Shipping is part of the solution for Greece, not the problem

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Published on Friday, 10 July 2015 04:25
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Shipping is part of the solution for Greece, not the problem

Shipping was nominally supporting a proposal to take away the industry’s privileged legal status. © 2015 Emilio Morenatti/AP

 

Shipping was nominally supporting a proposal to take away the industry’s privileged legal status. © 2015 Emilio Morenatti/AP

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What now for the country’s shipowners as voters shock Europe with ‘No’ vote?

GREECE’s shipping industry is facing a prolonged period of anxiety over its place in its homeland after a Greek referendum that has intensified speculation about the country’s potential exit from the euro and is perceived to have at least bruised the European project.

In Sunday’s hastily-organised referendum on one of the latest versions of the new austerity package put forward by Greece’s troika of creditors – the European Central Bank, the European Commission and the International Monetary Fund – an unexpectedly high 60% of voters gave prime minister Alexis Tsipras the clear “No” vote he had sought.

The vast majority of shipowners and other members of the maritime community will have voted “Yes” as the outcome least likely to harm hopes of a return to stability and the country’s standing in Europe.

Among the bitter ironies of the plebiscite, which has left banks closed and the economy hanging by a thread, was that shipping people were nominally supporting a draft that included a proposal to take away the industry’s privileged status under Greek law.

A crucial few days now follow. For the industry much will now depend on the climate between the Tsipras administration and the creditors, and whether shipping remains on the hit-list. If so, the devil could be in the details and number crunching to follow.

At the start of 2015, shipping was fearful of an intemperate attack upon it by Mr Tsipras’ incoming radical-left Syriza government, but in the end it has been the creditors that have targeted it in increasingly forlorn efforts to get the country’s numbers to add up.

Since the debt crisis blew up in 2009, the troika has often tried to add shipping to the long list of pots to be raided for more funds, but previous governments have rebuffed the moves.

According to the documents that the referendum put to the vote, although the creditors insist these are no longer on the table, Greece is being told to "increase the rate of the tonnage tax and phase out special tax treatments of the shipping industry".

Underlining that shipping is now firmly in the sights of the creditors, last week European Commission president Jean-Claude Juncker, in a remarkable televised  press conference, used shipping to illustrate how it fell to the troika to kick some common sense into the Greek government to wind up tax breaks for “vested interests”. In his account, the radical left government was presented as more reluctant to tamper with the industry’s legislative framework.

“I had to do the job,” boasted Mr Juncker, “to persuade the Greek government to impose a less-favourable tax regime for shipowners, even though this is common sense and is in line with tax justice”, he said.

Shipping is poorly understood and listening to him, or reading general press coverage of the Greek crisis, anyone would think that shipping is part of the problem, when in fact it is one of the essentials for recovery.

In that sense, targeting shipping is consistent with the discredited handling of the crisis so far, with the troika’s emphasis on cutting the economy to the bone rather than concern itself with growth.

While shipping has long enjoyed an attractive taxation regime in Greece, frequent assertions that owners pay no tax are untrue.

Since 1975, owners of Greek-flag vessels have paid a flat tonnage tax depending on the size of the ship, and the regime has been constitutionally protected, meaning that it cannot be altered even by an ordinary act of parliament. The creditors proposal to phase this out may be easier said than done.

This special tax regime was accepted at the time of Greece’s accession to the European Union in 1981 and has been widely emulated with most European countries having now introduced a tonnage tax system of their own for shipping.

Comparisons between the rates paid in various countries are said to show that Greek tonnage taxes are at the mid to upper end of the scale.

Meanwhile, the large number of vessels under other flags, as well as maritime service companies such as shipbrokers, insurance brokers and average adjusters, came under offshore legislation that allowed them to escape income tax in return for posting of certain bonds and importing specific amounts of foreign currency.

Two years ago, this changed as the then-government sought to increase contributions from shipping in light of the crisis. Under the new regulations, foreign-flagged vessels managed in Greece were brought into the tonnage tax net for the first time at the same rate as Greek-flag vessels. Service companies have been subject to a 3% to 5% charge depending on income remitted, as well as a 10% tax on dividends and bonuses.

Given the severity of the country’s economic plight, the Union of Greek Shipowners has pledged a further $420m over a four-year period through a deal with the previous New Democracy government. That was ratified by parliament and will see virtually all Greek owners voluntarily paying triple measures of tonnage tax through to 2017.

All this plus a so-called solidarity tax levied on Greek companies since the outbreak of the crisis has resulted in a more than eightfold increase in government tax revenues from shipping, says the UGS.

Its president Theodore Veniamis has countered branding of the industry as tax-free by pointing out that if the conditions in Greece were so great, then other European owners might have been expected to relocate to Athens. In fact there has been no migration of shipowners to Greece since the country joined the EU.

