Top tax collector in Greece faces task of restoring confidence

Katerina Savvaidou, nominated Greece’s top tax collector, has her job cut out for her.

The Supreme Court lawyer, university lecturer and PricewaterhouseCoopers manager was named late last night by Greece’s finance ministry to replace Haris Theoharis, who was ousted after he pursued claims against 300 high-net-worth individuals. His exit raised concern about the country’s determination to push through tough economic fixes.

In a nation nagged by decades of tax evasion, Savvaidou faces the challenge of showing she’s up to the task of taking unpopular measures to fill the coffers of Europe’s most-indebted country. Her appointment comes against the backdrop of record- low euro-area interest rates and a flood of funds into Greece from yield-hungry investors, taking market pressure off the government for a much-needed economic overhaul.

“Domestic reforms still need to reach deeper and this is not a government machine that can operate well without firm and consistent leadership,” said Kevin Featherstone, a professor of Greek Studies at the London School of Economics. “Greece is still between a rock and a hard place.”

The Greek economy remains in the doldrums after six consecutive years of recession that wiped out about a quarter of total output and left more than half of the country’s youth without jobs. Unemployment stands close to 27 percent and public debt is at over 175 percent of gross domestic product in 2013, even after the biggest restructuring in history.

That hasn’t stopped the 11-million strong Mediterranean nation from luring investors. In April, Greece, which triggered the European debt crisis in 2009, returned to international markets after a four-year hiatus, selling 3 billion euros ($4.1 billion) of five-year securities. It attracted bids in excess of 20 billion euros.

Draghi Effect

With European Central Bank President Mario Draghi pushing euro-area interest rates to record lows, the 10-year yield for Greek bonds is at 5.97 percent, down from a historic high of 44.21 percent in 2012.

Investors, confident after Greek was brought back from the brink by its euro-area partners, have plowed into the country’s paper. In the last three months, Greek banks and companies, including Eurobank Ergasias SA and Public Power Corporation, raised 11.2 billion euros from international investors in capital increases and bond sales, according to Alexandros Maglaras, who helps oversee 300 million euros at Triton Asset Management in Athens. Greece and the country’s companies raised 14 billion euros from foreign investors, or about 7.7% of Greek GDP in 2013, he said.

The easier access to markets and funds has made Greece less reliant on the 240 billion euros of emergency loans from its euro-area peers and the International Monetary Fund, which had made stringent demands on the country to put its house in order.

Theoharis’s Record

Tax chief Theoharis may have been among the casualties of the easing pressure on the government. When he stepped down on June 5, just 17 months into a five-year term, the European Commission expressed “serious concern” and praised his efforts for “increasing revenue collection rates, and implementing major reforms for income and property taxes.”

On his watch, Greece hit its tax-revenue target, and carried out reviews of the tax returns of about 300 rich individuals, resulting in fines of 80 million euros, Theoharis said in a press conference after the announcement of his departure.

“The motivation for replacing him seems to be a political desire to loosen tax-collection efforts,” said Manolis Galenianos, a University of London professor. “Dismissing an official who is supposed to be appointed for a five-year term without providing serious justification for it makes a mockery of the independence of the tax-collection authority.”

‘Alarming Populism’

Among other signs that cheap money has emboldened the Greek government, a cabinet reshuffle this month saw the exit of ministers and officials credited with economic overhauls.

Kostis Hatzidakis the country’s development minister who was forced to backpedal on several reforms, including regulation for open markets and a plan that allowed shops to remain open on Sunday was replaced. Adonis Georgiades, who took on professional pharmacists in his effort to bring down state spending on drugs, also lost his job as health minister.

Newly appointed ministers are now disputing pledges made earlier. Deputy Agriculture Minister Paris Koukoulopoulos expressed concern over the government’s planned stake sale in Athens Water, Thessaloniki Water and Public Power Corporation. The government needs to “revisit privatizations,” he said. Education Minister Andreas Loverdos said he won’t implement a budget plan he has voted against in Parliament.

“At a rhetorical level, we see an alarming turn towards populism,” said Galenianos.

No Shift

The government denies there’s a policy shift.

“Reforms will free up the people of Greece from chronic distortions and are therefore to our benefit,” said government spokeswoman Sofia Voultepsi. “There is no tension between reforms and pro-people measures. They are the same thing.”

Still, George Pagoulatos, Professor of European Politics and Economy at the Athens University of Economics and Business says the newfound access Greece has to markets is lulling the country into a false sense of security.

“Market access and a budget surplus before debt servicing payments gives Greek government more negotiating power,” he said “But market access is not a real solution. The yield is much higher than the bailout loans and if Greece tries to borrow more, it will rise further.”

Savvaidou’s Role

On June 19, at a euro-area finance ministers’ meeting in Luxembourg, officials refused to release a 1 billion-euro aid disbursement to Greece, saying the country hasn’t complied with its bailout conditions.

“Money will flow only when the conditions are met,” Austrian Finance Minister Michael Spindelegger said.

Greece has been similarly warned by European Economic and Monetary Affairs Commissioner Olli Rehn.

“It’s important that Greece come back to the path of serious economic reforms,” he said.

The new tax chief Savvaidou — who holds a degree from the University of Athens, a doctorate from the University of Paris, Assas, and an executive education diploma from Harvard University — will need to play a critical role in that effort.

Savvaidou knows what she’s up against.

“Historical and political factors, including a weak state, gave rise to widespread tax evasion in Greece,” she told Bloomberg in an interview in April. “For many years, Greeks knew they could get away with it. That’s slowly changing as the law and government controls improve.”