Capital controls set to expire in September
A first step toward the final abolition of capital controls in Greece after four years was made last week. On Wednesday, Finance Minister Christos Staikouras sent Greece’s creditors (the European Commission, the European Stability Mechanism and the International Monetary Fund) the draft text of the regulation abolishing the last controls on the free flow of capital, and the response is expected to be positive.
The exit from the capital controls, which were introduced in late June 2015, is seen happening in September. Prime Minister Kyriakos Mitsotakis is expected to announce the move at the Thessaloniki International Fair, customarily where the premier of the day talks about the following year’s major economic policies.
Greek central banker Yannis Stournaras had already proposed the abolition of capital controls in July, based on rising deposits, and retail bankers have agreed that the timing is good for such a measure.
The Bank of Greece has said that it is not only unconcerned about a possible outflow of deposits abroad when the final obstacles are dropped, but is confident that deposits will continue to rise as confidence in the economy’s prospects grows.
Abolishing capital controls is chiefly aimed at Greece’s debt being upgraded by the rating agencies to “investment grade.” At present, two of the three main rating agencies rate Greece four levels below investment grade and the third one has it three levels below.
Upgrading the debt is crucial, not only because it would further reduce the cost of borrowing, but also because it would allow Greece to be included in the European Central Bank’s next round of quantitative easing (QE), whereby a lowering of interest rates, which concerns every eurozone member, is combined with ECB purchases of member states’ bonds.
At present, with its “junk” rating, Greece cannot benefit from this aspect of QE.
In addition, Greece must also convince the creditors that it has a viable program to reduce its banks’ nonperforming loans. The government will also unveil its 2020 budget in September, keeping the primary surplus target of 3.5 percent of GDP.