Greece prepares to reopen banks, apply tax hikes

Greece prepared today to restart its struggling economy with a revamped government, a bank reboot and a new round of tax hikes agreed after months of fraught confrontation with its creditors.

Banks are set to reopen tomorrow after a three-week shutdown estimated to have cost the economy some €3.0 billion ($3.3 billion) in market shortages and export disruption.

Crisis-hit Greeks will also have to endure widespread price hikes with a broad batch of goods and services – from sugar and cocoa to condoms and funerals – now taxed at 23 per cent, up from 13 per cent.

The measures are part of a tough fiscal package Greece had to agree to last week to earn a three-year bailout from its international creditors and avoid crashing out of the Euro zone.

The austerity package caused a mutiny among lawmakers of the ruling radical Syriza party, forcing Prime Minister Alexis Tsipras to carry out a limited reshuffle on Friday.

Even so, most analysts and even government officials say early elections are now inevitable, and are likely to be held in September.

Tsipras – who barely has time to eat or sleep, according to his mother – faces a fresh challenge in parliament on Wednesday to approve a second wave of reforms tied to its economic rescue.

The leftist government has agreed to raise taxes, overhaul its ailing pension system and commit to privatisations it had previously opposed, in exchange for a bailout of up to €86 billion ($94 billion) over the next three years.

The draconian agreement – accepted by a party that came to power in January promising to end austerity – came after over 61 per cent of Greeks on July 5 rejected further cuts in a referendum called by Tsipras himself.

His critics accuse the prime minister of kowtowing to blackmail by Greece’s creditors, who had threatened to expel the country from the euro.

“The commission is prepared for everything... We have a Grexit scenario, prepared in detail,” European Commission head Jean-Claude Juncker had warned on July 8.

The Kathimerini newspaper today said the “Grexit” plan, which also entailed Greece’s expulsion from the Schengen Treaty, had been secretly prepared in less than a month by a 15-member European Commission team.

French Finance Minister Michel Sapin yesterday insisted that the “real humiliation would have been for Greece to have been kicked out of the euro.”

“There was a real confidence problem... now this confidence is being restored,” Sapin told the To Vima weekly.

The Greek crisis exposed a rift between the Euro zone’s top powers, Germany and France, on how far to apply austerity to meet fiscal goals.

French President Francois Hollande today called for the euro’s governance to be “strengthened”, calling for “the addition of a specific budget and a parliament to ensure democratic control”.

Commentators say the lack of centralised governance over national fiscal policies – a jealously-guarded sovereignty area for member governments – is a major flaw in the single European currency.

Greece is also scheduled tomorrow to repay €4.2 billion to the European Central Bank (ECB).

For this purpose, the EU on Friday approved a short-term loan of €7.16 billion, which will also enable Athens to repay debts to the International Monetary Fund outstanding since June.

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