Greece to Make All Large Cash Transactions Illegal
Talk about making a currency less attractive. Given all the concern about weaknesses in the structure of the euro under strong economic headwinds, and its foundation in the perhaps too loosely-aligned euro area, it seems like a bad time to make using large quantities of euro cash illegal. And yet, that is exactly what Greece is going.
Embroiled in its debt crisis and looking for any avenue to bolster tax receipts it has done the unthinkable – it has made its own “legal tender” illegal for transactions over 1,500 euros. Of course, larger credit- or debit-based electronic transactions over 1,500 will still be denominated in euros. However, electronic transactions clearly require infrastructure and limit personal freedom.
“From 1. Jan. 2011, every transaction above 1,500 euros between natural persons and businesses, or between businesses, will not be considered legal if it is done in cash. Transactions will have to be done through debit or credit cards”
It seems wrong for the Greek state to dictate how cash euros can be used. In fact, it’s surprising that the EU-endorsed plan would allow Greece to control euro usage at that level. Several other primarily tax-related measures are included in the same plan:
* “Deposits in banks outside Greece are exempted from audits of their origin if they are repatriated within six months of the passing of the tax bill and are taxed with a 5 percent rate”
* “[in a] new tax scale, there is a shift of the burden from low and middle income to high incomes.
* “tax relief for incomes up to 40,000 (euros)”
* “Taxable income based on the new scales will include capital gains from the short-term trading of stocks”
* “Every autonomous taxation … for special professions, like engineers, architects, taxis, gas station owners and kiosks is abolished”
Despite the fact that the reform bill is a piece of an approved EU plan to help improve Greek tax revenue and reduce deficit, it seems to go too far in curtailing personal liberty. A 1,500 euro limit for cash transactions seems unreasonable on its face and it begs the question of what enforcement of the law would engender. Basically, how much is a government willing to punish its own citizens for using “too much” of their own legal tender in an otherwise legal transaction?
In fact, any cash limit other than those naturally imposed by the sheer inconvenience of carrying suitcases filled with money has a draconian feel to it. It’s especially true when combined with the obligatory repatriation of deposits described above. At some level Greece is steering its own citizens toward being excluded from participation in a market-based society unless they keep plenty of transaction-ready funds stored in Greek bank accounts.
It would be an unfortunate series of events, much like the unbalanced 2011 budget, that would lead to similar types of reform in the US. The thought of cash transaction limits alone sounds worthy of riots in the streets.
Please read more of the details in Reuters coverage of the Greek Finance Minister’s tax reform and wage policy plan.