An open letter to George Papandreou

Dear Prime Minister,

Perhaps you have read by now Democracy vs Mythology: The Battle in Syntagma Square – a vigorous and fact-filled defence of the character and dignity of the ordinary Greek citizen posted by Alex Andreou, a Greek expatriate living in London. It is truly a must read.

The same ordinary Greek citizens were outside Parliament last night as PASOK MP’s closed ranks around their party in the parliamentary vote of confidence. Those citizens were shouting at the top of their voices that they did not have confidence in your government.

What will it take to win back the confidence of the Greek people, to clear Syntagma Square of protesters and to get Greece back on track?

As a starting point, it is clear that it will take something altogether different from the efforts of the last 12 months, as by all accounts – economic results, public opinion, credit ratings and bond yields – the country has gone backwards.

Thus, the first target should be restoring a primary fiscal surplus (before debt servicing) in a way that is perceived to be equitable by the people’s agora in Syntagma Square.

It is well known that tax evasion in Greece is a sport primarily for the financially independent. The revenue shortfalls caused by tax evasion have hitherto been plugged by turning the screw on the ordinary Greek wage earner who cannot hide from PAYE (pay as you earn) taxes. This is socially and politically unsustainable.

Tax injustice by itself is the major reason keeping many protesters in Syntagma Square, and it can be reversed by a package of measures including:

* Reduce all income taxes, PAYE and social insurance contributions to not more than 10%

* Introduce steep license fees for all sorts of businesses and professions widely believed to be evading taxes; these fees to be deductible from income taxes paid.
(For example, if the average doctor sees X patients per day and the average fee per visit is Y euros, then the average income of the average doctor can be estimated, and from there the average tax evaded can be estimated too. Divide the esimated total of tax evaded by the number of licensed doctors, and charge that amount as an annual license fee to renew the doctors’ licenses.)

* Introduce steep road license taxes for cars above a certain engine size

* Introduce steep rubbish removal and municipal services taxes for homes above a certain minimum value

* Introduce a steep carbon tax, raising revenue from the sale of electricity and transportation fuel. This will increase the cost of living so it must be offset by reductions in income taxes and also by means-tested vouchers for payments for fuel and electricity

* Reduce the size of the public sector to the extent possible: change the constitution to remove the protection against dismissal enjoyed by public sector workers and also to constitutionally fix the proportion of the population that may be employed in the public sector to an economically sustainable level.

The second target should be to reduce the debt load via privatization in a way that might be politically acceptable. So, proceed with privatizations that raise cash by transferring assets to the people instead of the kleptocrats, as follows:

* First, increase the leverage of each state owned asset due to be privatized, to the point where the net worth of the asset is circa €100 – €200 million

* Second, the state, as owner of these assets, uses this new money (ideally as dividend) to reduce its outstanding government debt

* Third, every Greek man, woman and child receives a package of 10 shares in each privatized asset, tradeable on the stock market. The enterprises forgive any remaining debt owed to them by the government on account of the transaction above.

Having restored a primary fiscal surplus, having restored tax justice, having demonstrated simultaneous commitment to reducing debt via public sector downsizing and politically less unpopular privatizations, the path opens to the third and most crucial target: Greece must find its voice and demand that by 2013, its creditors must reach agreement for partial debt forgiveness “or else”. Naturally, the “or else” would be a freeze on debt servicing.

As the last step is the dreaded default that would devastate some Greek banks, and given that Greece cannot return to prosperity without shedding its excess debt burden via some form of default, those banks realistically ought to be considered as casualties of war who are already in need of major surgery. As such, following a tough triage exercise, the banking licenses of entities that would not survive the inevitable default should be revoked. The banking business they must abandon should flow to the surviving banks, with the small depositors of the failed banks placed at the front of the queue, and the former banks should be liquidated, with losses for their shareholders and creditors.

Dear Prime Minister. Doubling down on the austerity that has led nowhere will continue to lead nowhere. But, take a clearly articulated and just case such as the one above to the agora of the people at Syntagma Square, stand there on the platform and take the microphone for your 3 minutes, tell the people that you have listened to their voice and that this is what you came up with, ask for their support by a voice vote, and if you win the people over, then your efforts might lead somewhere.

That, dear Prime Minister, is the real vote of confidence you must seek and win. In this age of failing democracies, the voice of the Greek people, with you as their spokesman, could usher in a new age of renewal for aging democractic systems which have lost touch with the people whose interests they are supposed to serve.