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Banks reopen, taxes hiked as Greece seeks to reboot economy

Greek banks reopened Monday after a three-week shutdown

AFP , Monday 20 Jul 2015
People wait inside a Piraeus Bank branch at the city of Iraklio in the island of Crete, Greece July 20, 2015 (Photo: Reuters)
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Greek banks reopened Monday after a three-week shutdown imposed to stop a run on ATMs crashing the financial system, but citizens woke up to widespread price hikes as part of a cash-for-reform deal with the country's creditors.

The shutdown since June 29 is estimated to have cost the economy some 3.0 billion euros ($3.3 billion) in market shortages and export disruption.

Capital controls including a block on key transfers to foreign banks and a ban on the opening of new accounts remain in force, although Greeks can now withdraw a bigger amount at once per week, rather than the 60 euro daily limit that had forced them to queue daily for the last three weeks.

A weekly withdrawal limit of 300 euros would be imposed initially until Friday, with the restriction to be raised to 420 euros from Saturday.

The government is meanwhile expected to make a 4.2-billion euro payment Monday to the European Central Bank (ECB), made possible by the granting of a short-term "bridge" loan of 7.16 billion euros by the European Union on Friday.

The loan will also enable Athens to repay debts to the International Monetary Fund (IMF) outstanding since June.

Greece's radical-left government last week agreed to tough reforms, including tax hikes, an overhaul of the ailing pension system and privatisations it had previously opposed, in exchange for a bailout of up to 86 billion euros over the next three years and avoid crashing out of the eurozone.

Crisis-hit Greeks will now be taxed at 23 percent, up from 13 percent, on everything from sugar and cocoa to condoms, taxis and funerals.

To sweeten the pill, the tax on medicines, books and newspapers eases from 6.5 percent to 6.0 percent.

Louka Katseli, the head of Greece's bank association, on Monday urged clients to bring their savings back to the banks to support the country's 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.

Some 40 billion euros have been withdrawn from Greek banks since December, she noted, seriously damaging their ability to function normally.

For the first time in months, technical teams representing the creditors -- the European Union, the ECB and the IMF -- are expected in Athens in the coming week to assess the state of the economy.

The austerity package caused a mutiny among lawmakers of the ruling radical Syriza party, forcing Prime Minister Alexis Tsipras to carry out a limited reshuffle on Friday.

Even so, most analysts and even government officials say early elections are now inevitable, and are likely to be held in September.

The premier's critics accuse him of kowtowing to blackmail by Greece's creditors, who had threatened to expel the country from the euro.

But the Greek crisis has also exposed a rift between the eurozone's top powers, Germany and France, on how far to apply austerity to meet fiscal goals.

German Chancellor Angela Merkel on Sunday reiterated Berlin's tough stance ruling out debt forgiveness for Greece, but added that her government was open to more flexibility in Athens' repayment schedule.

"There can't be a classic haircut -- forgiving 30 or 40 percent of debt -- in a monetary union," Merkel told public broadcaster ARD.

But she noted that Greece had received other forms of debt relief in recent years including a "voluntary writedown for private creditors, extended maturities and lower interest rates".

"We can discuss possibilities along those lines again," she said.

French President Francois Hollande on Sunday called for the euro's governance to be "strengthened", calling for "the addition of a specific budget and a parliament to ensure democratic control".

Commentators say the lack of centralised governance over national fiscal policies -- a jealously-guarded area of sovereignty for member governments -- is a major flaw in the single European currency.

Meanwhile Tsipras -- who barely has time to eat or sleep, according to his mother -- faces a fresh challenge in parliament on Wednesday to approve a second wave of reforms tied to its economic rescue.

Pro-government newspaper Avgi on Sunday said the vote would be a "crash test" that could even result in the prime minister's resignation.

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

Tsipras' coalition holds 162 seats in parliament, but in last Wednesday's vote, only 123 government MPs backed the bailout -- just over the minimum 120 required to sustain a minority government.

Nearly a quarter of Syriza's lawmakers failed to support the reforms bill.

Nobel prize winning economist Paul Krugman, a vocal supporter of Athens in its long-running bailout saga, said Sunday that he "may have overestimated the competence of the Greek government," suggesting Syriza staged the showdown without having a Plan B.

The draconian agreement -- accepted by a party that came to power in January promising to end austerity -- came after more than 61 percent of Greeks on July 5 rejected further cuts in a referendum called by Tsipras himself.

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