World Economy

Greece Banks Reopen, Taxes Hiked

Greece Banks Reopen, Taxes HikedGreece Banks Reopen, Taxes Hiked

Greek banks reopened Monday after a three-week shutdown imposed to stop a run on ATMs crashing the financial system, but citizens woke up to widespread price hikes as part of a cash-for-reform deal with the country's creditors.

The shutdown since June 29 is estimated to have cost the economy some €3 billion ($3.3 billion) in market shortages and export disruption, Digital Journal reported.

Capital controls including a block on key transfers to foreign banks and a ban on the opening of new accounts remain in force, although Greeks can now withdraw a bigger amount at once per week, rather than the €60 daily limit that had forced them to queue daily for the last three weeks.

A weekly withdrawal limit of €300 would be imposed initially until Friday, with the restriction to be raised to €420 from Saturday.

Crisis-hit Greeks will now be taxed at 23%, up from 13%, on everything from sugar and cocoa to condoms, taxis and funerals.

To sweeten the pill, the tax on medicines, books and newspapers eases from 6.5% to 6.0%.

Repaying Debts

Greece has begun to repay the €6.25 billion ($6.8 billion) it owes to the European Central Bank and International Monetary Fund, finance ministry officials told Reuters Monday.

However, experts are worried that the next round of bailout talks is skating over one vital subject: debt relief.

According to Reuters, Athens on Monday began paying back €4.2 billion in principal and interest to the ECB and €2.05 billion in arrears it has owed the IMF since it stopped repaying its debts at the end of June. It is also repaying a €500 million loan to the Greek central bank.

The country is paying its bills using a €7.16 billion bridging loan secured last week after it agreed to a series of harsh reforms. The measures, which have to be put into law, should result in the country receiving its third bailout.

Talks over the details of a third, €86 billion ($93 billion) bailout for Greece are due to start in earnest on Monday after eurozone parliaments gave them the green light last week.

However one thorny topic is likely to dominate discussions: that of debt relief for Greece. Even the International Monetary Fund has advocated such a move–but the fund's former deputy director told CNBC that it should make the first move.

"If the IMF is serious about debt relief then the right thing for the IMF to do is to write off its own debt–the debt that Greece owes the IMF," Ashoka Mody told CNBC Monday. "The IMF has adopted the position that Greece needs debt relief, but somebody else should pay for that."

In an interview with French radio on Friday, IMF Managing Director Christine Lagarde said that a third bailout plan for Greece would "categorically" not succeed without debt restructuring.

The issue of debt relief is a thorny subject, however, particularly for countries like Germany, which feel that debt forgiveness could set a precedent for other indebted members of the single currency region.