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Banks reopen, taxes rise as Greece pays billions to creditors

July 20, 2015

ATHENS, Greece – Greece’s government hiked taxes and paid billions of euros to its creditors on Monday, as banks reopened just days after the debt-laden country reached a reforms-for-cash deal with its European partners.

Greeks woke up to widespread tax rises — on everything from sugar and cocoa to condoms, taxis and funerals — as part of the tough reform package agreed last week in exchange for a three-year bailout of up to 86 billion euros ($93 billion) aimed at keeping Greece from crashing out of the eurozone.

The nation’s banks were thronged with customers after a three-week shutdown estimated to have cost the economy 3 billion euros. The banks were ordered to close on June 29 to prevent mass cash withdrawals that could have caused the financial system to collapse.

Banks are continuing to offer only limited services — with a ban on most transfers to foreign banks among the capital control measures still in place — but a daily cash withdrawal limit of 60 euros ($65) has been relaxed.

Bank tellers were dealing with a hectic stream of customers, many expressing frustration over continuing restrictions on financial services.

“I came today to collect my pension but unfortunately I could only get a small percentage of it,” said Spyros Papasotiriou as he left his bank in the northern Athens suburb of Neo Psychiko. “It’s a big hassle.”

A source close to the Greek Finance Ministry meanwhile confirmed that the government had completed payments of billions of euros that were due to the European Central Bank and International Monetary Fund on Monday, after the EU granted emergency bridge funding of 7.16 billion euros.

The IMF separately announced that Greece was no longer in default on its loans after remitting about 2 billion euros ($2.2 billion) to make up for missed repayments, while an ECB spokesperson said: “The ECB confirms it has been repaid.”

Value-added tax (VAT) has gone up from 13 percent to 23 percent on a wide range of goods and services, although the tax on medicines, books and newspapers eased from 6.5 percent to 6 percent.

Tryphon Alexiadis, the new finance vice minister in charge of tax, vowed that “not a single euro from the tax rise will escape state coffers,” adding that “a wave of inspections will be launched” to prevent tax evasion in a country where the problem is notoriously rife.

Along with the tax hikes, the Greek government — led by the radical-left Syriza party that came to power in January promising to end austerity — is also set to overhaul its ailing pension system as part of the reforms deal, and launch privatizations it had previously opposed.

Louisa Gouliamaki/AFP
People check prices at Athens' main fish and seafood market on July 20, 2015. Louisa Gouliamaki/AFP

‘Crash test’ 

Louka Katseli, the head of Greece’s bank association, said some 40 billion euros have been withdrawn from Greek banks since December by customers anxious over the safety of their deposits, seriously damaging the banks’ ability to function normally.

She urged people to bring their savings back to the banks to support the crisis-hit financial system.

“If we take out the money from our safes and our houses — where, in any case, it isn’t safe — and we deposit it in the banks, we will reinforce liquidity,” she told the Mega TV channel.

Greeks are now able to withdraw a maximum of 300 euros at once until Friday, when a new weekly limit of 420 euros takes effect.

They can also use their credit cards for foreign purchases again, and certain exceptions to the capital controls have been introduced to help Greeks who are studying or undergoing medical treatment abroad.

But most people remain unable to take out large sums, transfer money to other countries or open new bank accounts.

The capital controls are taking a heavy toll on Greek businesses, with 23 percent of firms saying they are seeking to move their headquarters abroad to improve stability and cash-flow, according to a survey released Monday by non-profit group Endeavour Greece.

The austerity package caused a mutiny among lawmakers of Prime Minister Alexis Tsipras’s ruling Syriza party — forcing him to carry out a limited Cabinet reshuffle on Friday — and he faces a fresh challenge on Wednesday when parliament must approve a second wave of reforms tied to the rescue package.

Pro-government newspaper Avgi said the vote would be a “crash test” that could even result in Tsipras’s resignation.

“If there are new losses, in whatever form, (Tsipras) will hand back his mandate,” the daily said.

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