A recent overview from the Bank of Greece suggests that removing capital movement controls is key to successful Greek participation in the easing program set by the European Central Bank.
 
The Bank of Greece’s report indicates that gradual removal of capital controls is linked to completing the country’s second evaluation and ensuring that Greece’s public debt is sustainable. It would also allow for increased depositor confidence, leading to more deposits and reducing the funding costs for Greek banks. In turn, this change would promote increased issuance of loans, providing a boost to the Greek economy, particularly the export sector.
 
The report acknowledged the role that capital controls had in improving the liquidity of Greece’s banking system. In restricting capital movement, the banks were able to prevent deposit outflow and movement of capital to foreign countries. The past 15 months have seen a range of positive developments, such as the Eurosystem declaring Greek bonds again acceptable as collateral, which has naturally boosted depositor confidence over time, and as such, the country has seen an easing of the original controls.
 
The reduction of restrictions has led to increased imports, without a corresponding increase in exports. The Bank of Greece attributes this to a lack of bank financing and increased taxes, and suggests that bank financing will continue to grow with lessening capital control.