World Economy

Capital Controls Still Hurting Greek Economy

Capital Controls Still Hurting Greek EconomyCapital Controls Still Hurting Greek Economy

The imposition of capital controls a year-and-a-half ago led to the suspension of investments by one in three local firms that had been planning to spend money on their expansion, but the lifting of restrictions could release €1 billion ($1.04 billion) in investments within just six months, according to a study by National Bank of Greece’s Financial Analysis Department.

The suspension of investment activity was one of the main consequences of the capital controls, reported.

Eighteen months after the government imposed the restrictions, and following the necessary adjustment that small and medium-sized enterprises have made, the rate of those that believe they will require more than a year to return to normality has almost tripled from 6% at the end of 2015 to 17% today.

Although the capital controls have forced 57% of Greek enterprises to keep deposits outside the Greek banking system, against just 12% in 2014, the reaction to a possible lifting of the restrictions is seen as low-risk in terms of the consequences it may have on the Greek credit system.

Entrepreneurs told the authors of the NBG study that they would react calmly to such an event and would keep their deposits in Greek banks close to the same level–i.e. near 90%.

On the other hand, the continuation of capital controls has now had an impact on the companies’ structural operations, and it is crucial they are lifted soon to avert any structural problems for SMEs–particularly very small ones–which appear to have exhausted their reserves.

The study also found that the strategic changes adopted by SMEs have now taken a toll on any growth potential they had in the short term, and 34% have canceled any investments they had planned, up from 24% in the second half of 2015.


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