Survey of Greek SMEs: Capital Controls (December 2016)

A year-and-a-half after the imposition of capital controls, SMEs show clear signs of adapting to the new state of play. The new study of NBG Research focuses on the strategic choices that SMEs had to make due to these controls as well as the potential effects of their continued implementation on the medium-term growth dynamics of SMEs.

Starting from the current conjecture, 2016 presented a gradual recovery of the business climate, as reflected in the 8 point improvement in the business confidence index for SMEs during the year (to -2 in H2.2016, from -10 in H2.2015) – though remaining in negative territory. Specifically, the two main components of the confidence index (current and future demand) appear to converge at a level well above 2015, but significantly lower than 2014.

In seeking the factors limiting the recovery dynamic, we focused on the impact of capital controls on Greek SMEs. Operational adjustment to the capital control regime seems for the most part to have been effected through significant policy changes while the extension of the capital controls over many months absorbed the "short-term liquidity cushion" (outside Greek bank accounts) held by a significant segment of SMEs (about 36 per cent), thereby exacerbating the depth and breadth of the consequences of the capital controls.

Our findings point to the conclusion that a rapid removal of capital controls is:

• crucial to prevent structural problems in SMEs (especially as a result of the cancellation of investment projects), while
• poses a relatively low risk, as entrepreneurs in all sectors say they will not rush to withdraw all their deposits, suggesting that the level of cash amounts held by SMEs with Greek banks will remain at roughly similar to the current levels (90 per cent).

More importantly, it is worth noting that the removal of capital controls will likely prompt about 1/3 of SMEs to reboot "frozen" investments over the ensuing six-month period, estimated at a total level of about €1 billion.