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Greek banks reopened with capital controls still in place

After a three-week long shutdown imposed by the government to prevent a banking system collapse, Greek banks opened their doors on Monday, the very first step towards a return to normal after the deal. However, all the capital controls on financial activities remained in place; the daily cash withdrawal limit of €60 has been replaced with a weekly limit of €420, which mean that Greeks won’t have to queue up to withdraw money every day. The ban on all inbound and outbound international transactions will remain in place. The stock market will also remain closed until further notice. Greeks will also face price rises on a range of goods and services, including taxis and restaurants, with an increase in Value Added Tax (VAT) from 13% to 23%. The VAT rise is the third since the country’s austerity program began, five years ago.

The banks were shut last month to stem the cash flow out of the country’s already crippled financial system when the Greece debt crisis took a dramatic turn as European Central Bank stopped the emergency support to Greek banks. And it was the most visible sign of the crisis that took Greece to the brink of crashing out of the eurozone earlier this month, potentially undermining the foundations of the single European currency. The long queues at the ATMs have long been a feature of life for the Greeks, with people waiting in line every day to withdraw their daily share of €60, a restriction imposed amid fears of a run on banks. Now that the daily limit gets converted into a weekly one, Greeks will not have to stay in lines every day.

The statement came as Prime Minister Alexis Tsipras prepares to face a second round of new bailout negotiations next week. It’s another delicate week for Tsipras following a cabinet reshuffle in which he replaced dissident members of his ruling Syriza Party after the clash over the tough bailout terms. It was a good move, replacing the defiant cabinet ministers with allies of his own or from his junior coalition partners, the right-wing populist Independent Greeks party. The formal negotiations on a new bailout package worth as much as €86 billion will begin next week, with several European parliaments, including Germany’s already in favor. Germany has said it might consider further debt concessions to Greece.

Greece has already started processing a €4.2 billion payment due to the ECB on Monday, as well as the €2.05 billion due to the International Monetary Fund (IMF). This was from one of the two financial lifelines, to help Greece pay its most urgent debts. Then the ECB also extended liquidity to pump up another €900 million in new emergency funding, just enough to let the banks back on their feet.  Europe’s move came after the parliament backed a three-year rescue package and put it under a ‘conditional’ agreement set by creditors. While the up and running banks hints at a possible normality to the Greek economy, long term problems remain. A second vote would probably decide the fate of the country, and acceptance of the terms could be a potential turnaround for Tsipras, especially after months of exhausting talks, political unrest, and a referendum that rejected a less stringent deal proposed by the lenders.

 

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