European markets fall as Greek debt crisis claims first politician's career

Stocks and the euro fell on Monday, amid continuing worries that a $140 billion bailout for Greece won't stave off a broader eurozone credit crisis. The first politician was ousted in response to the Greek debt crisis.

European markets tumbled on Monday, with the euro dropping to a four-year low against the dollar, amid continuing concerns that a $140 billion bailout package arranged for a heavily indebted Greek government is deferring, rather than solving, a European credit crisis.

The crisis in Greece claimed its first political victim on Monday, when a deputy minister was forced to resign over revelations that her husband had cheated the tax authorities of 5.5 million euros ($6.6 million).

Greece is scheduled to receive its first slice of the bailout cash on Tuesday – money it needs to pay about €9 billion ($10.8 billion) in government bonds that come due on Wednesday. While Greek Prime Minister George Papandreou insisted that all the money would be repaid, his government has also been hinting it won't take full responsibility for the spending and borrowing that left Greece in this position.

Greece understated its level of debt for years before Mr. Panadreou's government came to power and the Greek parliament is looking into whether Goldman Sachs helped a former government hide the country's true financial condition from investors and its own people. In an interview with CNN over the weekend, Papandreou hinted that the country may sue some of its investment bankers. “In the financial sector, I hear the words fraud and lack of financial transparency... I wouldn't rule out that [legal action] may be a recourse also,” he said.

Greek voters have been deeply unhappy with the bailout, organized by the International Monetary Fund and wealthier European nations at the cost of a sharp reduction in government spending. The general feeling among the protesters has been that average Greeks are being asked to suffer through an austerity package that was made necessary by the sins of corrupt officials and wealthy tax-dodgers.

There have been riots in Athens and a national strike has been called for this Thursday that has Greek police officials fearing more violence. The last strike, on May 5, led to widespread battles between demonstrators and riot police in front of the country’s Parliament and the deaths of three bank employees caught in a blazing office building.

That backdrop, which makes international investors doubtful that Greece will manage to both follow through on its promised spending cuts and find a way to increase domestic growth to an extent it could pay its debts, has left George Papakonstantinou with one of the toughest jobs in the country.

'Social balancing act'

“We need to bring back consumer confidence and foreign investment but the second part is a social balancing act that we have to do,” said Mr. Papakonstantinou, Greece’s economy minister. “We need to restore a sense of justice by going after tax dodgers and conspicuous consumption that you see from people you know are not paying their full share in taxes.”

Greece’s beleaguered government has begun investigating and publicly naming and shaming high-income tax evaders.

Fifty-seven Greek doctors from the posh Athens district of Kolonaki were outed as tax evaders in the Greek media Friday in a bid to deflate popular outrage. Unions and left-wing political parties are channeling the anger felt by public sector employees into near-daily street marches to the Greek parliament that block traffic in the center of Athens.

“Of the 250 doctors working in Kolonaki, one third declare incomes below the tax rate of €12,000,” said Papakonstantinou. “Our [tax inspectors] visit doctors’ offices and see they were cutting receipts, had lots of appointments but there were no transactions on their books. And now we’re prosecuting them.”

Not everyone is convinced the government is really committed to change. “You’re talking about some 60 corrupt people being punished but they are only a handful in a sea of corrupt individuals,” says Solon Molho, an economist and lecturer in finance. “Why is the crime of taking bribes being punished but not that of receiving them?”

“Who are the taxmen that allowed them to get away with it for so many years and why are they not in prison?”

Political investigation

The government is also investigating the wealth of members of the previous government. Former Minister of Public Order Giorgos Voulgarakis is already under investigation, with more pending for former ministers of the economy, defense and tourism. Some opposition parliamentarians are calling the scrutiny a “witch hunt” but the government has charged that the former officials appear to be far wealthier than their official salaries should have allowed for.

Corruption in Greece is not limited to the public sector. The government is also prosecuting 12 doctors in a scandal related to De Puy International, a manufacturer of orthopaedic devides that is a subsidiary of Johnson & Johnson. Aside from tax evasion, the doctors also stand accused of promoting the company’s equipment to Greek patients and hospitals, in return for large kickbacks. The company’s former vice president received a 12-month jail sentence in April for helping funnel $6 million of bribes into Greece.

Athens’ bars and cafes are nearly empty on weekdays for the first time in years. The capital’s party crowd decamped to the beaches over the unseasonally hot weekend. Those less privileged stayed at home and watched updates on a new financial scandal relating to well-known singer Tolis Voskopoulos, who didn't pay taxes for 17 years and was found to be €5.5 million in arrears. His wife, deputy Minister of Culture Angela Gerekou, was forced to resign on Monday.

“For years I wondered how it was possible for us to be living this lifestyle where so little was being produced yet people in the streets and at work wore the latest fashions,” said Ilias Petropoulos, a television producer. “Since the crisis blew up, I realized that the cars, the clothes, the holidays, they were all on credit.”