IMF says Greece repaid arrears worth 2 bln euros

Greece’s banks reopened on Monday after being shut for three weeks, although most of the capital controls remained in place.

Along with the tax hikes, the Greek government, led by the radical-left Syriza party that came to power in January promising to end austerity, is also set to overhaul its ailing pension system as part of the reforms deal, and launch privatisations it had previously opposed.

While banks throwing open their doors marks the return of a few normality to the Greek economy, long-term problems remain.

Many restrictions on transactions, including cash withdrawals, remained, however. They have been imposed on many basic goods, from cooking oils to condoms, through to popular services, such as eating out at restaurants and ferries to the Greek islands.

Representatives from Greece’s creditors – known as the Troika – are due to arrive in the country soon and talks on the new bailout are expected to last about a month.

The argument erupted on the island of Rhodes when the group said they objected to “paying Greece twice” to visit the ancient ruins of Lindos.

“Apart from Germany, it appears that most people are in agreement that Greece needs a substantial debt writedown”, said Alan McQuaid, chief economist at Merrion Capital Group Ltd.in Dublin. An official in Lindos said: “We are frankly quite offended at their refusal to pay”.

The deal opened the way for the release of a bridging loan so that Athens can also cover a 3.5-billion-euro (3.79 billion dollars) bond repayment to the European Central Bank due on July 20, but for the ordinary Greek citizens, the pressure remains.

The limit for cash withdrawals of €420 (£290) per week is still in place, although customers will be able to take out the entire amount at once instead of just €60 (£40) a day.

Those negotiations were thrown a curve last week after the International Monetary Fund – a central player in Greece’s first two bailouts – said it would not support a new plan unless Greece’s debt is restructured or reduced because the country is too weak to repay. Some of the bailout money will also go to restoring the financial health of the banks, which would help speed up the removal of the controls.

Acceptance of the bailout terms and reopening of the banks have marked a new stage for Tsipras after months of hard talks.

“The government was obliged to make a tactical retreat to save the country”, new Greek Minister for Labor and Social Solidarity Georgios Katrougalos said yesterday.

On Friday, he dismissed cabinet-level dissenters by a reshuffle. “This was the result of a soft, post-modern financial coup”.

Their argument is that under Greek law, the lowest number of votes a government can have to win a confidence motion is 120 out of 240, the minimum quorum in parliament for a vote to be valid.

Thus a bank can be entirely solvent (not that we think the Greek banks are but that’s another matter) but illiquid.