General payments freeze takes hold
Political uncertainty and fears of a Greek eurozone exit that have recently come on top of the protracted recession and choking lack of liquidity seem to have accelerated the downturn in the real economy, which is near crash condition
Political uncertainty and fears of a Greek eurozone exit that have recently come on top of the protracted recession and choking lack of liquidity seem to have accelerated the downturn in the real economy, which is near crash condition.
Together the rise of the black economy and the freeze in payments, the clearest sign of disintegration is in public revenue collection. After showing a timid rise in the beginning of May, it nosedived right after the May 6 elections. By May 20 the fall was in the order of 20 percent, with taxpayers putting off paying dues and the practice of discounts for not issuing a receipt spreading even to the catering sector.
The government, meanwhile, facing the threat of a delay in the disbursement of bailout installments from the troika, has suspended rebates and payments to suppliers of the public sector.
The effects of this mutual suspension of payments between private and public sector are further exacerbated by two factors:
First, the inability of banks to maintain a satisfactory level of liquidity in the economy. Loans have been cut off even to businesses with a sound financial base. Since the beginning of the crisis, deposits have been reduced by about 70 billion euros, while withdrawals have accelerated since the May 6 election. Bank officials estimate the drain in the last 20 days at about 2.5 billion euros. Loans to households and enterprises have fallen by about 11 billion euros in the last two years.
Second, the suspension of credit between businesses, which prefer not to sell at all instead of selling on credit and post-dated checks that may never be paid. This is indicated by the decline in the number of bouncing checks, which is due to anything but brisk business. A recent survey by business consultants ICAP showed that for 74 percent of businesses the priority is not an increase in sales but a reduction in bad credit and the protection of their viability.
The prevailing uncertainty about the economic future of the country has also caused a partial black-out in transactions with foreign firms, some of which have begun suspending payments over fears that either that they will lose their money or that Greek products and services will soon cost less, being denominated in drachmas. For instance, Italian tour operator Veratour notified Greek partner hoteliers on Thursday that, “we shall not be able to make further down payments, at least until the situation in the country becomes a little clearer and stabler… we have to take some time to evaluate likely future scenarios concerning your country.”
Foreign suppliers are refusing to send merchandise to Greece if they are not paid cash or without letters of guarantee from foreign banks -- as those from Greek banks are not accepted.
Credit is not refused just by foreign firms but also by European institutions. The European Investment Bank (EIB) demanded a change-in-currency clause in its loan contracts with Greek enterprises, such as the Public Power Corporation (PPC). The demand created an uproar and was dropped but EIB seems to be withholding disbursement on various pretexts until the situation becomes clearer.
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