A More Ambitious Agenda Needed to Combat Greek Debt

A More Ambitious Agenda Needed to Combat Greek Debt

photo: Karl-Ludwig Poggemann

The July 12th euro area summit ended with a last minute agreement that avoided an imminent ‘Grexit’. Even before negotiating the third bailout program, the Greek government accepted several conditions imposed by its European partners. Among these, the most debated is the creation of a fund to monetize €50bn of public assets through privatizations and other means, so as to reduce the public debt[1]. To date, no official estimate of the total market value of Greek public assets exists. Therefore, it is hard to know whether the target is realistic. This question is critical because it determines the level of debt relief necessary to achieve public debt sustainability. We argue that current uncertainty surrounding the feasibility of such a target, coupled with the absence of an up-front deal on debt relief, undermines prospects for recovery.

A large portfolio of public assets, but a bad timing to speed-up the privatization process

So is this €50bn goal reasonable? Using data from the Greek financial accounts, we are able to assess the market value of government financial assets at €62bn at the end of March 2015, of which only €30bn are held in equity (excluding the shares in the national central bank)[2]. Besides, exploring data from the Hellenic Statistical Authority, we estimate that the market value of government fixed assets amounted to €107bn at the end of 2014[3]. Finally, extrapolating data on the value of ‘non-produced’ non-financial assets for a regional peer country, we value the lands and natural resources owned by the government at €152bn[4]. According to these calculations, the total market value of government assets slightly exceeds two years of national income (222%), to be compared with a public debt to national income ratio of 214% at the end of 2014. Thus, net public wealth is positive, which means that the government could in theory repay its debts by selling all its assets.


Over the pre-crisis period, the ratio of estimated Greek net government wealth to national income follows an increasing trend similar to other euro area countries such as France and Spain. This is because, in spite of deep fiscal deficits, public investments and a surge in domestic house and equity prices increased the value of government assets faster than its debt. Then, although net public wealth initially rose due to the sharp decline in the value of Greek bonds in 2010-2011 before the 2012 debt restructuring, the crisis eventually led to a steady decline in the government wealth ratio up until now[5].


At this stage, the lesson is clear: the government has many assets worth several hundreds of billions of euros[6]. The privatization of carefully selected assets (in particular those that are currently underexploited) could help the government lower public debt and achieve primary surplus targets by generating additional fiscal revenues. However, at least two issues hamper the privatization process, thereby threatening the credibility of the €50bn target:

  • First, the structure of government assets: the value of the State’s equity holdings in corporations excluding the central bank represents only 9% of the value of all public assets, while the value of lands and natural resources – which are much harder to monetize – amounts to 47%.
  • Second, the current low price environment (for both housing and equity) amid low confidence in the economy: rapid liquidation of public assets could lead to fire sale prices, ultimately reinforcing public debt unsustainability.

Hence, the ambitious €50bn target is unlikely to be a sufficient signal to strengthen the credibility of primary surplus targets, change investors’ negative expectations and ultimately make Greek public debt sustainable.

Tackling tax evasion to help achieve public debt sustainability

 How can we find credible sources of revenues to make public debt sustainable in the current environment? There is little leeway. Imposing further austerity could be counterproductive. Besides, the government is unlikely to obtain any significant debt relief from its euro area partners because (i) a ‘nominal haircut’ has been clearly excluded, and (ii) the interest on public debt is already very low. Further extending the grace period will not solve anything if growth does not pick up.

With the current deadlock in mind, we looked into the wealth illegally held by Greek households in tax havens. While several studies have already stressed that tax fraud is a rampant phenomenon in Greece (e.g. Artavanis et al. 2015 and Tagkalakis 2014), there is no estimate of the value of assets held by Greek residents in offshore centers. Compiling data from the Swiss National Bank and Treasury on holdings in local banks and drawing on a methodology developed by Zucman (2014), we estimate that Greeks’ hidden assets in Switzerland amount to €70bn at the beginning of 2014[7]. Since Switzerland holds approximately 50% of the European offshore wealth hidden in tax havens worldwide[8], the total offshore assets that evade taxes every year in Greece could reach €140bn.

The extent of the phenomenon is alarming. The bank accounts hidden in Switzerland represent about 50% of the official net financial wealth of Greek households, which amounted to €146bn in the financial statements of the country in early 2014. By comparison, Greek households own, in value, as much hidden money in Switzerland as the Spaniards, while their net financial wealth is about five times smaller.

To what extent could ex post taxation of hidden savings alleviate the need for debt relief? When the government discovers a hidden account, it can levy a tax on the returns made over the last five years, as well as on inheritance if the latter has occurred less than five years ago. In addition, it can make the evader pay a penalty for tax evasion, as well as interests for the delay in the tax payment (see OECD, 2010, 2015).

According to our computations, if the Greek government could track down the accounts hidden in Switzerland, it would receive a one-time revenue of at least €8bn (4.5% of 2014 GDP)[9]. In addition, assuming a 6% return on these assets, the government could increase its annual revenues by €600m (0.3% of GDP)[10]. If it was able to tax all offshore accounts, i.e. not only the ones located in Switzerland, it could immediately obtain a total of €16bn (9% of GDP) in new taxes and penalties, as well as €1.2bn (0.6% of GDP) annually in additional taxes.

