Greek Finance Minister Christos Staikouras announced last week that Greece would be lifting its capital controls effective September 1ST, allowing the free movement of money in and out of the country for the first time in over four years. This move, a potent sign of the country’s return to normalcy after its three bailouts since 2010, is part of the new government’s plan to boost the economy by facilitating greater domestic and foreign investment.
Greece’s economy has been steadily growing since its low point in 2015, with capital controls having been slowly relaxed. Most recently, firms needed permission from Greece’s central bank to move sums greater than 100,000 euros per day outside the country, while individuals could transfer up to 4,000 euros every two months.
In July, Bank of Greece Governor Yannis Stournaras – with support from the European Central Bank’s banking supervisory arm – recommended that these restrictions be lifted after observing a sustained increase in bank deposits. Meetings followed between officials from Greece’s Finance Ministry, heads of Greece’s banks, and regulators from the Hellenic Capital Market Commission, with restrictions having been officially lifted on Sunday.
The capital controls were first put in place in July 2015, at the height of negotiations over Greece’s debt burden between the country’s international creditors and the left-wing Syriza government.
After former Prime Minister, Alexis Tsipras, called a referendum on the bailout terms negotiated with Greece’s lenders, the European Central Bank cut off emergency liquidity assistance to the country’s banking system. The move provoked fears of a widespread banking system collapse, triggering Greeks to withdraw deposits en masse – preferring to hold cash or move their deposits into banks elsewhere in the eurozone. In response, and in a bid to stem the outflow of money from the country, capital controls were imposed by the government.
Actors across Greece’s political spectrum praised the move to lift capital controls, which sailed through parliament with support from all parties except the hardline communist KKE. Government and opposition, however, both sought to claim credit for the initiative. Prime Minister Kyriakos Mitsotakis, who took power when his New Democracy party won a sweeping victory in July’s elections, highlighted that a “new cycle of optimism has begun for the economy and banking system”, framing his party’s election as a restoration of confidence in the Greek economy after four years of Syriza rule.
Euclid Tsakalotos, a Syriza MP who served as finance minister in the previous government, countered that removing capital controls was the direct result of his administration’s economic policies, and that New Democracy was taking advantage of Syriza’s heavy lifting.
Reactions from the business community have been widely positive, as lifting the restrictions will facilitate greater foreign direct investment into Greece, and serve as a powerful symbol that the country has emerged from its state of crisis. The Greek government hopes that the reform will also spur credit rating agencies to upgrade Greece’s status, allowing it to borrow at a lower cost on international capital markets.
The European Commission also praised the decision, with its spokeswoman calling it “an important milestone and yet another sign that confidence continues to build on Greece’s economic recovery”. Allowing free capital movement could also provide an investment boost to nearby Cyprus, a country with strong economic ties to Greece.
After announcing the move, Mitsotakis met with German Chancellor Angela Merkel in Berlin. While the German leader praised the new government’s reform efforts, no easing of the financial terms of Greek debt were promised. Nevertheless, the two leaders agreed on the general direction of reforms to stimulate greater investment in the Greek economy, noting that as the Greek economy grows it will be easier to repay debts.