Mitsotakis government’s move aims to assure investors and EU of return to stability.
By NEKTARIA STAMOULI-Politico.eu
Greece has ended capital controls, signaling a return to stability as the country seeks to woo back investors and ease the conditions of its debt repayments.
Greek Prime Minister Kyriakos Mitsotakis announced the full lifting of capital restrictions in parliament Monday, after consulting with the country’s banks as well as regulators at the Hellenic Capital Market Commission.
Restrictions on cash withdrawals and transfers of capital abroad were imposed to avoid a collapse of the banking system at the nadir of Greece’s government debt crisis in the summer of 2015.
Fears of a Grexit from the eurozone and the EU led nervous customers to pull billions of euros of deposits out of the country’s banks.
Back then, negotiations between the Greek government and the country’s international creditors were deadlocked. Then-Prime Minister Alexis Tsipras called a referendum on the economic terms that Greece’s creditors wanted in exchange for fresh financial aid. The European Central Bank responded by ending a lifeline of emergency funds that had been sustaining Greek lenders. The ECB move forced a three-week shutdown of all the banks and people were limited to cash withdrawals of €60 per day.
Since then the restrictions have been gradually eased, with the cap on cash withdrawals fully removed last October. Some limits on money transfers abroad and business transactions still remained.
The parliament adopted legislation to remove the last restraints later on Monday with backing from all parties except the KKE communists, which abstained from voting.
The measure will take effect on September 1, said Finance Minister Christos Staikouras.
“Today a destabilizing factor, an instability factor for the banking system is lifted,” Staikouras said in parliament.
Euclid Tsakalotos, finance minister in the previous Syriza government, said the move would be positive for the economy, but added that Greece’s current leaders were benefiting from preparations made by his party.
“The only reason that capital controls had not been fully lifted was the banks’ reluctance due to the political uncertainty [because of] the elections,” Tsakalotos said in a statement.
The largely symbolic move is still crucial to mark a new era for post-bailout Greece.
The country emerged from its third bailout program last August. Deposits have been gradually returning to banks — which still, however, have the highest amount of non-performing loans in the European Union. The bad debt continues to eat up their capital and depress much-needed lending.
“Capital controls were the longest lasting effect of the adventure the country went through during the first term of the left-wing Syriza government,” said George Pagoulatos, a professor of European politics and economics at the Athens University of Economics and Business.
“Their full eradication marks the full closure of this turbulent and troubled period and the return to normality,” he said. “This symbolic dimension is the most important, the fact that this Greek uniqueness will cease to exist.”
The New Democracy government took office in July, ejecting Syriza after four and a half years, with promises to ease investments, cut taxes and spur economic growth.
The government is moving fast with pieces of legislation aiming to tackle Greece’s notorious red tape and make the country investment-friendly while speeding up privatizations. This way, it hopes that it can both impress international institutions and lure back investors.
Mitsotakis seeks to persuade other European countries to relax the budget surplus targets linked to the 2015 bailout, on the basis that he will deliver higher economic growth. Last week, he met French President Emmanuel Macron in Paris and on Thursday he is traveling to Berlin to meet German Chancellor Angela Merkel.
Still, European capitals have so far been reluctant to ease Greece’s financial terms.
