Northwest Arkansas Democrat-Gazette
Greek banks reopen; tax rise flusters merchants
ATHENS, Greece — Greek banks opened their doors Monday for the first time in three weeks, but with strict limits still in place on the flow of money, the economy was far from returning to normal.
The Athens stock exchange, which stopped trading June 29, remained closed Monday, with no word on when it might reopen.
And a rejiggered system of value-added taxes — put in place Monday as part of Greece’s efforts to meet creditors’ demands — seemed to be sowing confusion in its early stages. Some merchants said that for now, they would absorb the higher taxes rather than pass them on to customers.
As Athens scrambles to meet creditors’ demands in exchange for continuing to negotiate a proposed bailout package worth up to 85 billion euros, Monday was shaping up as the beginning of what could be a long economic slog. Even though Chancellor Angela Merkel of Germany called over the weekend for a swift resumption of the bailout negotiations, the talks could take months.
“I can’t raise the prices. The people won’t tolerate it,” said Loukas Papanastasiou, owner of Loukas’ Cafe. He is continuing to charge 1 euro for an iced coffee. At the current exchange rate, 1 euro equals about $1.08.
Another business owner, 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 slid by about 80 percent 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.”
A higher value-added tax, of up to 23 percent, is being levied on restaurants, travel tickets, taxi fares, products such as diapers and condoms, and food items such as meat, sugar and vinegar. Basic foods such as milk, as well as energy and water bills, will continue to be taxed at 13 percent.
The changes in the value-added tax have been so swift that the checkout clerk in an Athens supermarket could not explain Monday which items were being taxed at a higher rate and which ones were not. “We’ll just have to figure it out as time goes by,” the clerk said.
The tax increases seemed likely, at least initially, to add to Greece’s financial hardship. And as long as tight controls remain in place on the movement of money outside the country, businesses that rely on foreign suppliers will continue to struggle.
Nikolas Varelas, 37, the owner of Varelas Home Design in a western suburb of Athens, said the opening of the banks, without an easing of capital controls, would do nothing to help his business start to recover from the severe blow of an economy that had already relapsed into recession before the controls were imposed.
“This is the worst thing that has ever been done to business in Greece,” said Varelas, whose company, which sells tiles, faucets, sinks and other fixtures, was started by his grandfather 75 years ago. “The banks are open today, but because capital controls are still in place, I still can’t pay my suppliers in Italy, Spain and elsewhere in Europe.”
PAYMENTS MADE
The higher taxes are part of a package of austerity measures that includes pension cuts the Greek government had to introduce in exchange for the opportunity to negotiate a new bailout, and to unlock emergency financing to help Greece pay its bills in the coming weeks.
Athens on Monday repaid the International Monetary Fund about 2 billion euros in loan arrears and also made a 4.2 billion euro bond payment to the European Central Bank, both organizations confirmed.
Spokesman Gerry Rice said the IMF “stands ready to continue assisting Greece in its efforts to return to financial stability and growth.”
By making the IMF payment, Greece will again become eligible for financial assistance from the fund. The IMF is not directly involved in Greece’s request for a third bailout because its previous rescue runs until early next year.
The European Central Bank payment helps give the central bank confidence to continue the emergency lending to Greek banks that enabled them to reopen Monday.
The money for those repayments came from a 7.16 billion euro bridge loan that the European Union approved Friday. That loan was granted after Greek lawmakers approved tax increases and spending cuts during an acrimonious session that prompted numerous members of Prime Minister Alexis Tsipras’ Syriza party to defect.
On Wednesday, Parliament is to take up a second set of measures required by the creditors, including adoption of a new civil code meant to help speed court cases through Greece’s notoriously slow judicial system, as well as enacting eurozone banking rules meant to help keep banks solvent and allow for the orderly shutdown of ones that are not.
Those legislative steps are needed before bailout negotiations can fully resume between Greece and its European creditors and the IMF.
In coming weeks, Parliament must take up other measures being demanded by the creditors, including further revisions to the pension system and an end to special protections for farmers.
Several ministry leaders at the Cabinet level were replaced Friday after their opposition in Parliament to the new austerity measures, but even their replacements have denounced the 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.”
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.
Although the annual deficit has been reduced dramatically, the country’s debt burden has risen to about 180 percent of Greece’s annual GDP as the country’s economy has contracted about 25 percent.
BANKS REOPEN
Monday’s reopening of the banks did at least help relieve bottlenecks at ATMs, where people had been waiting in long lines every day since June 29 to withdraw a daily maximum of 60 euros. That limit remains, but Greeks now have the option of withdrawing it in a weekly lump sum of 420 euros.
Nicholas Pagoulatos, 70, a retired merchant sea captain, took 60 euros from an ATM at an Alpha Bank in central Athens on Monday and shrugged. “It’s much more convenient,” he said, referring to the new once-a-week withdrawal option. “You can get money when you want to.”
But Pagoulatos said that because he was a retiree, the capital controls and the higher taxes were the least of his complaints. His big concern was that his pension had been cut by 10,000 euros a year over the past few years.
Given those cuts, and his concerns that there could be further pension reductions ahead, the higher sales taxes did not disturb him, he said.
“The VAT [value-added tax] is small potatoes,” he said. “They say they will cut a small amount from my pension, but I won’t lose it. It will go toward my health, to the hospital or drugs.”
But Papanastasiou, the cafe owner, predicted a backlash over the sales taxes.
The same happened, he said, the last time the value-added tax rose to 23 percent, during a temporary increase imposed in 2011. Many cafe and restaurant owners did not raise their prices and instead swallowed the difference.
But, he said, with shrinking profit margins, businesses could not afford to pay their own taxes, and ultimately the state was the loser. That increase was rescinded in 2013 by the coalition government of Prime Minister Antonis Samaras, which was swept out of office early this year by the Syriza party.
The new tax increases come atop the damage already done to the economy in recent weeks from the bank closings and capital controls, which prompted Greek consumers to sharply reduce purchases of almost everything but basic necessities.
One businessman, Despina Chrisikopoulou, did see a bright side to the reopening of the banks. Chrisikopoulou, an importer and wholesaler of interior design goods, said that during the three weeks the banks were closed, she had not even been able to reach a bank employee.
But on Monday, she was finally able to get through so she could place her company, Antzoulatos Demas, on a waiting list of businesses that need to send cash outside Greece to make payments on goods they cannot do without. Chrisikopoulou has outstanding orders in Hong Kong, Indonesia and other places in Asia.
The bank, however, had established a priority list for businesses, with necessities such as pharmaceuticals at the front of the line, and she was far down the list, she said.
“I probably will have to wait a month, maybe more,” she said about being able to pay for goods overseas. Still, she said, she was relieved to be on the list and to have the feeling that she was making some progress.