After four years of capital controls, conditions ripen for removal

After four years of capital controls in Greece, conditions ripen for removal

Greece is looking to fully lift capital controls in coming months, taking advantage of a rise in economic sentiment brought by a change of government in July.

Restrictions on the movement of capital within the country's banks were introduced in the summer of 2015 to prevent a meltdown of the financial system amidst a standoff between Greece and creditors over austerity measures Athens was forced to adopt. Greece has eased restrictions since then, but they have remained in place for a much longer period than anyone had expected.

In Cyprus capital controls were introduced in 2013 due to its bank crisis but were fully removed two years later.

Market friendly policies adopted by conservatives New Democracy have boosted expectations among many that the government will push ahead with key privatisations that have been delayed for years and deliver on promises to lower taxes. The Athens stock market is one of the best performing bourses in Europe, while the cost of borrowing for Greece has fallen to the lowest level in ten years.

The financial sector, however, still faces many obstacles in its bid to return to normal. Bad loans festering on bank balance sheets amount to some 80 billion euros, nearly half of total loans, posing the biggest threat to the sector that has struggled to get on top of the problem.

Greek government and banking officials have indicated that they have held initial talks with the country's creditors on removing the capital restrictions.

The move is seen as being of symbolic importance, a step to help Greece put the crisis behind it, rather than a practical change for businesses. Greek companies have largely adjusted to the capital controls, doing business around them.

Another sign of rising confidence in the financial sector is the spike in bank deposits seen recently. The latest data shows that bank deposits rose to 152.5 billion euros in June, up from 149.4 billion euros in April.

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