A year on, cap­i­tal con­trols still bit­ing

Econ­omy has weath­ered cash re­stric­tions bet­ter than ex­pected but re­cov­ery won’t come un­til they’re lifted

Kathimerini English - - Front Page - BY NICK MALKOUTZIS

ANAL­Y­SIS To­mor­row marksa year since Greece held its ref­er­en­dum on whether to ac­cept bailout terms from its cred­i­tors. Twelve months on, it is dif­fi­cult to as­sess what kind of im­pact those crazy, pas­sion­ate and trau­matic days last July had on Greeks.

For in­stance, have we since grown wiser, aware of the lim­ited op­tions the coun­try has as long as its econ­omy is a wheez­ing wreck, re­liant on res­pi­ra­tory as­sis­tance from cred­i­tors? It is tough to say. It cer­tainly seems that one of the ben­e­fits of last sum­mer’s dra­mat­ics has been the dis­pelling of some il­lu­sions about what Greece can achieve in terms of bar­gain­ing with the in­sti­tu­tions or strik­ing out on its own. Even Prime Min­is­ter Alexis Tsipras fa­mously ad­mit­ted re­cently that his gov­ern­ment had been un­der “false im­pres­sions” last year.

The prob­lem is that there is no real way of mea­sur­ing this ap­par­ent ad­just­ment. It is not some­thing that has been ad­dressed in opin­ion polls and anec­do­tal ev­i­dence is not enough to go on.

In con­trast, we can mea­sure more pre­cisely the im­pact that last sum­mer’s es­capade had on the coun­try’s econ­omy. While the an­niver­sary of the ref­er­en­dum may grab at­ten­tion in­ter­na­tion­ally (ref­er­en­dums are quite the topic at the mo­ment), it is mostly within Greece that peo­ple have also noted it is one year since banks closed (for three weeks) and cap­i­tal con­trols were in­tro­duced as the Euro­pean Cen­tral Bank shut off liq­uid­ity to Greek lenders and fears of a dev­as­tat­ing bank run mounted af­ter Tsipras an­nounced his de­ci­sion to call the plebiscite.

Dur­ing the year since cap­i­tal con­trols were in­tro­duced, as the Hel- lenic Con­fed­er­a­tion of Com­merce and En­trepreneur­ship (ESEE) high­lighted, im­ports dropped by 11.7 per­cent, con­sump­tion fell by 4.3 per­cent and 3,000 fewer busi­ness were cre­ated.

It does not make for happy read­ing and high­lights the self-in­flicted dam­age that was done to Greek busi­nesses as a re­sult of the gov­ern­ment al­low­ing the sit­u­a­tion to reach a point where the bank­ing sys­tem was shut down to a large ex­tent.

How­ever, an­other story is hid­ing be­hind th­ese dis­ap­point­ing fig­ures and, in an odd way, it is en­cour­ag­ing. It is a story of sur­vival in the most test­ing of con­di­tions, which has grad­u­ally be­come a theme for the Greek econ­omy over re­cent years.

For in­stance, while there was a de­cline in the num­ber of new busi- nesses dip­ping their toes into the un­wel­com­ing waters of the Greek mar­ket­place, 12,486 com­pa­nies still de­cided to give it a go over the last 12 months, ac­cord­ing to ESEE. In many ways it is re­mark­able, that any­one should want to test their en­tre­pre­neur­ial skills or risk their cap­i­tal in such a for­bid­ding en­vi­ron­ment.

Also, though there has been a de­cline in pri­vate con­sump­tion, it too has weath­ered the storm much bet-


ter than ex­pected. In fact, it rose by 0.3 per­cent of gross do­mes­tic prod­uct in 2015 be­fore con­tract­ing by 0.4 per­cent quar­ter on quar­ter in Q1 of this year.

It should also be noted that over­all the econ­omy per­formed much bet­ter last year than had been ex­pected when banks rolled down their shut­ters. The im­po­si­tion of cap­i­tal con­trols led to most ex­perts pre­dict­ing a sig­nif­i­cant drop in out­put. For in­stance, the third bailout agree­ment signed in Au­gust 2015, some two months af­ter the re­stric­tions were put in place, fore­casted a 2.3 per­cent con­trac­tion for the year. In­stead, the econ­omy shrank by 0.2 per­cent of GDP.

It is by no means a cause for cel­e­bra­tion but per­haps pro­vides some hope that if the econ­omy can defy the odds in such em­phatic man­ner, per­haps a re­cov­ery could also come quickly if sta­bil­ity is re­stored.

The truth, though, is that many more fac­tors are needed to fuel a re­cov­ery than to with­stand a col­lapse. For in­stance, last year’s milderthan-ex­pected re­ces­sion is largely at­trib­uted to the fact that house­hold con­sump­tion did not dis­solve in the way that many ex­pected. To a great ex­tent this had to do with Greeks us­ing the cash they had with­drawn from their bank ac­counts, the so­called mat­tress money (more than 40 bil­lion eu­ros were with­drawn be­tween De­cem­ber 2014 and last sum­mer), to buy elec­tri­cal goods, cars and other items they thought would be out of reach if the coun­try left the euro or their de­posits suf­fered a hair­cut.

There is no such sin­gle fac­tor that can work the magic to in­sti­gate a re­turn to growth. It ap­pears that we are in for a long, hard slog. Ev­ery­one ex­pects it to get a lit­tle worse be­fore it gets bet­ter. The Euro­pean Com­mis­sion sees a con­trac­tion of 0.3 per­cent of GDP this year, while the In­ter­na­tional Mone­tary Fund ex­pects the re­ces­sion to reach 0.6 per­cent.

The Greek busi­ness world will be well aware that there are no quick fixes out there. In one re­spect the end of this in­cred­i­ble pe­riod, which was marked by the start of cap­i­tal con­trols, will only come when the re­stric­tions on cash with­drawals and the move­ment of money are lifted. It is only then that Greek firms will be able to feel that the nec­es­sary con­fi­dence in the coun­try and the lo­cal econ­omy has re­turned.

In Cyprus it took two years for cap­i­tal con­trols to be re­moved. Opin­ion is di­vided on when Greece will be in a sim­i­lar po­si­tion but it is un­likely be any time very soon. In the mean­time, Greek busi­nesses will have to sol­dier on, hop­ing that their as­ton­ish­ing pow­ers of en­durance do not desert them.

It is only when the re­stric­tions on cash with­drawals and the move­ment of money are lifted that Greek firms will be able to feel that the nec­es­sary con­fi­dence in the coun­try and the lo­cal econ­omy has re­turned.

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