Lastly, we examine the dynamics of Greek tax rates on the returns on assets held abroad by domestic residents. While tax rates amounted to 25% for dividends and 45% for interests in 2012, they went down to 10% and 15% respectively in 2015. This is about half the European average. The same pattern is observed for the inheritance tax rate on the closest relative, which decreased from 20% in 2007 to 10% today. While this decrease in tax rates is unlikely to bring offshore assets back, it forces the government to turn to other revenue sources such as VAT, which depress aggregate demand and growth prospects.

Alleviating the burden of fiscal consolidation by rethinking international economic cooperation

In times of fiscal tightening, bank secrecy, just like international tax competition to attract corporations, imposes a drag on countries by significantly increasing the costs of adjustment and putting the weight on the less well-off. The problem is particularly acute in Greece where the amounts of hidden assets and the magnitude of the required fiscal adjustment are higher than in other countries.

Now, Greece needs an ambitious plan to ensure debt sustainability: it is a prerequisite to restore confidence in the economy. We think that this will not be achieved by simply promising uncertain privatization proceeds. Additional sources of revenue are needed to strengthen the credibility of the primary surplus targets, which are critical, along with output growth, to alleviate the debt burden in the medium-term.

Taxing offshore assets is potentially a more efficient and fair means of increasing such revenues than additional austerity measures. The main issue is whether finally putting an end to bank secrecy is feasible[11]. In that respect, rethinking international economic cooperation at the European and G-20 levels to broaden the current focus on trade agreements towards cooperative efforts to combat tax evasion is urgent.

But one should not neglect the difficulties of the path forward. As argued by Baldwin (2007) on VAT fraud, ‘there is nothing common about common sense’ when it comes to the EU and taxation. And on the Greek side, efforts to improve tax collection and the payment culture have largely failed to date, as noted by Blanchard (2015). Let us hope that the depth of the current crisis will change this story.

Paul-Adrien Hyppolite is an Arthur Sachs fellow at Harvard University and graduate student from Ecole Normale Supérieure (France)  

Nina Roussille is a Harvard LEAP pre-doctoral fellow and graduate student from Ecole Polytechnique (France)



Artavanis, N, A Morse, and M Tsoutsoura (2015), ‘Tax Evasion Across Industries: Soft Credit Evidence from Greece’, Mimeo University of Chicago. Source.

Baldwin, R (2007), ‘VAT fraud part 1-5’, VoxEU.org, 14 to 22 June. Source.

Blanchard, O (2015), ‘Past Critiques and the Path Forward’, iMFdirect, 9 July. Source.

Cap Gemini (2014), ‘World Wealth Report’ Source.

European Commission (2015), ‘Memorandum of Understanding between the European Commission acting on behalf of the European Stability Mechanism and the Hellenic Republic and the Bank of Greece’, 19 August. Source.

OECD (2010) ‘Offshore Voluntary Disclosure: Comparative Analysis, Guidance and Policy Advice’. Source.

OECD (2015), ‘Update on Voluntary Disclosure Programmes: a Pathway to Tax Compliance’. Source.

Piketty, T and G Zucman (2014), ‘Capital is Back: Wealth-Income Ratios in Rich Countries, 1700-2010’, Quarterly Journal of Economics, 2014, 129(3): 1255-1310. Source.

Roussille, N (2015), ‘Tax evasion and the Swiss Cheese regulation’ Source.

Tagkalakis, A (2014), ‘Tax administration reforms and the fight against tax evasion: Recent evidence from Greece’, VoxEU.org, 2 December. Source.

Zucman, G (2014), ‘The Missing Wealth of Nations, Are Europe and the U.S. net Debtors or net Creditors?’, Quarterly Journal of Economics, 128(3): 1321-1364, 2013. Source.

Zucman, G (2015), ‘The Hidden Wealth of Nations, the Scourge of Tax Havens’, University of Chicago Press.



[1] The August memorandum has anticipated €1.4bn, €3.7bn and €1.3bn of privatization proceeds for 2015, 2016 and 2017 respectively in order to reduce the financing envelope. Subsequently, Greece has committed itself to generating €50bn over the life of the new loan, of which €25bn should be used for the repayment of the ongoing recapitalization of domestic banks, €12.5bn to lower the debt to GDP ratio and €12.5bn for public investments. Thus, putting aside the €12.5bn of investments, falling short of the remaining €37.5bn would require additional debt relief to make public debt sustainable.

[2] The Greek State includes the central government, regional or local public administrations and social security funds. We exclude from the consolidated balance sheet of the general government the cross-holdings between public entities such as the loans from the central government to local administrations.

[3] Fixed assets include notably dwellings and non-residential buildings. We use the estimated market value of Greek government fixed assets published by ELSTAT for the end of 2012 and derive the value for 2013 and 2014 by adding net flows (gross capital formation minus consumption of fixed capital) to the stock. We also adjust the end of period value of the stock using an appropriate price indicator to obtain a market value estimate for each period.

