The latest developments in Greece do not appear to be positive. Last week, the Greek government seized “excess cash” from municipal government to replenish the central bank coffers so that Athens would be able to pay pensions, salaries, and the IMF. The inexperienced Finance Minister called the measures “temporary”.
The move was widely regarded as ‘soft’ capital controls. Capital controls mean citizens effectively lose control of their own money and have it seized or rendered useless by the government. The introduction of such controls are a bad sign for the economic health of the country and indicate the situation is deteriorating.
Over the weekend the first evidence that the “hard” variety of capital controls may have arrived. News organization Kathimerini reports that Greek debtors are having their deposits seized in lieu of payment.
“As the country’s finances reach a critical point, tax authorities have started seizing the deposits of small debtors” the paper reported.
It’s impossible to determine the scope of the actions but they seem widespread as cases of debtors targeted included a citizen with a debt of just 200 euros.
The bank account of the man was frozen and then reopened once it was established that he had paid his dues. In multiple cases, including that of a citizen with a debt of 24,000 euros, bailiffs are said to have even used threats to secure repayment. The initiatives come as efforts to crack down on rich Greeks with tax debts are making slow progress.
The trajectory from here appears reminiscent of cyprus, Citi Bank saying capital controls will likely be a part of whatever “resolution” happens in the Greek situation.
Such controls can be implemented instantly and would almost certainly accompany any run on a Greek bank or rioting, a Greek tradition.
In short, the situation is just a hair from a financial catastrophe at present.