Capital controls imposed by the Greek government are taking a heavy toll on Greek businesses, according to a new report from Endeavour Greece. With over two-thirds of respondents reporting a "significant drop in revenues," and 1 in 9 firms forced to suspend production due to shortages of raw materials (unable to buy due to capital controls), the problems created by The Greek government's action seem asymmetric as almost a quarter (23%) of firms are now "planning to transfer their headquarters abroad for security, cashflow, and stability reasons."
Endeavour Greece, a non-profit group that supports entrepreneurs, found that 58 percent of the 300 companies it surveyed between July 13 and July 17 reported a "significant impact on their operations caused by the limitations imposed to cross-border transactions."
"Many of these companies cannot import raw material or have access to foreign services and infrastructure," the group said in a statement, adding that 23 percent "plan to transfer their headquarters abroad for security, cash flow and stability reasons."
More than two thirds of the companies – 69 percent – reported a "significant drop in turnover," with 11 percent forced to decrease or suspend production due to shortages of raw materials.
Greece imposed a raft of capital controls on July 29, closing the banks and restricting cash withdrawals in a bid to prevent a disastrous bank run from draining money out of the financial system.
Banks reopened on Monday and restrictions on cash withdrawals have been partially relaxed, though the capital controls remain in place.
Endeavour Greece reported that businesses were facing "significant impediments" due to the continuing ATM limits, but on "a smaller scale."
Nearly half of the companies – 45 percent – said they had been forced to postpone payments to suppliers.
This offers little hope for a silver lining as the nation is hollowed out. As Jeffrey Sachs notes, the formula for success is to match reforms with debt relief, in line with the real needs of the economy.
A smart creditor of Greece would ask some serious and probing questions. How can we help Greece to get credit moving again within the banking system? How can we help Greece to spur exports? What is needed to promote the rapid growth of small and medium-size Greek enterprises?
For five years now, Germany has not asked these questions. Indeed, over time, questions have been replaced by German frustration at Greeks’ alleged indolence, corruption, and incorrigibility. It has become ugly and personal on both sides. And the creditors have failed to propose a realistic approach to Greece’s debts, perhaps out of Germany’s fear that Italy, Portugal, and Spain might ask for relief down the line.
Whatever the reason, Germany has treated Greece badly, failing to offer the empathy, analysis, and debt relief that are required. And if it did so to scare Italy and Spain, it should be reminded of Kant’s categorical imperative: Countries, like individuals, should be treated as ends, not means.
Creditors are sometimes wise and sometimes incredibly stupid. America, Britain, and France were incredibly stupid in the 1920s to impose excessive reparations payments on Germany after World War I. In the 1940s and 1950s, the United States was a wise creditor, giving Germany new funds under the Marshall Plan, followed by debt relief in 1953.
In the 1980s, the US was a bad creditor when it demanded excessive debt payments from Latin America and Africa; in the 1990s and later, it smartened up, putting debt relief on the table. In 1989, the US was smart to give Poland debt relief (and Germany went along, albeit grudgingly). In 1992, its stupid insistence on strict Russian debt servicing of Soviet-era debts sowed the seeds for today’s bitter relations.
Germany’s demands have brought Greece to the point of near-collapse, with potentially disastrous consequences for Greece, Europe, and Germany’s global reputation. This is a time for wisdom, not rigidity. And wisdom is not softness. Maintaining a peaceful and prosperous Europe is Germany’s most vital responsibility; but it is surely its most vital national interest as well.