[4] We use the OECD balance sheet data (national accounts) available for a regional peer country, the Czech Republic, and make a series of assumptions and adjustments: (i) we assume that the marginal value of natural resources is the same in both countries and derive data for Greece by adjusting for the relative size of natural resources as detailed in the World Factbook Database; (ii) we derive the value of the general government non-produced assets in Greece by assuming that the ratio of general government holdings with respect to the total economy is the same for ‘produced’ and ‘non-produced’ assets in both countries.

[5] This can be explained by a combination of factors: (i) the surge in public debt following the official bailouts, (ii) the fall in domestic house and equity prices and (iii) the sale of public assets as part of the privatization plan.

[6] We value the public asset portfolio at €321.5bn (end 2014 – early 2015 estimate). This figure is coherent with a May 2011 statement of the former director of the IMF European Department, Antonio Borges, who stated: “The government has an extraordinarily large portfolio of assets” and €50bn “is less than 20% of all assets that the Greeks could privatize” (source: http://www.bloomberg.com/news/articles/2011-05-12/imf-s-borges-sees-no-need-for-restructuring-of-greek-debt-1-). Note that this was the only time when a potentially comprehensive evaluation of the value of the public asset portfolio was ever mentioned.

[7] Swiss offshore portfolios are made of two types of assets: either ‘securities’ held directly by the account holder, or ‘fiduciary deposits’, namely investments made by the fiduciary for and at the risk of the account holder. The Swiss National Bank only provides a country-breakdown for ‘fiduciary deposits’. The estimation of the value of Greek households’ assets held in Switzerland thus necessitates two adjustments. First, the SNB wrongly records a large amount of funds as belonging to other tax havens. This is because the SNB does not look through ‘sham corporations’: for instance, it will register the shell company of a Greek resident opened in Jersey as belonging to Jersey instead of Greece. An important adjustment is therefore to re-integrate such entities to their ultimate owners: we do this in proportion of direct holdings. We can now derive the ‘actual’ share of total fiduciary deposits held by Greek residents in Swiss banks: 3.8% at the beginning of 2014. Second, we have to assume that this country-breakdown also holds for securities in order to compute the value of the total offshore wealth held by Greek residents in Switzerland (€70bn).

[8] Zucman (2014) shows that total offshore wealth is $5.9tr at the end of 2008, so that Switzerland concentrates about one third of total offshore wealth. Since Europeans are the first beneficiaries of the Swiss bank secrecy we assume that roughly half of their worldwide hidden wealth is located in Switzerland. We further assume that this repartition is about homogeneous across European countries. Therefore, the estimates should be interpreted as orders of magnitude. It should also be born in mind that the recent flight of private wealth due to the fear of an imminent ‘Grexit’ may have significantly increased this amount.

[9] This number is computed applying the taxes, interests and penalties describe in the previous paragraph to the estimated revenues generated by offshore assets over the last five years. Offshore revenues are calculated using a 6% return on investment. This is a conservative estimate for the effective return on investments made by high-net-worth individuals. Indeed, as evidenced in the annual publication of the ‘World Wealth Report’ by Cap Gemini, the average annual returns on investment for high-net-worth individuals is about 7-8 %. The expected annual tax revenue is computed using a capital income tax rate that combines interest and dividend income tax rates to reflect the investment portfolios of European investors in Switzerland, as described in the SNB data. Similar estimates for the other European countries can be found here: http://piketty.pse.ens.fr/files/Rousille2015.pdf.

[10] This estimate is a static computation made by applying the current capital tax rate to the revenues made on the Greek offshore wealth that remains after applying the previously described penalties and taxes. It is likely to increase in the upcoming years since the wealth held – and therefore the revenues derived – will increase with future accumulation of interests.

[11] Steps have already been taken in this direction: an agreement on automatic exchange of information was signed between Switzerland and European countries on May 27th 2015. However, this agreement is still far from solving the problem: only the accounts that are held directly by Europeans are subject to this mandatory transmission of information. Thus, if a Greek resident holds his Swiss account through a ‘sham corporation’ domiciled in Jersey for instance, he will not be worried by the mandatory transmission of information scheme. Additionally, since this agreement only comes into force in 2018, the Greek residents who currently hold their offshore account in their own names have time to implement financial set-ups to avoid the regulation.



One Response to "A More Ambitious Agenda Needed to Combat Greek Debt"

  1. Dirdam   November 15, 2015 at 5:22 am

    This analysis, IMHO, is a waste of time. Greece cannot manage all the actions you propose with the resources that it has. What tax inspectors are going to find all those foreign deposits in Switzerland? If you want the money to be spent in Greece, which is the best way of recovering those assets, create conditions for growth. Selleing off Greek State assets is not only criminal, it is a way of impoverishing it even more. The pretence of leading Greece into a surplus is pointless and can only lead to a continuation of the depression. Greece needs to leave the Eurozone and default on its external debt. Nothing else will work.