Why there is another year of capital controls for Greece

Greeks should get used to restrictions on their money with capital controls here to stay at least till the second half of 2016, say economists polled by Bloomberg.

Greek government and bank officials have argued that the controls - introduced in June to limit ATM withdrawals and overseas transfers - can be lifted by the start of 2016, after Greece’s banks have been recapitalized. However, 81 percent of economists surveyed considered this view to be too optimistic.

Achilleas Chrysostomou, an economist at Standard Chartered Bank in London said that it is possible that “the European partners, the creditors, will want to see some more evidence of implementation of the program before they feel comfortable lifting the capital controls.”

At the end of October the European Central Bank is set to announce the results of a review of Greek banks. This will likely show a capital shortfall of 18 billion euros, with the vast chunk of that gap to be filled by the state-run Hellenic Financial Stability Fund, according to the Bloomberg poll.

Prime Minister Alexis Tsipras repeated on Friday that it is necessary to complete recapitalization by the end 2015, before new regulations take effect that would require depositors to be bailed in as part of the process before eurozone rescue funds are unlocked.

The introduction of capital controls on Greek economic activity means gross domestic product will shrink 1 percent in 2015, according to economists in a separate Bloomberg survey.

Although that’s a wider contraction than the 0.7 percent forecast in July, it still reflects unexpected firmness in the second quarter, when GDP rose 0.9 percent.

Greece’s bailout deal, signed in August, forecast the economy would dwindle 2.3 percent this year.

Nicholas Magginas, an economist at National Bank of Greece SA in Athens, who is one of three analysts in the survey expecting the removal of controls in the first half of 2016, says that the deficits in the government budget and external position have been resolved.

“There is no need for a prolonged adjustment period under capital controls.”