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Thursday, March 23, 2023

Banks re-open in Greece as citizens face tax rise

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Greece set a series of landmarks today it hopes will shore up its battered economy following months of crisis that threatened its place in the euro.

Banks reopened after more than three weeks, and the cash-strapped country got enough money from European creditors to pay around €2bn it owed to the International Monetary Fund.

But for most recession-weary Greeks, today was all about the price of goods in the shops as new tax rises demanded by creditors on everything from coffee to taxis took effect.

And though the banks may have opened, strict limits on cash withdrawals remained.

For an economy reeling from the recent uncertainty over the country’s euro future, the continuing controls on capital and the tax rises are not going down too well.

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 Mr Chronis, who said sales have slid by around 80% since banking restrictions were imposed on 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 increase in sales taxes from 13% to 23%. They have been imposed on many basic goods, from cooking oils to condoms, through to popular services such as eating out at restaurants and ferries to the Greek islands.

The tax rises formed part of a package of confidence-building measures the Greek government had to introduce for negotiations on a third bailout to begin.

In response to the latest austerity measures being passed by the Greek Parliament, the European Central Bank raised the amount of liquidity assistance on offer to Greek banks. The European Union also sent a three-month loan to Athens to pay a €4.2bn debt due to the ECB today and clear its arrears with the IMF.

“I can confirm that Greece today repaid the totality of its arrears,” IMF spokesman Gerry Rice said. “Greece is therefore no longer in arrears to the IMF.”

Mr Rice said the IMF “stands ready to continue assisting Greece in its efforts to return to financial stability and growth”.

The IMF is not directly involved in Greece’s request for a third bailout as its previous rescue runs until early next year. But it has expressed doubts on the measures that Greece’s European creditors are demanding without significant debt relief for Athens.

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 on Friday.

They will include economic targets and reforms deemed necessary in return for an anticipated €85bn over three years.

Though the potential bailout has eased fears of a 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, fuelling fears of a Greek exit from the euro and a bank run.

Today, the first easing saw banks reopen their doors for limited services. There were no reports of any problems.

Though the daily cash withdrawal limit stayed at €60, the government has given individuals a new weekly limit of €420 from this coming Sunday so they do not need to trudge to the ATM every day.

Since the Greek parliament passed the austerity measures demanded, creditors have relieved the pressure on Greece, though the country’s acute difficulties were evident in the fact that the Athens Stock Exchange remained closed with no indication of when it will reopen.

Further relief for Greece may come if politicians 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.

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