How the Greek Shipping Industry Schemed to Win Big in the Debt Crisis (1/2)
James Henry says Greek shipping tycoons created a pipeline for laundering billions of taxable income out of Greece and into Swiss bank accounts
JESSICA DESVARIEUX, PRODUCER, TRNN: Welcome to the Real News Network. I’m Jessica Desvarieux in Baltimore.
Early on Thursday the Greek parliament approved a series of austerity measures in order to start receiving their 86 billion-euro bailout. The deal has caused tensions in the Syriza party, as many feel betrayed by Prime Minister Tsipras who was elected on a platform of rejecting austerity. While many are blaming domestic mismanagement as the cause for the potential Greek exit, what role did the Swiss banks play in inciting this crisis?
Here to discuss all of this is James Henry. James is a leading economist, attorney, and investigative journalist who has written extensively about global issues. Thanks for joining us, James.
JAMES HENRY: You’re quite welcome.
DESVARIEUX: So James, let’s get right into it. How are Swiss banks connected to the Greek debt crisis?
HENRY: As of the third quarter of 2009, shortly before the first bailout, it turns out that Swiss private banks accounted for about 39 percent of all bank loans to Greece. And that’s a story that really hasn’t been explored very systematically by the media. We’ve heard a lot about French and German banks getting bailed out by the ECB and the IMF.
But the question is, what were the Swiss banks doing lending all this money to Greece? And I think it’s an interesting entree to another whole aspect of this, which is the role of the Greek elite, their offshore accounts, their offshore shipping industries, and other industries that are mainly held offshore, not paying their fair share of taxes in Greece.
So this whole crisis sheds light on this kind of global offshore industry, as well.
DESVARIEUX: Okay, let’s get into that a little bit more. As I mentioned in the introduction, there’s a new set of austerity measures that were passed on Thursday. But there’s also a focus on reform, and reforming Greece’s second-largest industry–excuse me, world’s second-largest industry, the international shipping industry. And I want to get a sense of what is the relationship between that industry and the Swiss banks, and connecting it to Greece a little bit more specifically. And what will these reforms actually do?
HENRY: Well, one of the provisions in the reform package that was passed in addition to clamping down on home foreclosure, the rights of people to defend against home foreclosures, which I find really [brutalitarian], is the idea of raising the tonnage fees paid by the Greek shipping industry.
The shipping industry is–well, it’s not the second-largest industry. That would be banking, or defense. But certainly shipping is one of the most important industries in the world. And this crisis really highlights the fact that it’s basically an offshore industry. It’s a lot of–first of all, a lot of the individual ships are registered in places like Panama, Liberia, the Marshall Islands, with relatively low regulations of labor rights, of safety inspections, insurance requirements, as well as registration fees.
Secondly, the owners of the industry basically inhabit, for the most part in the case of Greece, they’re not living in Greece. They’re living–transnational citizens of nowhere for tax purposes, in places like Geneva and London and New York. And these are very prominent, very wealthy families. So the issue arises, are they paying their fair share of taxes in Greece? And the answer I think, at a general level, is definitively no.
And third, we have this odd case of sophisticated Swiss banks lending heavily to Greece right up to the very end of 2009, 78 billion euros of bank loans to Greece. I’ve got to believe that a lot of that represents what’s called back to back loans, basically where you have private banking assets accumulated by wealthy individuals. You’re feeling secure about lending to Greece because those loans are backed up in the first instance by the deposits and the assets under management that these individuals have accumulated offshore. And secondly, you’re likely to get bailed out by the Troika when it comes along. And I think that’s indeed what we see in 2010, the Swiss exposure to Greece drops from 39 percent to about 3 percent, only about 3 billion euros.
So suddenly those, those bank loans get bailed out.
DESVARIEUX: All right. Let’s be a little bit more specific, James, here. Which families are involved in the shipping industry?
HENRY: Well, I’m hesitating to name names here. I think what we, those families that are well known as Greek shipping owners are–Americans probably remember Onassis, who accumulated a lot of ships from the U.S. military in the late ’40s and then turned them into a very successful tanker business internationally. Then Niarchos was another well known name. Latsas, Landras, Potsas, Charos. There’s a tiny–relatively tiny handful of relatively well known very wealthy families that have dominated this Greek industry.
What the new Greek government in January pledged to do was to try to get the cooperation of havens like Swtizerland and Cypress, indeed London can be considered a haven from the standpoint of international taxation. Get their cooperation in recovering taxation from some of the offshore wealth parked in these places, by these elite families. And they’ve absolutely gotten no assistance whatsoever. The Swiss have basically stonewalled them. There’s an estimated 200 billion euros at least of private financial offshore money from Greece sitting there being not taxed.
So not only is the world shipping industry largely offshore, but you also have the owners of the industry arrange their affairs so they’re not contributing to this crisis.
DESVARIEUX: All right. James, let’s pause the conversation here because I want to talk a little bit more about what you mentioned, considering recovering taxes and whether or not this Greek government can do this in the existing structure.
So James, thank you so much for joining us.