During the 1980s and 1990s, by contrast German shipowners and managers in particular chose to relocate to Cyprus and helped shape a light-tax system there that has secured long-term EU approval.

Shipowners have been very much alive to the risk that the industry could be sucked further in to the crisis as the country’s finances deteriorated and Mr Tsipras wrangled with the troika.

As recently as May, in a circular to members that has been seen by Lloyd’s List, Mr Veniamis noted “a very negative image of our sector” that he attributed mainly to the foreign press.

The UGS warned of two dangers – that Greece could lose its “most productive economic pillar” to other countries within Europe that offer a more competitive legislative framework for shipping, and secondly that Europe risks losing a large part of its shipping strength if Greek owners turn to maritime hubs outside Europe.

More than 46% of the carrying capacity of EU-registered fleets belongs to Greek owners, mainly under the Greek, Maltese and Cypriot flags. But Greek owners have often accused Brussels of being obsessed by the internal shipping market and blind to the importance of a European fleet that can compete worldwide and can serve the continent’s energy and basic commodity needs.

The most frequently mentioned refuges for Greek owners if they decide that they want to jump ship are Cyprus, Dubai, London, Monaco and Singapore.

“No-one wants to go and it will be for everyone individually to work out what their limits are if things are going to change,” one leading owner told Lloyd’s List on condition of anonymity.

“But if owners go for personal reasons, then it might be a gradual process but eventually it is likely that the management companies will follow,” he said.

He said that even now, with the existing tax changes, a colleague had worked out that it would be cheaper to run a medium-sized fleet of vessels from the US in comparison with Greece.

According to Costas Constantinou, managing partner of accountants Moore Stephens in Greece, the country needs shipping to the extent that forcing the industry to leave would be “an extreme scenario”.

In addition, says Mr Constantinou, relocation will be difficult and expensive.

“I have some sort of confidence that the cluster will not disappear, but there are a lot of bad signs too,” he said.

“In the current political environment I am afraid that all this is happening in a way that will not be beneficial for any side.”

If they perceive that changes to the tax system create a mortal threat to their ability to withstand the peaks and troughs of shipping, though, there is little doubt that many owners will reluctantly opt to relocate.

Adaptability and self-preservation has seen the Greek shipping community survive and replenish itself throughout modern times and this has become part of the industry’s narrative.

Preserving capital for bad times, enabling it to reinvest at the right moment, has served the industry particularly well.

At a time when Greeks and Germans have hurled national stereotypes at one another in a drama of its own within the overall clash between the Greek government and the rest of the Eurogroup, it might be said that in a shipping context the generalisations are reversed.

At shipping, Greeks as a tribe have proved the prudent savers with an eye on the long term, while Germany’s KG system that thrived on tax breaks crashed and burned.

Does that make the Greeks ‘the Germans’ of shipping, and the Germans its ‘Greeks’?

 

What’s at stake for Greece?

Shipping is one of the twin pillars of the Greek economy, along with tourism, and the importance of both has only increased as the rest of economic activity has withered, contracting by one quarter in the last five years.

Since the 1960s revenues from shipping have plugged more than 35% of the country’s trade deficit, and it now accounts for about 7%-8% of gross domestic product, providing more than 190,000 comparatively well-paid jobs.

The contribution of shipping capital to the Greek landscape is not hard to spot in Athens where the new Stavros Niarchos Cultural Centre is being erected, not far from the Onassis Cardiac Centre and the Onassis House of Arts & Letters, as well as the Eugenides Foundation building that includes Greece’s planetarium.

Such civic splendours are only the tip of the iceberg, with money from shipping finding its way into most other sectors through investments, and – increasingly since the onset of the crisis – into social relief.

Numerous shipowners have established their own foundations and while some of these may be essentially vanity projects, others belong to a patchwork of private trusts contributing to the fabric of Greek society.

At the top end of the scale, the Stavros Niarchos Foundation last month announced another €100m ($111m) as an emergency grant programme over the next year to help alleviate the effects of the crisis. That follows the foundation’s first programme, worth €100m, that ran from 2012.

Direct support by shipowners of various charities and welfare efforts these days is widespread but unquantifiable.

In the last three years the Union of Greek Shipowners has been running its own programme that has been helping to feed more than 40,000 people, as well as contributing to basic medical care for many disadvantage families and regions.

The fund has also been helping to support dozens of independent welfare centres around Greece.

Over the years, the industry has donated fire trucks, ambulances and coast guard patrol vessels as well as paying for urgent repairs and maintenance for the state maritime colleges.

Shipping’s social role is particularly important, given the sclerotic Greek state and the threadbare nature of its welfare system, despite the bloated nature of the country’s bureaucracy.