Monday, November 23, 2015

Greece economy stagnates under austerity and capital controls

It’s yet another lonely morning at Peter Voudouri’s shoe store in suburban Athens.

On what once would have been a bustling Saturday morning, a single customer arrives with an attitude in line with the austerity tightening household budgets across Greece.

The woman wants to buy shoes for her four year old daughter, but her opening line is to begin bargaining to bring the price down.

“I asked for small shoes for a formal dress for my child and I am asking if there is a better, lower price,” she tells me.

Listen to my report on the Greece economy broadcast on the ABC's Correspondents Report

This is the reality in Greece these days as the latest austerity cuts a swathe through consumer spending and capital controls – measures to limit withdrawals from banks – stagnates the already downtrodden Greek economy.

Great shoes - few customers. Peter Voudouri says austerity hit grandparents are staying away Ptcure: Peter Ryan

In what is now a damaging consumer cycle, the damaging of cuts to pensions means grandparents have less money in their wallets and no longer spend up as the dote on their grandchildren – sometimes handcrafted shoes from France and Italy.

“Grandparents are our basic customers in our kind of business because they want to get presents like new shoes for their grandchildren in comparison to their parents,” Peter Voudouri says.

“And it’s not only shoes but any present for their grandchildren – toys, clothing. It’s not only the shoes.”

Without controls limiting transactions and a financial lifeline from the European Central Bank, Greek banks would almost certainly collapse tipping the nation into a deeper economic and social abyss.

But Peter Voudouri says business is paying a massive price.

The controls mean significant delays in getting accounts paid and also paying suppliers. The cost of some transactions has surged by 3000 percent adding a new layer of costs for already struggling businesses.

The harsh medicine in return for another financial bailout means business of all sizes are going to the brink, says Constantine Michalos of the Athens Chamber of Commerce and Industry.

“The situation of the Greek economy can only be described as absolutely stagnant,” Mr Michalos told me in his Athens office.

“The implementation of capital controls is making life on a daily basis extremely difficult for the transactions that businesses need to carry out.”

In an example that illustrates the impact of the capital controls, Constantine Michaelos says Greek businesses are being choked with restrictions that would stun companies in Australia.

“Today if you set up a new business, you are not allowed to open a bank account. You can’t open a new business account.

“So you can imagine it’s extremely difficult, in some cases impossible, to transact business in this country.”

Constantine Michalos, president of the Athens Chamber of Commerce & Industry 

Capital controls are set to remain in place until at least next year while Greek banks are recapitalised.

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