Banks reopen

Greek banks reopen but cash limits remain and taxes soar

Derek Gatopoulos and Nicholas Paphitis

Greek banks reopened Monday for the first time in three weeks, but strict limits on cash withdrawals and higher taxes on everything from coffee to diapers meant the economic outlook for the recession-battered country was far from back to normal.

There were hopeful developments: The cash-strapped nation got a short-term loan from European creditors to pay more than 6 billion euros ($6.5 billion) owed to the International Monetary Fund and the European Central Bank. Non-payment of either would have derailed Greece's latest bailout request.

But for most Greeks, already buffeted by six years of recession, Monday was all about rising prices as tax hikes demanded by creditors took effect.

Dimitris Chronis, who has run a small kebab shop in central Athens for 20 years, said the higher tax rates could push his business over the edge.

"I can't put up my prices because I'll have no customers at all," lamented Chronis, who said sales have already slid by around 80 percent 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 steep increase in the sales tax from 13 to 23 percent. The new rates have been imposed on basic goods, from cooking oil to condoms, as well as to popular services, such as taxi rides, eating out at restaurants and ferry transport to the Greek islands.

The tax hikes are part of a package of austerity measures that also include pension cuts and other reforms that the Greek government had to introduce for negotiations to begin on a crucial third bailout.

In response to last week's parliamentary vote backing the austerity measures, the ECB raised the amount of liquidity assistance on offer to Greek banks, paving the way for them to reopen Monday. But strict controls on cash flows, including a ban on check-cashing and payments abroad as well as limits on cash withdrawals, remained in effect.

The European Union also sent a three-month loan to Athens, enabling the government to repay a 4.2 billion euro debt to the ECB on Monday and to clear its arrears of about 2 billion euros with the IMF.

Both institutions confirmed they had been repaid.

IMF spokesman Gerry Rice said the Fund "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 over the austerity measures that Greece's European creditors are demanding unless they also include significant debt relief.

Greece has relied on bailout loans totaling 240 billion euros since 2010 after it was locked out of international money markets. In return for the cash, successive governments have had to enact harsh austerity measures to try to get public finances into shape.

Though the annual deficit has been reduced dramatically, the country's debt burden has actually risen to around 180 percent of Greece's annual GDP as the country's economy contracted around 25 percent.

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.

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 other reforms deemed necessary in return for an anticipated 85 billion euros ($93 billion) over three years.

Though the potential bailout has eased fears of a Greek exit from the euro, capital controls are expected to remain in place for months if not years. The controls were introduced because negotiations with creditors had reached an impasse, fueling anxiety about a Greek exit from the euro and a bank run.

On Monday, the first easing saw banks open their doors for limited services that allowed customers to move money from one account to another, but barred them from opening new ones. The daily cash withdrawal limit stayed at 60 euros, or about $65, but new rules permitting the withdrawal of up to 420 euros a week meant that Greeks won't have to trudge to the ATM every day.

Since the Greek parliament passed the austerity measures, creditors have relieved the pressure on the country, though its acute difficulties were evident in the fact that the Athens Stock Exchange remains closed until further notice.

Further relief for Greece may come if lawmakers back another set of creditor-demanded measures on Wednesday. A repeat of last week's rebellion by lawmakers in Tsipras' left-wing Syriza party is unlikely given the non-controversial nature of the reforms: revamping the civil law code to streamline legal proceedings and adopting EU regulations on guaranteeing bank deposits and strengthening banks.

The thornier issues of scrapping early retirement and hiking taxation on farmers — opposed by both government and opposition lawmakers alike — are not among the reforms Greece has to approve this week and will be addressed later, government officials said.

Cabinet-level dissenters were replaced Friday, but even their replacements have denounced the austerity measures demanded by Greece's creditors.

"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."