Sep 11th, 2015, Greece's pre-election campaign evolves smoothly amiddeteriorating economic conditions

·       Polls continue to show that Greece's elections is a neck and neck battle. With 9 days before elections, Greece’s pre-election campaign continues without any issues. Political parties focus on undecided voters who represent almost 10% of total voters.  SYRIZA (left) and New Democracy (centre right) continue their preparations for Monday’s TV debate between their leaders, Tsipras and Meimarakis respectively

·       The Head of EU Commission Jean Claude Junker sent a clear message to local political system that regardless which government will be formed after elections, Greece must meet its obligations, which are included in the 3^rd MoU, .

·         Refugee influx continues in Eastern Aegean islands. However, the caretaker government has showed  significant improvement as regards the management of crisis. The President of EU Commission, Junker emphasized the need to enhance solidarity, among European member states, on this issue. During his speech at European Parliament he also used as a positive example for all European citizens, thecase of a Greek baker in Kos island who has been offering bread to refugees for free.

·         Greece further relaxed capital controls; it doubled the daily cap to 14 mios, as regards the imports that could be approved at bank level. In addition, all requests concerning imports up to the amount of 5K euros could be approved at branch level.

·         Greece’s inflation rate continues to fluctuate in negative territory, for 30^th month in a row (CPI dropped by -1.5% in August).

·         Local industrial production fell less than expected in July (-1.6%). This is due to higher production of energy (+5.8%), which occurred after the implementation of capital controls. On the other hand, capital controls combined with political uncertainty caused significant drop of industrial production in most sectors (-6.3%). However, industrial production during Jan-Jul still fluctuates in positive territory (+0.9%).

·         Due to the implementation of capital controls, the number of bank cards increased by almost 1 mios, which is high considering that Greece’s population is around 11 mios. For the same reason, the number of transactions which are processed using bank cards has been increased significantly, since end-June.

·         According to studies performed by Schneider/ATKearnyand IOBE, there is high correlation between high tax evasion and low use of bank cards. Greece is included in the group of countries where the use of bank cards fluctuates just below 4% of total transactions, which is significant lower to Eurozone’s average (close to 14%).

In addition, the same study shows that there is high correlation between low use of bank cards and high undeclared work. Greece’s black economy represents almost 25% of total economy, which is one of the highest in Europe and the percentage of employees who work in big companies is one of the lowest in Europe (just below 15%).

Risk assessment. It is not clear yet, who is going to win the forthcoming elections, and what government is going to be formed after elections. However, both rival political parties have to focus on a) restoration of confidence in local economy b) management of refugee influx and surrounding security issues c) recapitalisation of Greek Banks and d) Greece’s obligations which are included in 3^rd MoU.

Traditionally, Greece has been a cash society. Although the implementation of capital controls caused significant problems in industrial production and exports, it brings to light the significant structural issues such as black economy, tax evasion and undeclared work.

The significant increase of bank cards’ usage for all kind of transactions won't only reduce the total circulating cash but will also increase the transaction volume which will pass through local Tax Office and this will be translated in state revenues.

Greece should proceed on the implementation of structural changes in the tax collection system which will include a) automated collection by Tax Office of the VAT processed via bank cards b) establish link between all local enterprises and Tax Office and c)  provide incentives to increase bank cards usage. All above won’t only increase tax revenues but decrease taxation rates and enhance social justice as well.