As European leaders grapple with how to preserve their monetary union, Greece is rapidly running out of money<\/strong>.<\/p>\n Nikos Lekkas, a government official, said banks had hindered his efforts to collect back taxes.<\/p>\n Government coffers could be empty as soon as July, shortly after this month\u2019s pivotal elections. In the worst case, Athens might have to temporarily stop paying for salaries and pensions, along with imports of fuel, food and pharmaceuticals.<\/p>\n Officials, scrambling for solutions, have considered dipping into funds that are supposed to be for Greece\u2019s troubled banks. Some are even suggesting doling out i.o.u.\u2019s.<\/p>\n A wrenching recession and harsh budget cuts have left businesses and individuals with less and less to give for taxes \u2014 and growing incentive to avoid paying what they owe.<\/p>\n The budget gap is widening as the so-called troika of lenders \u2014 the International Monetary Fund, the European Central Bank and the European Commission \u2014 withholds 1 billion euros in bailout money earmarked for government financing while it waits to see whether new leaders elected June 17 will honor Greece\u2019s commitments.<\/p>\n Even if the troika delivers that money, Greece will struggle to cover its obligations. It underscored a harsh reality that is playing out in other troubled euro zone economies. Prolonged austerity is making it harder, not easier, for governments like Greece to become self-reliant again.<\/p>\n A top Spanish official acknowledged on Tuesday that Spain could not readily return to the markets to raise money because investors are demanding such high rates, highlighting how the debt crisis is spreading to larger economies in Europe.<\/p>\n Chancellor Angela Merkel of Germany said a day earlier that European leaders needed to find a way to create the political union that the world is looking for to complement their monetary union. European officials took a small step in that direction Tuesday by proposing a central authority for banking regulation, which would require countries to give up a bit of cherished sovereignty.<\/p>\n An essential element of Greece\u2019s recovery plan has been to collect more taxes from a population that has long engaged in tax avoidance. The government is owed 45 billion euros in back taxes, tax officials in Athens said, only a fraction of which will ever be recovered.<\/p>\n To understand the difficulty, just talk to Nikos Maitos, a longtime official in Greece\u2019s financial crimes investigation unit.<\/p>\n When he and a team of inspectors recently prowled the recession-hit island of Naxos for tax evaders, a local radio station broadcast his license plate number to warn residents.<\/p>\n \u201cOne repercussion of the crisis is that people are harder to find, and when you do find them, they don\u2019t have money.\u201d -Nikos Maitos<\/p>\n<\/blockquote>\n Even tax collectors, who have had to take large pay cuts, find that budget reductions make it hard to pay for the gasoline needed to reach their targets.<\/p>\n \u201cAfter two and a half years of austerity, it\u2019s really a difficult time to bring in revenue,\u201d said Harry Theoharis, a senior official in the Greek Finance Ministry who helps oversee the country\u2019s tax payment system. \u201cYou can\u2019t keep flogging a dead horse.\u201d<\/p>\n Salaries and pensions in the private and the public sectors have been cut by up to 50 percent, leaving Greece 495 million euros short of its revenue targets in the four months ended in April, according to the Greek Finance Ministry. With less cash, consumers have curbed spending, leading thousands of taxpaying businesses to fail.<\/p>\n Income expected from a higher, 23 percent value-added tax required by the bailout agreement has fallen short by around 800 million euros in the first four months of 2012. That is partly because cash-short businesses that were once law-abiding have started hiding money to stay afloat, tax officials said.<\/p>\n Greece\u2019s General Accounting Office said recently that the state collected 25 percent less revenue in May than it did a year earlier. And the state has had to slash its goal of raising 50 billion euros from privatizations to just 3 billion euros as foreign investors lose interest.<\/p>\n That has left a caretaker government scrambling for a Plan B. One thought is to take billions of euros reserved for recapitalizing Greek banks, which have suffered from a flight of deposits amid political uncertainty and fears that Greece may abandon the euro for its own currency.<\/p>\n But using that money would require the troika\u2019s approval. Other notions, like i.o.u.\u2019s and scrip, so far are only that \u2014 ideas.<\/p>\n To some extent, government officials said the tax-avoiding mentality is starting to change amid an aggressive enforcement campaign aimed at 500 wealthy individuals and companies, including former ministers and heads of state agencies and enterprises. People took notice in April when a former defense minister was arrested on charges of corruption and making false declarations related to his income and taxes.<\/p>\n \u201cThey are awed when they see inspectors now because of recent cases showing people will be prosecuted or made to pay,\u201d Mr. Maitos said.<\/p>\n Tax collectors got another potential lift recently when the government started enforcing a 1995 law that gives them access to bank accounts of suspected tax evaders.<\/p>\n But Nikos Lekkas, a top official at the financial crimes agency where Mr. Maitos works, said Greek banks had obstructed nearly 5,000 requests for account data since 2010.<\/p>\n \u201cThe banks delay sending the information for 8 to 12 months,\u201d he said. \u201cAnd when they do, they send huge stacks of documents to make it confusing. By the time we can follow up, much of the money has already fled.\u201d<\/p>\n In the past two years, the agency managed to assess back taxes worth 650 million euros on 210 of the cases, he said. But only 65 percent could be collected.<\/p>\n One challenge lies in what Mr. Lekkas calls the big fish \u2014 18,300 offshore businesses belonging to wealthy Greek individuals and companies. Authorities are trying to trace the owners through property records, and they recently seized several large properties linked to offshore companies whose owners owe tens of millions of euros to the state.<\/p>\n That leaves collectors having to go after mostly smaller tax evaders, often with mixed results.<\/p>\n During a surveillance trip on the resort island of Santorini, Mr. Maitos said he and two colleagues observed a gas station owner insisting on cash-only transactions to avoid declaring taxes. When confronted, the man lashed at them with a bullwhip while cursing the state for taking his money.<\/p>\n Officials said things might improve drastically once Greece\u2019s entire tax system is computerized, a move that is supposed to be completed by the end of this year.<\/p>\n Charalambos Nikolakopoulos, the head of the Greek tax collectors\u2019 union, said there was no need for outsiders to straighten things out.<\/p>\n \u201cYes, we need change, but things will only improve in Greece when we get a stable government that will impose its political will.\u201d -Charalambos Nikolakopoulos<\/p>\n<\/blockquote>\n Authors:<\/strong>By: Niki Kitsantonis contributed reporting from Athens and Paul Geitner from BrusselsUnderstanding The Financial Difficulty Greece is Facing<\/h2>\n
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Greece Government Looking at a Potential Plan B<\/h3>\n
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\nSource: www.CNBC.com. This story originally appeared in The New York Times<\/p>\n