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As Banks in Greece Reopen, New Sales Taxes Add to Confusion As Banks in Greece Reopen, New Sales Taxes Add to Confusion
(about 2 hours later)
ATHENS — Greek banks opened their doors on Monday for the first time in three weeks, but with strict limits still in place on the flow of money, the battered economy was far from returning to normal.ATHENS — Greek banks opened their doors on Monday for the first time in three weeks, but with strict limits still in place on the flow of money, the battered economy was far from returning to normal.
As Athens scrambles to meet creditors’ demands in exchange for continuing to negotiate a proposed bailout package worth 86 billion euros, or $93 billion, Monday was shaping up as the beginning of what could be a long economic slog. As Athens scrambles to meet creditors’ demands in exchange for continuing to negotiate a proposed bailout package worth 86 billion euros, or about $93 billion, Monday was shaping up as the beginning of what could be a long economic slog. Even though Chancellor Angela Merkel of Germany over the weekend called for a swift resumption of the bailout negotiations, the talks could take months.
The Athens stock exchange, which stopped trading on June 29, remained closed. The Athens stock exchange, which stopped trading on June 29, remained closed on Monday, with no word of when it might reopen.
And a rejiggered system of value-added taxes, or sales taxes — hastily put in place on 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 simply absorb the higher taxes, rather than pass them along to customers.And a rejiggered system of value-added taxes, or sales taxes — hastily put in place on 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 simply absorb the higher taxes, rather than pass them along to customers.
“I can’t raise the prices. The people won’t tolerate it,” said Loukas Papanastasiou, owner of Loukas’s Cafe. “I will have to find a way to reduce my profit margin.” He continued to charge 1 euro for an iced coffee. “I can’t raise the prices. The people won’t tolerate it,” said Loukas Papanastasiou, owner of Loukas’s Cafe. “I will have to find a way to reduce my profit margin.” He continued to charge €1 for an iced coffee.
A higher value-added tax, of up to 23 percent, has been put in place for restaurants and certain food items like meat, and a 13 percent consumer tax has been added to basic food items like milk, as well as to energy and water. A higher value-added tax, of up to 23 percent, has been levied on restaurants and certain food items like meat. A 13 percent consumer tax has been added to basic food items like milk, as well as to energy and water.
The tax increases seem likely, at least initially, to add to Greece’s financial hardship. The new sources of revenue were demanded last week by Greece’s creditors in exchange for the opportunity to negotiate a new bailout that the country desperately needs, and to unlock emergency financing to help Greece pay its bills in the coming weeks. The changes in the V.A.T. have been so swift that not even the checkout clerk in an Athens supermarket could explain on 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.
Athens on Monday planned to make a critical €4.2 billion bond payment to the European Central Bank, and to repay the International Monetary Fund about €2 billion in loan arrears. 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.
The money for those payments was to come from a €7 billion bridge loan that the European Union approved on Friday. That approval came after Greek lawmakers legislated a raft of tax hikes and spending cuts during an acrimonious session that saw numerous members of Prime Minister Alexis Tsipras’s leftist Syriza party defect. 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 the 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 three weeks ago.
The reopening of the banks on Monday did help to relieve bottlenecks at A.T.M.s, where people had been waiting in long lines every day since June 29 to withdraw a daily maximum of €60. “This is the worst thing that has ever been done to business in Greece,” said Mr. 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.”
After those restrictions were put in place, most machines quickly ran out of small notes. So in reality, many people were able to take out only €50, while those notes lasted. To avoid the long lines, some people in recent weeks started making midnight bank runs, withdrawing cash a few minutes before midnight and then again a few minutes after, to avoid having to stand in line day after day. The higher sales taxes, meantime, are part of the new sources of revenue that were demanded last week by Greece’s creditors in exchange for the opportunity to negotiate a new bailout that the country desperately needs, and to unlock emergency financing to help Greece pay its bills in the coming weeks.
Greeks will now be able to withdraw €300 in one go over five days, and €420 a week after that, but the weekly cap is still equivalent to the daily limit of €60 a day that had been in place. Athens on Monday was able to repay the International Monetary Fund about €2 billion in loan arrears and planned later in the day to make a critical €4.2 billion bond payment to the European Central Bank. By making the I.M.F. payments, Greece will become eligible again for financial assistance from the fund.
Despite the limits, the reopening of bank doors, and the opportunity to speak to a live teller, seemed to have a positive effect on the Greek psyche on Monday, even though many people said life had not returned to normal because of the continued capital controls. The European Central Bank payment would presumably give the central bank confidence to continue the emergency lending to Greek banks that enabled them to reopen Monday.
Nicholas Pagoulatos, 70, a retired merchant sea captain, took €60 out of the A.T.M. at an Alpha Bank in central Athens and shrugged. “It’s much more convenient,” he said. “You can get money when you want to, but as far as withdrawals, it’s the same,” he said, referring to the new once-a-week withdrawal limits. The money for those repayments came from a €7.2 billion bridge loan that the European Union approved on Friday. That loan was granted after Greek lawmakers legislated a raft of tax hikes and spending cuts during an acrimonious session that saw numerous members of Prime Minister Alexis Tsipras’s leftist Syriza party defect.
Mr. Pagoulatos said that because he was a retiree, the capital controls or higher V.A.T. were the least of his complaints. His big concern was that his pension had been cut by €10,000 a year over the past few years. 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.
