The economy is on autopilot again thanks to political developments. The difference is that now, thanks to the capital controls, it is much more vulnerable than before, while there are strict deadlines in place which, if not met, will cause complications.
Until the elections, and with the precondition that a stable government with a pro-European stance will be formed immediately after, all memorandum-related procedures are on hold. The timescale that has been agreed with Greece’s creditors foresees the first assessments by the end of October. By then, a series of painful measures will need to be adopted, mainly related to tax and insurance.
The maintenance of the timescale, which doesn’t allow for any dead periods, is especially doubtful now. This will cause delays to the cash injections of September and October totaling 3 billion euros, which were primarily to be used for the payment of arrears by the state to the private sector.
Any hopes that Greek banks could go back to being financed directly from the European Central Bank rather than through the costlier Emergency Liquidity Assistance scheme have also been put on hold. The ECB revoked the waiver on Greek bonds as collateral for liquidity from local banks in February. The agreement of a new program and disbursement of the first 10 billion euros needed for recapitalization meant that there were hopes the waiver would apply again from early September.
The recapitalization of banks must be completed by the end of the year, since from 2016 a new EU directive will be implemented which provides for a haircut on deposits over 100,000 euros. Stress tests will continue normally, but the way in which recapitalization takes place requires a political decision by October.
The implementation of the National Strategic Reference Framework (ESPA) program is also on hold. Funds totaling 1.4 billion euros from this program are in danger of being lost, and the Ministry of Finance is in discussions with the European Commission to prevent this.
However, the business community expects the relatively short campaign period, the prospect of a new government that will stick to the agreement and the so far subdued reactions from Greece’s creditors will limit the impact on economic activity.