The Impact of Capital Controls on the Use of Electronic Means of Payments (EMPs) in Greece: Empirical Study

The Impact of Capital Controls on the Use of Electronic Means of Payments (EMPs) in Greece: Empirical Study

Nikolaos Giannopoulos (Piraeus Agency S.A., Greece) and Alina Hyz (Piraeus University of Applied Sciences, Greece)
DOI: 10.4018/978-1-5225-6114-9.ch003

Abstract

The aim of this chapter is to analyze the evolution of the use of electronic means of payments (EMPs) in Greece during the years of capital controls and the prospects created for the Greek banking market and economy from their use. More generally, the authors try to analyze the level of reaction of the real economy to an extreme economic event, coupled with the subsequent development of trends. The introduction of capital controls in Greece in 2015 has led to significant changes in consumers' behavior including the evolution of the means of payment. In this study, the authors analyze initially the penetration of EMPs in Greece during the years before capital controls, then they focus on the current situation and the estimation for the future. They describe the policy followed by the state and measures taken by the Greek banks to encourage the wider use of electronic means of payments.
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1. Introduction

The deep economic crisis that hit Greece is reflected, inter alia, in the main macroeconomic ratios, like Gross Domestic Product and unemployment and some indicators of the banking sector, like deposits, total loans and non-performing loans. Greece is characterized by borrowing problems, high public debt, serious lack of competitiveness, unsustainable social security system, particularly poor public administration and a large and wasteful public sector (Bukowski, 2011; Δημητροπούλου, et al. 2014, Karamanis, et al., 2014, Gikas, et. al. 2013, Hyz, Gikas, 2016, Hyz, et.a;. 2017).

Two and a half years have passed since capital restrictions have been imposed in Greece due to the Greek government’s inability to reach an agreement with its lenders. Negative results of the five-month negotiations with the members of Eurogroup culminated in premature elections on January 2015 and the establishment of a coalition government of two parties: Coalition of the Radical Left (Syriza) and Independent Greeks (Anel). New negotiation began with the logic of debt cancellation and country disengagement from the memorandums, but the attitude of the country’s partners was insurmountable on these issues, leading to a waste of time and expectations.

During this time, the Greek banks declined sharply, leading to strong concern about the ability to maintain the country’s liquidity and the viability of Greek banks. On Friday, June 26, 2015, the country’s prime minister announced a referendum on July 5, in response to the ensuing set-up of partners to accept their proposal within the day. Following the above events, the European Central Bank decided not to further increase the level of its Emergency Liquidity Assistance for Greek banks. In June 2015 capital controls were introduced.

As a result, the Greek government was forced to immediately close Greek banks for almost 20 days and to implement controls on bank transfers from Greek banks to foreign banks, and limits on cash withdrawals to avoid an uncontrolled bank run and a complete collapse of the Greek banking system (Samitas, Polyzos, 2015). Cash withdrawal per customer was limited to the amount of € 60 per day, or € 420 per week cumulatively, while special categories of transactions were identified which, after approval, could be circumvented.

According to the government decision, the new card operation framework (debit, credit, prepaid) was defined as shown in Table 1.

Table 1.
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Allowed TransactionsUnauthorized Transactions
Debit Cards
Issuing of one card per customerPurchases and payments to foreign companies
Withdraw up to € 60 via ATMTransactions in foreign venues that deal with money handling
Purchases and payments in physical stores
Purchases and payments in online stores
Credit Cards
Card issuanceCash withdrawal via ATM
Purchases and payments in physical storesPurchases and payments to foreign companies
Shopping and Payments in E-ShopsTransactions in foreign venues that are the subject of money handling
Prepaid Cards
Card issuance and chargingCash withdrawals via ATM
Recharging cardPurchases and payments to foreign companies
Card payment via internet bankingPurchases and payments in physical stores
Purchases and payments in physical storesCash out bank cash
Purchases and payments in online stores

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