Given those cuts, and his concerns that there could be further pension reductions ahead, the higher taxes on some goods and services did not disturb him, he said. Those legislative steps are needed before bailout negotiations can resume between Greece, its European creditors and the International Monetary Fund. And still to be taken up by Parliament in coming weeks are other measures being demanded by the creditors, including further revisions to the pension system and an end to special protections for farmers.
Monday’s reopening of the banks did at least help to relieve bottlenecks at A.T.M.s, where people had been waiting in long lines every day since June 29 to withdraw a daily maximum of €60.
That daily limit of €60 effectively remains. But Greeks will now be able to withdraw it in a weekly lump sum of €420 a week, if they choose.
Nicholas Pagoulatos, 70, a retired merchant sea captain, took €60 out of the A.T.M. 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 limits. “You can get money when you want to.’’
But Mr. Pagoulatos said that because he was a retiree, the capital controls or higher V.A.T. were the least of his complaints. His big concern was that his pension had been cut by €10,000 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 V.A.T. 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.”“The V.A.T. 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 Mr. Papastanasiou, the cafe owner, predicted a backlash over the higher sales taxes. But Mr. Papanastasiou, the cafe owner, predicted a backlash over the sales taxes.
The same had happened, he said, the last time the consumption tax rose to 23 percent, during a temporary increase imposed in 2011, he said. 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 lost. The same had happened, he said, the last time the consumption tax rose to 23 percent, during a temporary increase imposed in 2011. Many cafe and restaurant owners back then 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 — lowered to 13 percent — by the coalition government of Prime Minister Antonis Samaras, which was swept out of office early this year by the Syriza party.That increase was rescinded in 2013 — lowered to 13 percent — 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 curb purchases of almost everything but basic necessities. And even though many people have begun to pay for more of their goods and service by credit card, cash still plays a prominent role in everyday transactions. 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 curb purchases of almost everything but basic necessities.
Nikolas Varelas, 37, the owner of Varelas Home Design, in a western suburb of Athens, said the opening of the banks was in name only. It will do nothing, he said, to help his business start to recover from the severe blow of an economy that had already relapsed into recession before the capital controls were imposed three weeks ago. One businesswoman, Despina Chrisikopoulou, did see a bright side to the reopening of the banks. During the three weeks they were shuttered, said Ms. Chrisikopoulou, an importer and wholesaler of interior design goods, she had not even been able to reach a bank employee, no matter how hard she tried.
“This is the worst thing that has ever been done to business in Greece,” said Mr. Varelas, whose company, which sells tiles, faucets, sinks, toilets and other high-end home 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.”
As a result, stocks in his warehouse had run so low that he was unable to supply the few construction projects in Greece on which he had contracts. While the new value-added tax will not affect any of his products directly, it will affect business, Mr. Varelas said, because people would now spend what little additional money they had paying higher rates on food and other basics, leaving them even less to spend on his products.
“It’s a total disaster,” he said.
One businesswoman, Despina Chrisikopoulou, said her situation had improved significantly with the reopening of the banks on Monday. During the three weeks the banks were shuttered, said Ms. Chrisikopoulou, an importer and wholesaler of interior design goods, she had not even been able to reach a bank employee, no matter how hard she tried.
But on Monday, she was finally able to get through. She was able to place her company, Antzoulatos Demas, on a waiting list of businesses that needed to send cash outside Greece to make payments on goods they could not do without. Ms. Chrisikopoulou has outstanding orders in Hong Kong, Indonesia and other places in Asia.But on Monday, she was finally able to get through. She was able to place her company, Antzoulatos Demas, on a waiting list of businesses that needed to send cash outside Greece to make payments on goods they could not do without. Ms. Chrisikopoulou has outstanding orders in Hong Kong, Indonesia and other places in Asia.
However, she said, the bank had established a priority list for businesses, with necessities like pharmaceuticals at the front of the line, and she was far down the list.However, she said, the bank had established a priority list for businesses, with necessities like pharmaceuticals at the front of the line, and she was far down the list.
“I probably will have to wait a month, maybe more,” she said about being able to pay for goods overseas. But still, she was relieved just to be on the list and to have the feeling that she was making some progress.“I probably will have to wait a month, maybe more,” she said about being able to pay for goods overseas. But still, she was relieved just to be on the list and to have the feeling that she was making some progress.
But for now, said Nicolas Vassiliou, the owner of Bright, an exporter of premium lighting systems based on the outskirts of Athens, the capital controls have practically frozen the Greek economy. Even household clients were no longer buying from him, he said. “They are just keeping their money in their mattress, or spending on basic goods.”But for now, said Nicolas Vassiliou, the owner of Bright, an exporter of premium lighting systems based on the outskirts of Athens, the capital controls have practically frozen the Greek economy. Even household clients were no longer buying from him, he said. “They are just keeping their money in their mattress, or spending on basic goods.”
The capital controls also stopped him from paying his foreign suppliers, with whom he has had business relations for years. Many were sympathetic to his situation, but refused to extend him credit or an additional helping hand.The capital controls also stopped him from paying his foreign suppliers, with whom he has had business relations for years. Many were sympathetic to his situation, but refused to extend him credit or an additional helping hand.
“It’s not that they don’t trust Bright, because we have a great reputation,’’ he said. “But they don’t trust the Greek economy or the Greek government.”“It’s not that they don’t trust Bright, because we have a great reputation,’’ he said. “But they don’t trust the Greek economy or the Greek government.”
Suppliers remain worried, he said, about the safety of Greek banks and the risk of additional political instability if new elections be held. The fear of a Greek exit from the eurozone also made them nervous, Mr. Vassiliou said.
“It’s the country’s problem,” he said.