Eurobank: The consequences of capital controls in the economy
Report on the impact of capital controls on the economy, issued by Eurobank writing the report edited by economists Messrs bank Theodoros Stamatiou, senior economist and Stylianos G.. Gogos, a financial analyst.
As stated in the announcement, already emerge the first signs of another recessionary year, the seventh in the last eight years, with reduced consumption, delay planned investment projects anemic exports and high unemployment.
"The most recent developments, such as the agreement of 12 July Summit, the adoption of reforms prerequisite for the loan" bridge "to meet the country's immediate financing needs, and the lifting of bank holiday, are steps in the right direction. However, it is expected that the negative effects of the recent turmoil will continue to be felt for some time.
The purpose of this study is to present a preliminary assessment of the potential impact of restrictions on capital movements. In particular, two key distinguish the aforementioned disturbance transmission mechanisms. The first relates to transaction costs (transaction costs) and the second by increasing uncertainty and the worsening of the economic climate, "as stated in the announcement.
According to the report shows the following:
"In terms of the transaction costs distinguish the following:
Transactional habits and adjustment costs
Restricting cash withdrawal from the domestic banking system leads to increased transaction costs associated with using natural money. Potentially, this development will increase incentives for households and businesses to transact with plastic money.
However, the transition to the new trading model will not be instantaneous. Instead, there will be a period of adjustment inherent time cost. This argument is strengthened by the fact that Greece is ranked in 26th place among the 28 EU countries in terms of propensity to making electronic transactions (European Commission, DESI (2015). The above figures are expected to create negative shocks both in demand (lower consumption) and in this supply (reduction of production). The shorter the period of adjustment, the smaller will be the total cost (rising unemployment and falling incomes) for the economy .
External Sector and Investments
Restrictions on capital flows are expected to lead to a contraction in imports, at least short term. This development will have an impact on both domestic and external markets, especially taking into account that a large part of export trade based on imported raw materials.
At the same time, more difficult decisions for investments in the Greek economy. The expected return potential investor will now be included as an additional risk premium due to the imposition of capital constraints. All this may lead to a worsening of the country's ranking in international competitiveness indicators.
Tourism
The restrictions on capital movement imposed on a peak season for tourism. Recall that in the case of Greece, the peak of tourist revenue takes place between May and September each year. Although apparently there was some short-term impact in terms of arrivals, expected relative recovery by the end of the season.
In addition, the services provided in the tourism industry rely heavily on imports. Thus, the continuation of the difficult situation currently observed in the import trade can have indirect effects in the tourism product. In 2014, the direct contribution of this sector to domestic production activity was high, 9.5% of GDP. Therefore, even small negative shocks in the tourism sector will have a negligible effect on the overall economy.
As regards the increase of uncertainty are indicated as follows:
The deterioration of the climate of uncertainty is not only due to the imposition of restrictions on capital movements, but mainly to the significant delay in the negotiations on the new loan scheme for the Greek economy.
Therefore, the successful conclusion of negotiations, the gradual stabilization of the economy and restore confidence in the domestic financial system, is expected to lead to a gradual easing of uncertainty. This will create the necessary conditions for the gradual liberalization of the restrictions or even their complete abolition. "
Posted by sfb spes
Report on the impact of capital controls on the economy, issued by Eurobank writing the report edited by economists Messrs bank Theodoros Stamatiou, senior economist and Stylianos G.. Gogos, a financial analyst.
As stated in the announcement, already emerge the first signs of another recessionary year, the seventh in the last eight years, with reduced consumption, delay planned investment projects anemic exports and high unemployment.
"The most recent developments, such as the agreement of 12 July Summit, the adoption of reforms prerequisite for the loan" bridge "to meet the country's immediate financing needs, and the lifting of bank holiday, are steps in the right direction. However, it is expected that the negative effects of the recent turmoil will continue to be felt for some time.
The purpose of this study is to present a preliminary assessment of the potential impact of restrictions on capital movements. In particular, two key distinguish the aforementioned disturbance transmission mechanisms. The first relates to transaction costs (transaction costs) and the second by increasing uncertainty and the worsening of the economic climate, "as stated in the announcement.
According to the report shows the following:
"In terms of the transaction costs distinguish the following:
Transactional habits and adjustment costs
Restricting cash withdrawal from the domestic banking system leads to increased transaction costs associated with using natural money. Potentially, this development will increase incentives for households and businesses to transact with plastic money.
However, the transition to the new trading model will not be instantaneous. Instead, there will be a period of adjustment inherent time cost. This argument is strengthened by the fact that Greece is ranked in 26th place among the 28 EU countries in terms of propensity to making electronic transactions (European Commission, DESI (2015). The above figures are expected to create negative shocks both in demand (lower consumption) and in this supply (reduction of production). The shorter the period of adjustment, the smaller will be the total cost (rising unemployment and falling incomes) for the economy .
External Sector and Investments
Restrictions on capital flows are expected to lead to a contraction in imports, at least short term. This development will have an impact on both domestic and external markets, especially taking into account that a large part of export trade based on imported raw materials.
At the same time, more difficult decisions for investments in the Greek economy. The expected return potential investor will now be included as an additional risk premium due to the imposition of capital constraints. All this may lead to a worsening of the country's ranking in international competitiveness indicators.
Tourism
The restrictions on capital movement imposed on a peak season for tourism. Recall that in the case of Greece, the peak of tourist revenue takes place between May and September each year. Although apparently there was some short-term impact in terms of arrivals, expected relative recovery by the end of the season.
In addition, the services provided in the tourism industry rely heavily on imports. Thus, the continuation of the difficult situation currently observed in the import trade can have indirect effects in the tourism product. In 2014, the direct contribution of this sector to domestic production activity was high, 9.5% of GDP. Therefore, even small negative shocks in the tourism sector will have a negligible effect on the overall economy.
As regards the increase of uncertainty are indicated as follows:
The deterioration of the climate of uncertainty is not only due to the imposition of restrictions on capital movements, but mainly to the significant delay in the negotiations on the new loan scheme for the Greek economy.
Therefore, the successful conclusion of negotiations, the gradual stabilization of the economy and restore confidence in the domestic financial system, is expected to lead to a gradual easing of uncertainty. This will create the necessary conditions for the gradual liberalization of the restrictions or even their complete abolition. "
Posted by sfb spes
