The Greek pocketbook snaps shut

FORTUNE -- In Glyfada, an affluent coastal suburb of Athens, Aleka Maxtapolou, a 38-year old entrepreneur, spent almost an hour on a recent weekday evening hunting for an ATM that could dispense cash. "What have we come to when we can't even get the cash that's ours," she muttered under her breath with a laugh.

Maxtapolou's problem was with technology, but for the rest of Greece, the issue is liquidity. In the middle of its first recession since 1993 and at the center of a debt crisis that has roiled the world's financial markets, Greece is out of cash and the mood in Athens is palpably gloomy. Even the arrival of summer isn't managing to lift the spirits of the usually buoyant Greeks.

"Either everyone's away or they don't have any money to spend at all," said a cashier at AB Vasilopoulos, pointing at the nearly empty aisles of the usually bustling supermarket in the Athenian suburb of Neo Psyhiko.

Greeks, it seems, are starting to feel the debt crisis where it counts most: their wallets. After decades of living large and spending beyond their means, there is little doubt in this country, that "the time has come to pay the bill," as Aleksis Papachelas, editor of Greece's largest daily, Kathimerini, put it in February. And Greeks are discovering that paying up hurts.

To satisfy the conditions set by the International Monetary Fund and the European Union for a $140 billion bailout package, the socialist government of prime minister George Papandreou has cut wages by around 20%, raised taxes, frozen hiring -- and last Thursday, July 8, the parliament approved a hotly debated pension reform package, which pushed back the retirement age to 65 and reduced retirement benefits. Greeks now also pay a 23% value-added tax on all goods, with the most recent increase going through on July 1, making goods pricier almost overnight.

"Things are difficult. Everything costs a lot more than it used to," says Maria Konstatopoulos, a resident of Ambelokipos, a middle-income neighborhood in Central Athens. She's right. Consumer prices are up 5% compared to the same time last year -- and unemployment hovers near 12%.

The government has also imposed a 20% tax on gasoline and the ripple effects can be felt on this capital's usually traffic-snarled streets. "It used to take me an hour to get to work," says attorney Roxani Avgerinou, who lives in a northern suburb and drives to her office in the city's center. "Now it takes me 35 minutes." Gasoline station owners reported in the Sunday edition of Kathimerini that sales are down 25% since the beginning of the year.

The slowdown can be seen too, literally plastered across the city's walls. "For sale" and "for rent" signs litter almost every neighborhood in the city. Along a major thoroughfare called Vassilis Sofias Ave., for example, three banners hung from balconies and 11 yellow stickers with red lettering were pasted near the door or on gates to advertise apartments available for rent or sale. And that's just counting one side of the street.

Empty storefronts are everywhere. The retail vacancy rate is reported to be close to 20%. And according to Constantine Michalos, the president of the Athens Chamber of Commerce and Industry, nearly 17,000 businesses have shut their doors in Athens and the surrounding area of Attica in the last six months alone. It may get worse, he warns, especially if the crisis spreads to other European countries like Spain and Portugal. "It'll be like Jaws 2," Michalos says with a half-hearted chuckle.

Small businesses aren't smiling.

"Business is terrible," says Christos Botziolis, who has sold socks and stockings from the same small hosiery shop on Kifisias Avenue in Ambelokipos since 1975. He reports that his sales have been off by about 20% to 30% since January.

"I've had customers who used to buy 10 pairs of socks come in and only buy one," he shrugged; his store empty. "Soon, they'll just wear the one that they have, even if it has holes in it. What are you going to do?"

By Botziolis's count, 22 retailers, including a local Sephora, have shut their doors in this neighborhood alone, along a stretch of about 10 blocks. Many shopkeepers, he says, simply can't keep up with operating costs or pay their rent as sales decline.

Seeing the storm coming, many small businesses have retrenched. Tasos Prapidis, the owner of Fashion Market, a tiny clothing shop on a side street, says he closed one of his two stores a month ago to save his business.

"It's too early to tell if my strategy worked," he says. "But I expect now that I only have to pay one rent and one utility bill, it should help."

It's not all doom and gloom, of course. Metaxia Rori, a saleswoman at a Swarovski shop across the street, reports that the boutique moved to this smaller space, with a lower rent, a couple of months ago. Since, sales have held steady -- a sign perhaps that Greeks won't let even a severe economic crisis depress them too much.

"We are doing ok. Greeks still buy gifts, thank God," Rori says with a smile. "We are going to get through this. One crisis isn't going to destroy us."

Old habits -- and attitudes -- die hard, it seems, even with smaller amounts of cash at hand.