Greek crisis now in the hands of national leaders

With the relationship between Germany's and Greece's finance ministers at rock bottom, debt crisis negotiations are now being conducted by German Chancellor Angela Merkel and Greek Prime Minister Alexis Tsipras.

Dealing with the most difficult eurozone problem of all time is not just a matter of financial expertise. Finding a solution to Greece's economic woes - the EU's proclaimed goal - is also a test of nerves.

It's not only German Finance Minister Wolfgang Schäuble who's bewildered by the Greek government's lax approach to EU directives in face of the looming financial crisis - smaller EU countries have also expressed discontent at Greece's failure to deliver. In particular Ireland and Portugal, who themselves have been going through a tough financial recovery period, are losing patience.

A showdown seems unavoidable. All eyes are now on Berlin as German Chancellor Angela Merkel meets with Greek Prime Minister Alexis Tsipras on Monday. And that's not only because Germany is the EU's economic engine, but also for political reasons.

Following in the footsteps of former German Chancellor Helmut Kohl, Merkel wants to save the euro and maintain cohesion between European states. This will prove to be a big test for Germany's foreign policy know-how, as the negotiations have been escalated to the highest political level due to growing tensions between the two countries' respective finance ministers. It is now Merkel's job to repair the seemingly irreparable.

Fundamental flaws

Alexis Tsipras is bringing something new to show in Berlin: tax legislation hurriedly passed over the weekend with the aim of channeling more funds into the Greek state coffers. Around 3.7 million people and 450,000 businesses in Greece still owe tax and social security payments to the government. This amounts to a deficiency of 76 billion euros ($82 billion).

Now, around 9 million euros are expected to be collected thanks to the new legislation. Those who pay up before the end of March will avoid penalty fines and interest payments.

Taxation is a particularly touchy topic in Greece. Tax evasion has deeply entrenched itself in Greek society, especially in the service sector. Many Greeks do not pay the full amount of value-added tax they owe. In 2010, the government increased the rate of this tax from 19 to 23 percent, but this doesn't bring much if people are not paying.

Greece is also a place where receipts for payment are not commonly used. Capital flight, meanwhile, is rampant: billions of euros have been siphoned out of the country since the start of the financial crisis in 2010 and deposited in foreign banks, mostly in Cyprus and Switzerland.

Greece's top earners are not heavily taxed. While the low-income earners have seen their tax rates increase more than threefold since 2010, millionaires and billionaires have only seen a 9-percent increase. Greece's debt currently equals 175 percent of its GDP. Despite this, investment is being hindered by red tape: nowhere else in the EU is the procedure for starting a new business so time-consuming and complicated. At the same time, around 230,000 Greek companies have gone bankrupt since the start of the crisis.

A core problem for Greece is its unrelenting desire to be a welfare state. Every fifth job in the country is in civil service. The state has also been handing out money generously since the 1980s. Two particularly striking examples of this were retirees receiving the equivalent of 14 months' pension per year and members of parliament receiving 16 months' pay per year.

In light of this, many Greeks see the new austerity measures as unreasonable. In the last five years, 370,000 civil service jobs have been cut and only 20 percent of positions made vacant through retirement have been filled.

(Πηγή: www.dw.de)