Capital Controls Gum Up Greek Businesses Struggling to SurvivePaul Tugwell and Marcus Bensasson
For Alexandra Konstantopoulou, running a business in Greece today means spending hours pleading with her bank to deal with her import applications.
The 45-year-old, who runs a German bookstore tucked away in an Athens arcade next to the Bank of Greece, says that while her suppliers have been accommodating after the country imposed capital controls, she can’t say the same for her lender. Her bank manager told her he was working through a backlog of requests, pointing to a shelf overflowing with applications.
“Things have become much harder,” said Konstantopoulou, who with her sister co-owns the store their mother opened in 1978. “There are big delays, the banks aren’t cooperating. I have payment deadlines I have to meet. Their answer is: So what? Some businesses will close. I don’t think they care.”
About one-and-a-half months after Greece shut banks and imposed capital controls to prevent a run on the country’s lenders, businesses are counting the cost of the new constraints. Many firms already weighed down by an economy that has shrunk by a quarter in the worst downturn since World War II now face the prospect of closure.
Since Greece shut its banks and imposed capital controls in the wee hours of the morning on June 29 -- limiting daily cash withdrawals to 60 euros ($67) and banning payments and transfers abroad -- sales at small companies have gone into a tailspin.
Revenue at small firms, which account for most of Greek business, fell by an average 48 percent in the first two weeks of the capital controls, according to a July survey of 1,005 companies by the Small Enterprises Institute of the Hellenic Confederation of Professionals, Craftsmen and Merchants, known by its Greek acronym Gsevee.
For a third of them, sales shrank by more than 70 percent as consumption contracted by 50 percent, or 3.8 billion euros, the survey found.
As the government of Prime Minister Alexis Tsipras heads into the final stretch to tie up a third financial rescue from euro-area partners, Greek companies are grappling with their country’s new reality.
Many enterprises were unprepared for the consequences of the controls and the three-week closure of banks. Only half of them used electronic banking for transactions while seven out of 10 had no point-of-sale devices for accepting payments by debit, credit or prepaid cards, Gsevee said.
A July parliamentary report estimates the capital controls will cost the economy between 4 billion euros and 10 billion euros this year.
For Gaea Products SA, an Athens-based marketer of Greek food products including olive oil, the biggest challenge is suppliers demanding payment upfront.
“Almost everything we buy, such as raw or packaging materials, whether local or imported, and services like freight companies are on a prepayment basis,” said Aris Kefalogiannis, Gaea’s chief executive officer. That’s becoming a “major issue in a market that was already short of liquidity,” he said.
The company, 82 percent of whose clients are international, pushed through orders as quickly as it could, taking in record sales in July, he said.
“We are in a crisis-management mode,” he said. “Medium or long-term planning doesn’t exist as the prevailing instability makes things totally unpredictable.”
Gaea may direct some income from international clients to a foreign bank account to pay suppliers for imported packaging materials and bypass “cumbersome” procedures, he said.
Titan Cement, Greece’s biggest cement producer, is channelling production at its plants almost exclusively toward exports as capital controls exacerbate an already bad liquidity situation and dry up the domestic pipeline, Chief Executive Officer Dimitrios Papalexopoulos said on a July 30 analyst call.
Capital controls mean Greek companies have limited access to their own deposits for financing imports and the production process, said Theodore Fessas, Chairman of the Hellenic Federation of Enterprises.
“Under such circumstances, it has become extremely challenging and difficult to plan, to invest, to import, to export, to grow, to compete internationally,” he said.
That in turn will accelerate the rate of failure of companies, “leading to a reduction in economic output, employment, tax revenues and a dramatic increase in non-performing loans, which could further increase the challenges faced by the banking system,” Fessas said.
More than half the 300 companies surveyed last month by the Greek unit of Endeavor Global Inc., a New York-based non-profit organization, said they were hurting. They cited limitations on cross-border deals and the inability to import raw materials or have access to foreign services.
“Things that Greek factories and Greek offices need that aren’t currently produced in Greece can’t be produced in Greece overnight so those businesses will start to go out of business unless they’re able to get access to the inputs they need,” Tom Rogers, senior adviser to the euro-zone economic forecast at Ernst & Young and associate director of macro consulting at Oxford Economics, said in a Bloomberg TV interview Aug.13.
Greek banks, which reopened on July 20, are meanwhile being deluged by businesses asking for access to their funds. Under the capital controls, banks consider requests for international payments under 150,000 euros, while a special Finance Ministry committee approves payments above that.
The committee got 6,798 applications in the month to July 29 while banks had 1,525 requests, the ministry said.
About 73 percent of the companies surveyed by Endeavor said they see capital controls remaining in place for four months or more, with 44 percent predicting that the duration of restrictions will exceed 10 months.
“The main issue for us is the perception of Greece as a destination since the capital controls,” said Antonios Fiorakis, chief executive officer of Incrediblue, an online marketplace for boat rentals in the Mediterranean.
For bookstore owner Konstantopoulou, it’s a lot more than just perception. She needs an update on the status of her application to plan orders before schools resume in September.
“Banks saying ‘we’ll see’ is not an answer,” she said. “It’s toying with my pain. Why should a bank be permitted to ruin my reputation?”
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