HENRY: Quite welcome.
DESVARIEUX: And thank you for joining us on the Real News Network.
DESVARIEUX: Welcome back to the Real News Network. I’m Jessica Desvarieux in Baltimore. We’re continuing our conversation with James Henry. James Henry now joins us from New York. He is a leading economist, attorney, and investigative journalist who has written extensively about global issues. Thanks for joining us again, James.
HENRY: You’re very welcome.
DESVARIEUX: So James, let’s pick up our conversation where we left it off. We were discussing Swiss banks in relation to the tax dodging, tax havens across the world.
So it sounds like to me this is sort of this endless game of cat and mouse between the elite and the government. What enforcement regulations could be put in place to change the status quo? And let’s take it from the Greek government’s perspective. What could they actually put in place to regulate taxes?
HENRY: I think the situation highlights the fact that it’s very little that Greece can do on its own to tax, to raise taxes on those who are most able to pay the taxes. Because they have the mobility of capital. They can move their registrations to other locations, their corporations offshore. And they’ve already threatened to do that. The latest bailout package that was passed at 4:00 AM Greek time last night was, one of the provisions included there was this increased duty on the tonnage rate, which is apportioned to the size of each ship. And Greek ship owners have all already threatened that they would be relocating their ships elsewhere beyond the reach of the Greek tax increase here.
So in order to be able to levy taxes on the wealthy Greece needs to have the help of the international community. Not only the EU but also entities like Switzerland that have hosted Greek foreign assets for generations. And this highlights the fact that Greece is not able to solve this crisis on its own, despite the fact that the brutilitarian package that it’s now adopted, reform measures, basically requires it to make a lot of changes. And the EU and other countries, you go on with business as usual.
I think this is a case for–I mean, the world shipping industry is a great example of an industry that’s largely off the books. Its owners aren’t paying taxes, the ships are under-regulated. Greece is left to its own devices to try to raise taxes, it’s not going to work.
DESVARIEUX: Would it work better if Greece were to be outside of the eurozone? Or would it still be this same sort of dynamic?
HENRY: I think if Greece were outside of the eurozone that wouldn’t really address this fundamental tax problem. It might make it worse. Being within the eurozone, it should be able to argue for equitable treatment, and one of the equitable benefits, supposedly, of being members of the EU and being a member of the eurozone is to be assisted with tax collection. We’re not talking about raising taxes so much as we are talking about being able to effectively collect taxes.
Most of the attention that the IMF and the ECB and the EU members of the Troika have given is to raising taxes on ordinary Greek citizens. They have increased the VAT tax from 13 percent to 23 percent. This is a virtually unavoidable sales tax. But at the higher levels of [inaud.] they haven’t developed a program for helping Greece collect more taxes, and that’s what we need to do here.
DESVARIEUX: But James, some would argue that essentially this system isn’t created for us to be able to collect taxes on the elite. And if you’re going to depend on the international community, the Troika, they essentially are in the interests of private industry, banks, and they’re not interested in collecting taxes and aren’t going to create those mechanisms. What would you say to that?
HENRY: Well, this is an example of where we’ve had decades of so-called tax competition among all the members of the EU, the United States as well, and Canada. And the world community at large. Corporate tax rates and the increased use of offshore havens has accelerated throughout the last 30-40 years to the point where it’s become very hard to have any kind of fair income taxation.
We’re–this is a fundamental issue. If we’re going to help countries like Greece have a more equitable society, we basically have to clean up the world system as well as Greece. Otherwise we’re going to have the cost of this entire crisis being borne by the middle class and the poor in Greece, and that’s what’s been happening so far.
DESVARIEUX: What about this issue that this is essentially all part of the plan, that these Greek elite families are just sort of waiting for these islands and public assets to eventually be privatized, and be able to profit largely in what some people anticipate as being a fire sale of these assets in the future? What do you make of that argument?
HENRY: The latest bailout calls for 50 billion euros of privatization. About half of that would be state banks, but there are valuable assets like one of the largest ports in the world, is a very valuable state asset that would be on the block.
This is a pattern in other privatizations around the world where we’ve seen the same kind of austerity programs imposed. The elite move their money offshore to secure currencies, and then when the privatization deals happen they were the ones to come in and be able to buy up the assets at fire sale prices. Greek owners are probably salivating at some of the assets that are going to be offered here, but they’re going to have to compete with people like the Chinese.
But it is unseemly, if you know the history of this industry, the Greek shipping industry in particular but also other industries like tourism, pharmaceuticals, a lot of which is parked in offshore havens, or arranges its sales so that the sales are booked in Switzerland in Zug rather than the manufacturing facilities where they’re actually making the products in Greece.
You know that the offshore industry here is basically a big contributor to this kind of financial mess, and it shouldn’t be allowed to escape scot-free, and it shouldn’t be allowed to go now and buy up these privatized state assets at fire sale prices.
DESVARIEUX: All right. James Henry, thank you so much for your commentary.
HENRY: Quite welcome.
DESVARIEUX: And thank you for joining us on the Real News Network.
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