failure of their anti-austerity crusade and their agreement with creditors as of mid-2015, on the new reform packages, that some opportunities for corruption or other irrationalities of the system started being eliminated, such as via reducing the number of tax deductions or exemptions.
The human rights situation in Greece has deteriorated, mainly due to the poor treatment of refugees by the police and immigration authorities, which occasionally behaved in an openly unlawful way. Besides, austerity measures and attempts at economic reforms during 2014 led to some previously acquired “second (or third) generation” rights being limited, such as in the fields of employment or public broadcasting. Overall, the respect for human rights in Greece is variable. Academic freedom and respect for civil society organizations are both highly valued. Thus universities, as well as some adjacent think tank NGOs, are the places of free and innovative social thinking. Some are among rare “reservations” of intellectual liberalism, i.e. rare places where calling someone a liberal is
not an insult. Freedom of religion is guaranteed, but Greek Orthodox Church still enjoys favourable treatment, government subsidies and tax exemption. Even the radically socialist Syriza government did not change that. Building of a mosque in Athens faces fierce opposition. Women are still unequal, discriminated at the workplace and underrepresented in politics. Sex trafficking persists. Homophobia still prevents the regulation of same sex unions. But there were some improvements in the field in September 2014, with the adoption of anti-discrimination law. Penalties for the attacks motivated by ethnicity or by sexual orientation of the victim were raised. A ban was passed on Holocaust denial. However, the adjacent ban on a denial of the WW1 genocide against Armenians in Turkey was, during 2015, questioned in front of the European judiciary.
Private property is not well respected in Greece, a trait similar to other regional economies. Court proceedings are not impartial and connections with political or business elite can influence court decisions. Weak enforcement of contracts poses a serious problem due to the high number of legal procedures involved and to extremely long deadlines. Poor police reliability negatively influences the level of business costs of crime in the country. Procuring real property in Greece for non-nationals is a complicated and expensive process, burdened with various fees and a high transfer tax. In certain fields, a prerequisite for obtaining real property is permission by the local council. The national land register, which could alleviate uncertainties, is under construction. Therefore, weak
institutions remain at the core of the problems of property rights in Greece.
The size of government is still substantial in Greece, with the general government expenditure in 2014 standing at 46.3% (a decrease from 53.7% in 2011, due to the meanwhile imposed austerity measures). After the long recession, Greece finally returned to the path of economic growth, although the growth has slowed down in 2015 due to the political tensions heated up by the Greek government’s populist moves and to the unsettled relations with international creditors. Fiscal balance is still negative, but deficit in 2014 was within the Maastricht criteria. It was mostly fueled by high debt interest payment. But there was a primary fiscal surplus. The public debt is enormous, reaching 177% of GDP in 2014. It is most likely unsustainable, even taken the already implemented debt relief. High
government consumption needs high level of taxation. Personal income tax is progressive, with rates of 22, 32 and 42%. Corporate income tax has been further increased in 2015, from 26% to 29%. High social security contributions lead to the overall high payroll tax wedge, reaching one half of the gross wage. VAT is set at 6%, 13% and 23%. Such high level of taxation leads to tax evasion and shadow economy. Transfers and subsidies remain at a very high level: even with the implemented downsizing, the public sector in Greece is oversized, with dubious efficiency. Pension system is not sustainable, and further parametric reforms, as well as possible second tier, should be considered.
Regulatory environment in Greece is not well-oriented towards entrepreneurial activities, making daily business conduct difficult and costly. Ineffective and slow bureaucracy, with competing rules and regulations, contribute actively to this situation, all of which create an environment prone to corruptive activities. Some improvements in cutting the bureaucracy cost have been made, but cutting the red tape should be further implemented in order to make the business environment more suitable to growth. Starting a new business venture is an easy and cheap task. Labour regulations are mostly inflexible, stipulating rigid working hours and creating obstacles in dealing with redundancies, with the required trade union approval for dismissing redundant workers and priority redundancy rules.
The high severance pay also serves as a deterrent for redundancies. Collective bargaining is widespread in the public sector. It is also prevalent in some private sector industries. The minimum wage is relatively high, reaching over one half of the average wage. The very high level of unemployment of 27.2% is partly due to inflexibility of the labour market, which should be increased in order to provide incentives for creation of new jobs.
Greece, as an EU member state, follows the common EU trade policy, with low trade tariffs for manufactured goods, while tariffs on agriculture products, clothing and some specific items are substantially higher. Custom clearance fees for import of goods from other EU countries are still implemented. However, non-tariff regulatory trade barriers are present, amid the complicated process of imported goods’ standardization. The customs’ service is not efficient, with numerous and slow procedures, and licensing, all of which hinder free trade. Another important issue is the control on migrant workers, with foreign labour supply being restricted via necessary working permits that are hard to obtain. Capital controls on inflow of capital from the country are present. Those were heightened
during the crisis in negotiations with the international creditors, in order to stop cash outflows from the country. These new measures were soon discarded, after the new deal was struck. High cost of both exports and imports are partially attributed to the deteriorating public transport infrastructure, due to the lack of funds for the quality maintenance and resolving bottlenecks in transport, after the wake of recession and Greek debt crisis. Railroad infrastructure is especially affected. Due to public finance constraints, improvements should consider more private sector involvement through concessions or other forms of private-public partnership, or even privatization. Main Greek trade partners are other EU member countries, most notably Italy, Germany and Bulgaria, followed by Russia and Turkey.
RED TAPE BLOCKING THE WAY TO PROSPERITY...
WEAK INSTITUTIONS AND LEGAL PROTECTION...
BIGGER IS NOT BETTER...
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