General payments freeze takes hold (Greece) [View all]

[FarCenter]

Political uncertainty and fears of a Greek eurozone exit that have recently come on top of the protracted recession and choking lack of liquidity seem to have accelerated the downturn in the real economy, which is near crash condition.

Together the rise of the black economy and the freeze in payments, the clearest sign of disintegration is in public revenue collection. After showing a timid rise in the beginning of May, it nosedived right after the May 6 elections. By May 20 the fall was in the order of 20 percent, with taxpayers putting off paying dues and the practice of discounts for not issuing a receipt spreading even to the catering sector.

The government, meanwhile, facing the threat of a delay in the disbursement of bailout installments from the troika, has suspended rebates and payments to suppliers of the public sector.

The effects of this mutual suspension of payments between private and public sector are further exacerbated by two factors:

First, the inability of banks to maintain a satisfactory level of liquidity in the economy. Loans have been cut off even to businesses with a sound financial base. Since the beginning of the crisis, deposits have been reduced by about 70 billion euros, while withdrawals have accelerated since the May 6 election. Bank officials estimate the drain in the last 20 days at about 2.5 billion euros. Loans to households and enterprises have fallen by about 11 billion euros in the last two years.

Second, the suspension of credit between businesses, which prefer not to sell at all instead of selling on credit and post-dated checks that may never be paid. This is indicated by the decline in the number of bouncing checks, which is due to anything but brisk business. A recent survey by business consultants ICAP showed that for 74 percent of businesses the priority is not an increase in sales but a reduction in bad credit and the protection of their viability.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_27/05/2012_444134