Greece news: Greek banks reopen, but a hefty new sales tax - on everything from coffee to taxis to condoms - brings fresh confusion

Higher taxes on everyday items from coffee to taxis to condoms are expected to accentuate the country's recession

Derek Gatopoulos
Tuesday 21 July 2015 11:54
Elderly people received priority numbers as they queued for banks to re-open
Elderly people received priority numbers as they queued for banks to re-open

Greek banks have opened for the first time in over three weeks – a move that the government hopes will help get the economy back to normal following a period dominated by fears over the country’s future in the euro.

Strict controls on the amounts individuals can withdraw remain, however, and new austerity taxes demanded by the country’s European creditors came into effect, making most everyday items more expensive – from coffee to taxis to condoms.

The hefty sales tax rise on many basic goods from 13 per cent to 23 per cent formed part of a package of confidence-building measures the Greek government had to introduce for negotiations on a third bail-out to begin. For an economy reeling from weeks of uncertainty and capital controls, the higher taxes are expected to accentuate the recession.

Dimitris Chronis, who has been running a small kebab shop in central Athens for 20 years, says the new taxes could push his business over the edge – especially when combined with higher business taxes and meat prices. “I can’t put up my prices because I’ll have no customers at all,” he said. “We used to deliver to offices nearby but most of them have closed. People would order a lot and buy food for their colleagues on special occasions. That era is over.”

There are few parts of the Greek economy left untouched by the higher sales taxes. They have been imposed on many basic goods – including some meats, cooking oils, tea and condoms. Popular services have also been hit by the new taxes such as restaurants and cafes, funeral homes, ferries and language schools.

The higher taxes formed a key plank of last week’s bail-out agreement between Greek Prime Minister Alexis Tsipras and European creditors. Following months of growing distrust, Greece’s partners in the 19-country eurozone wanted to see measures enacted before bailout talks could begin. Other austerity measures included cuts to pensions.

The green light to the opening of discussions, which are expected to last a month, was given on Friday. They will include economic targets and reforms deemed necessary in return for an anticipated €85bn over three years.

Though the potential bailout has eased fears of a potential “Grexit”, capital controls are expected to remain in place for months, if not years.

The first easing saw banks reopen their doors for limited services. In Athens, people queued up in an orderly fashion. Though the daily cash withdrawal limit stayed at €60, the government has given individuals a new weekly limit of €420 from this Sunday. Since the Greek parliament passed the austerity measures demanded, creditors have relieved the pressure on Greece.

The European Central Bank raised the amount of liquidity assistance on offer to Greek banks while the European Union sent a three-month loan to Athens so it could pay a €4.2bn debt due to the ECB on Monday and clear arrears with the International Monetary Fund. “We are meeting our obligations today,” a Greek government official said ahead of an official announcement. Further relief may come if politicians back another set of creditor-demanded measures on Tuesday.

Paying off the IMF and ECB will give Greece some breathing space but the country will need bail-out funds to meet upcoming debts. Some of the money will also go to restoring the financial health of the banks, which would speed up the removal of the controls.

The agreement to open up bail-out discussions has not gone down well in large parts of Tsipras’ radical left Syriza party, which was elected in January on a promise to end austerity. Cabinet-level dissenters were replaced on Friday, but even their replacements have angrily denounced the new austerity measures.


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