Greek banks opened their doors Monday for the first time in over three weeks, a move the government hopes will help the economy get back to normal following a period dominated by fears over the country’s future in the euro.
Strict controls on the amounts individuals can withdraw remain, however, and new austerity taxes demanded by the country’s European creditors came into effect, making most everyday items more expensive—from coffee to taxis.
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The hefty sales tax rise on many basic goods from 13% to 23% formed part of a package of confidence-building measures the Greek government had to introduce for negotiations on a third bailout to begin. For an economy reeling from weeks of uncertainty and capital controls, the higher taxes are expected to accentuate the recession.
Dimitris Chronis, who has been running a small kebab shop in central Athens for 20 years, says the new taxes could push his business over the edge especially when combined with higher business taxes and meat prices.
“I can’t put up my prices because I’ll have no customers at all,” said Chronis, who said sales have slid by around 80 per cent since banking restrictions were imposed June 29. “We used to deliver to offices nearby but most of them have closed. People would order a lot and buy food for their colleagues on special occasions. That era is over.”
There are few parts of the Greek economy left untouched by the higher sales taxes. They have been imposed on many basic goods—including some meats, cooking oils, tea and condoms. Popular services have also been hit by the new taxes such as restaurants and cafes, funeral homes, ferries and language schools.
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The higher taxes formed a key plank of last week’s bailout agreement between Greek Prime Minister Alexis Tsipras and European creditors. Following months of growing distrust, Greece’s partners in the 19-country eurozone wanted to see measures enacted before bailout talks could begin. Other austerity measures included cuts to pensions.
The green light to the opening of discussions, which are expected to last around a month, was given Friday. They will include economic targets and reforms deemed necessary in return for an anticipated 85 billion euros (US$93 billion) over three years.
Though the potential bailout has eased fears of a potential Greek exit from the euro, capital controls of some sort are expected to remain in place for months if not years. The controls were introduced because negotiations with creditors had reached an impasse, fueling fears of a Greek exit from the euro and a bank run.
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On Monday, the first easing saw banks reopen their doors for limited services. In downtown Athens, people queued up in an orderly fashion.
Though the daily cash withdrawal limit stayed at 60 euros (US$65), the government has given individuals a new weekly limit of 420 euros from this coming Sunday so they don’t need to trudge to the ATM every day.
Since the Greek parliament passed the austerity measures demanded, creditors have relieved the pressure on Greece.
The European Central Bank raised the amount of liquidity assistance on offer to Greek banks while the European Union sent a three-month loan to Athens so it could pay a 4.2 billion-euro debt due to the ECB on Monday and clear arrears with the International Monetary Fund.
“We are meeting our obligations today,” a Greek government official said on condition of anonymity ahead of an official announcement.
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Further relief may come if lawmakers back another set of creditor-demanded measures on Wednesday.
Paying off the IMF and ECB will give Greece some breathing space but the country will need bailout funds to meet upcoming debts. Some of the bailout money will also go to restoring the financial health of the banks, which would help speed up the removal of the controls.
The agreement to open up bailout discussions has not gone down well in large parts of Tsipras’ radical left Syriza party, which was elected in January on a promise to end austerity. Cabinet-level dissenters were replaced Friday, but even their replacements have angrily denounced the new austerity measures.
“The government was obliged to make a tactical retreat to save the country,” new Labor Minister Giorgos Katrougalos said Monday. “This was the result of a soft, post-modern financial coup that was handled by the prime minister in a responsible way.”
Getting the Greek economy back to normal will take time though especially as credit—the lifeblood of a modern economy—remains restricted.
Louka Katseli, head of the Greek Banking Association, said Monday it was too early to say how long the cash controls would last.
“I totally understand people who are anxious,” she told state-run ERT television. “But acting with fear produces the circumstances that people are afraid of.”
Katseli noted that since 2008, 124 billion euros worth of deposits has been withdrawn from Greek banks and that 40 billion of that money has been removed in the last few months.
“If that had not been removed, the Greek banks would not have had a liquidity problem,” she said.