Greece's strained economy will face a new hurdle on Monday as a sales tax on many groceries and basic household items increases by 10 percent, on the same day banks are due to reopen after a three week shutdown.

The hike in value-added tax (VAT) from 13 percent to 23 percent will apply to a wide range of products and services for the first time - including processed foods, along with drinks and food served at restaurants and bars.

Its effects are likely to be immediately felt by businesses and residents, who are already struggling with deep austerity and capital controls.

The government is expected to get a revenue boost of about 800 million euros ($867 million) a year from the tax hikes.

Other products that will see price increases from Monday include fresh and frozen meat, coffee, tea, juices, eggs, sugar, rice and toilet paper.

The measures are part of reforms demanded by international lenders before talks could begin on a third Greek bailout, worth 86 billion euros, to help the country avoid bankruptcy.

The tax increase will also affect many Greek islands - something the ruling Syriza party tried hard to avoid in recent negotiations with creditors.

The proposals caused a mutiny among Syriza MPs, forcing Prime Minister Alexis Tsipras to carry out a limited reshuffle on Friday.

Capital controls remain

As banks prepare to reopen on Monday, it will take weeks to clear backlogs of checks and electronic transfers that were halted when the banking system was frozen on June 29.

Although withdrawal limits are to be gradually eased, Greeks will get access to a maximum of 420 euros ($455) per week from their accounts, effectively the same as the 60 euro daily limit that is already in force but without forcing people to visit ATM every day.

Restrictions on transfers abroad and other capital controls will remain in place amid fears about the financial health of some Greek banks after the withdrawal, earlier this year, of billions of euros in depositors' savings. The bank closure is estimated to have cost the economy 3 billion euros.

On Friday, the EU approved a 7 billion euro short-term loan, to allow Athens to make scheduled repayment to the European Central Bank (ECB) of 4.2 billion and to settle an outstanding debt to the International Monetary Fund (IMF) which was missed last month.

Temporary "Grexit" criticized

On Sunday, German Vice Chancellor and Economics Minister Sigmar Gabriel contradicted comments by Finance Minister Wolfgang Schäuble that Greece should consider a temporary exit from the EU.

"In my opinion, it was not wise to present this as a German suggestion," he said in a television interview with public broadcaster ZDF.

But Gabriel added that it was unrealistic for Germany to take on so much risk without calling for Greece to implement structural changes.

Tsipras now has to negotiate a third bailout deal for Greece. And he'll have to do it as many at home expect early elections to be called. Interior Minister Nikos Voutsis said last week that a vote could be called for either September or October.

mm/sms (AFP, dpa)