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Greece: Banks Re-open To Reboot Economy, Taxes Raised

GREEKBanks in Greece have re-opened after a three-week shutdown that saw the country plunged into financial chaos. However, capital controls are to remain in place, with taxes set to shoot up.

From Monday, Greeks were able to withdraw up to 420 euros ($465) at once each week – the same amount possible as during the shutdown, but without the ordeal of having to line up everyday for 60 euros.
A block on money transfers out of the country and on the opening of new accounts is to remain in place.
“Capital controls and restrictions on withdrawals will remain in place, but we are entering a new stage which we all hope will be one of normality,” Louka Katseli, the head of the Greek banking association, told Skai television.

Meanwhile, the Greek government was expected to make a 4.2 billion euro payment to the European Central Bank (ECB) on Monday. The repayment is possible after the European Union granted Athens a short-term loan of 7.16 billion euros on Friday.

That amount will also make possible a payment due to the International Monetary Fund (IMF), which has been outstanding since June.
At the same time, Greeks are having to get used to a tough fiscal package, with further austerity. The level of financial hardship the new reforms are expected to place on the Greek people have caused a split within Greek Prime Minister Alexis Tsipras’ Syriza party.

Tax soars on variety of items
Greeks will now have to pay 23 percent in value-added-taxes (VAT) on a whole range of items, from cocoa and sugar to condoms and funerals. However, VAT sales taxes will be reduced on certain products, such as medicine, books and newspapers.
On Sunday, German Chancellor Angela Merkel – who now says a Grexit from the eurozone is off the table – maintained her government’s tough line on debt relief for Greece.
She said a “classic haircut” reduction of 30 to 40 percent of the country’s debt was not possible “in a monetary union.” However she did not rule out a “voluntary writedown for private creditors, extended maturities and lower interest rates.”
Technical teams from the hated troika of creditors – representing the EU, IMF and ECB – are expected in Athens in the coming weeks.

Life in Greece gets more expensive…

Starting Monday, Greece is introducing higher tax rates – but experts doubt whether the controversial move will actually bring in much badly-needed revenue. DW’s Jannis Papadimitriou reports from Athens.
The latest joke about the crisis making the rounds in Greece goes like this: Kostas buys a package of spaghetti at the grocery store and the cashier asks routinely: “Would you like it gift-wrapped?”
“No thanks, it’s for me,” he replies.

It’s a good idea to keep your wit and humour in times of crisis. But it’s not possible to laugh away the fact that as of Monday, everyday life will become much more expensive in Greece. An increase in value-added tax on basic foodstuffs and certain services was a key demand of Greece’s creditors, and was approved by the Greek government last week after heated debate.
The result: For rice, pasta, pastries, sausage, coffee, tea, sugar and other foodstuff, VAT will go up to 23 percent. It’s hoped the move will quickly increase government revenues. The treasury expects revenues of 54 million euros ($58.4 million) from higher VAT on baked goods alone – provided, of course, that demand doesn’t collapse.

Is this reasonable? Speaking with DW, economics Professor Panagiotis Petrakis described Greece’s complicated market that, he said, doesn’t allow for predictions.

“A tax increase may boost government revenues in the short term, while increasing the chance of recession over the medium term. One does not rule out the other,” he explained.

In recent years, Greeks have exhibited unusual economic behaviour that would be hard to use as a basis for forecasting, Petrakis said, using the bank closures as an example.
“For fear of losing their savings completely, many people consumed not less but suddenly more and paid electronically. It’s fascinating that it is precisely in this economic predicament that demand for certain goods does not decrease, but suddenly leaps,” he said.

Added burden
A study by the Athens Institute for Retail Research (IELKA) suggests higher tax rates will place an added average yearly burden of 157 euros ($170) on each household. The tax rate will also be raised in the restaurant and hotel industry, and taxis will also become more expensive. And that’s not all: small businesses must expect higher tax prepayment. The solidarity surcharge on higher incomes will be raised retroactively to the beginning of the year.
Many experts are certain that the VAT increase won’t bring much additional revenue for the government, and instead only reinforce Greece’s slide into recession.

“Taxation measures like these drain resources from the economic cycle and aggravate the recession,” economist Michalis Argyrou said.
There’s only one reasonable way to compensate for this extra burden: an investment boom for Greece. But even this would only be effective over the middle term – and it would require reliable rules for interested investors.
“The most important aspect would be an improved legal certainty, a reform of the public administration and a modern insolvency law,” said Argyrou. “The Greek people must finally have an optimistic outlook for the coming years. This is something that the government should pay attention to.”

No tax breaks
In negotiations with its creditors, Athens relented on an important condition and agreed to drop the tax breaks for Greek islands, which have long enjoyed tax rates that are 30 percent lower than those in the rest of the country – a compensation for higher transportation costs for both locals and visitors. These tax breaks will come to an end in October.
“Increased revenues from the islands are expected to contribute to the annual target of 2.2 billion euros from VAT payments,” Petrakis said. But the Greek trade association ESEE warns the cost of living on the islands could rise by 12 percent.
At least there’s some good news. As of Monday, Greek banks are due to reopen after a forced three-week break – though this is ultimately more of a symbolic move.

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