In Greece, Shift From Cash to Plastic Could Undercut Shadow Economy

By SUZANNE DALEYDEC. 4, 2015

The New York Times

ATHENS — In the central market here recently, hanging above the trays of cod and the slabs of pink meat, was evidence that Greece’s near bankruptcy last summer was having an unexpected impact — shiny new placards advertising that, at least in some stalls, customers could now pay with debit and credit cards.

“If I like it or not, people are asking for it,” said Christos Papoutsis, 57, a butcher here who finally yielded to plastic money only last month. “If I don’t accept the cards, I will lose sales.”

Economists do not generally see much to celebrate in the shuttered banks that followed Greece’s cliff-edge negotiations with its creditors or in the capital controls that are still in place, limiting Greeks to cash withdrawals of 420 euros, or about $457, a week.

Yet experts say that these events have created an unforeseen silver lining for this troubled country. They are spurring a great leap forward in the use of electronic transactions, which could make it much harder for corruption to flourish. Many say the government should act quickly with added incentives — like tax breaks linked to the use of the cards — to take advantage of the moment.

Once you get a lot of people with a lot of cards, it becomes a snowball effect,” said Nikos Vettas, an economist at Athens University and one of the authors of a recent report on the subject, which estimated that under various scenarios Greece could see billions more in tax revenues. “There is a chance here to really do something.”

Greece has long been awash in cash, a state of affairs that has facilitated the country’s huge shadow economy, estimated at 20 to 25 percent of its G.N.P. with as much as $12 billion in tax revenues being lost, according to Costas Bakouris, the chairman of the Greek chapter of the anticorruption organization, Transparency International.

But since July, Greeks, unable to get their hands on large amounts of cash, have been forced to use the cards they had tucked in the back of their wallets. At the same time, banks have issued more than 1.2 million new debit and credit cards, many to older people who had never used them before, but who suddenly found themselves unable to get to any of their money when only the country’s automated teller machines were functioning last July.

The use of cards does not come easy for many Greeks, who still favor bankbooks to keep track of their accounts and who are used to standing in line each week for face-to-face encounters with tellers.

Critics say the government has in some ways encouraged such behavior. Many Greeks pay their taxes in cash. And even quasi-government agencies, like the water and electricity company, will take only cash if customers pay their bills in local offices. Tourists often notice the country’s attachment to cash when they visit its many museums, only one of which, the Acropolis Museum, accepts cards.

Even with the capital controls, many Greeks say they would rather not use plastic money.

“If you have 10 euros in your pocket, you know what’s what,” said Nick Pavlakis, 38, who works for a windshield replacement company. “With the cards you only see what you did at the end of the month.”

Greece scores at the very bottom compared with other European Union members when it comes to electronic transactions. On average, citizens in the European Union made 189 electronic transactions a year in 2013, the most recent figures available. In Greece, the average was just 17 per citizen.

But the events of the last few months, experts say, have given Greece a unique opportunity to change all that and cut into the country’s shadow economy.

In a recent report for the Athens-based Foundation for Economic & Industrial Research, a public policy institute, Mr. Vettas points to South Korea as an example of a country that helped reduce its shadow economy with various incentives to use electronic transactions, including offering tax deductions to those who could produce credit or debit card receipts for a certain amount.

Other steps could help, too. Government officials say they are considering a broad package of measures that would include making it mandatory for new businesses to accept cards.

Tryfon Alexiadis, a deputy finance minister responsible for Greek tax revenues, said that an increase in the use of cards would bring several benefits, including getting taxes into government coffers much faster.

“Plastic money should have been done years ago,” he said. “If the right things happen and we organize correctly, the results could be impressive.”

Bank officials say the change in behavior has been drastic. In the last few months, the National Bank of Greece has given out about 630,000 cards (the vast majority debit cards) and found that 90 percent of them had been used at least once, according to Nelly Tzakou-Lambropoulou, the general manager for retail banking.

But Ms. Tzakou-Lambropoulou, too, says the government must act quickly. “If there is no action, the mentality of cash could just slip back,” she said.

Before the crisis fewer than 150,000 businesses even had the terminals necessary to process card transactions. But with more and more Greeks needing to use cards because they have no other way of getting to their money, banking officials are optimistic that this will change fast.

“There is a chicken and egg thing,” said Athanasios Geramanis, the country manager for MasterCard in Greece, Cyprus and Malta. “Businesses didn’t have the terminals because no one was asking. But the change was immediate. In the first week after capital controls, supermarkets that had been seeing 10 to 14 percent of sales paid with cards, were seeing 90 percent.”

Still, some experts are skeptical that it will have a broad effect on the black market, even suggesting that electronic transactions could heighten the level of corruption. Francesco Pappadá, a research economist at Banque de France who has recently studied the issue of tax evasion in Greece, points out that knowing more about the tax base will only be helpful if tax enforcement also improves.

If the tax authorities are corrupt, the information may only allow dishonest tax collectors to put more pressure on the taxpayer to pay higher bribes.

“For sure the more cash you have around the better for the black economy, “ Mr. Pappadá said, “but getting people to use cards alone is not enough.”

As Greece continues to put in place the harsh round of austerity measures it agreed to this summer to get yet a third bailout, workers have reacted angrily, prompting a new round of general strikes, including one on Thursday. Organized by two major unions, workers are objecting to overhauls that will translate into severe pension cuts and increases in retirement age.

At the Athens meat and fish market, many customers said that they had gotten a debit card in the last few months. But many said they had done so only as a security measure in case the banks closed again. They still did their errands with cash, out of habit if nothing else.

One retiree said his wife had made him get a card, though when she moved away to get a closer look at some lamb chops he added that he considered the cards “evil.” Behind such thinking, experts say, is a profound distrust of authority and the fear of having one’s purchases recorded.

Vassilis Korkidis, the head of Confederation of Commerce and Entrepreneurship, said such distrust was not hard to understand, as Greeks in the last few years had been subjected to a tax code that changed every two or three months, at times introducing retroactive or inconsistent measures. For instance, Mr. Korkidis said Greeks were asked in 2015 to pay extra taxes for 2013.

Mr. Vettas agreed, saying that in 2009 the government gave incentives to Greeks to buy new cars, prompting some to take advantage of the tax break and buy big cars. Two years later, the government increased taxes for owners of big cars.

“People just believe that three years down the road the government is capable of coming back and saying let me see what you spent,” Mr. Vettas said. “The politicians don’t see how important it is to establish trust with the people.”

Pavlos Zafiropoulos contributed reporting.