Greece’s Reliance on Tourism Is a Weakness in the Corona Age

Greece’s Reliance on Tourism Is a Weakness in the Corona Age

(Bloomberg) — Just as Greeks are emerging from a decade-long crisis that cost the country a quarter of its output, the impact of the coronavirus on the vital tourism sector threatens to deprive them of the fruits of recovery.

The industry accounts for around a fifth of Greece’s economy and more than a quarter of jobs, according to the London-based World Travel and Tourism Council. That makes it the European Union’s second-most exposed country to the sector after Cyprus and signals more pain ahead for Greeks reeling from years of hardship.

The government has already ordered the closing of seasonal accommodation, which includes over half of hotels. And after people flocked to coastal areas in unseasonably warm weather, organized beaches were also shut down on Sunday.

“We were fully booked, but half of the reservations never showed and it’s going to get worse from here,” said Helen Michael, owner of a 25-room hotel near the central Syntagma Square (NYSE:) in Athens. “People are afraid.”

Greece has 352 confirmed virus cases and four reported deaths. The government closed all schools and universities until March 24 and canceled parades for next week’s independence day celebrations. Authorities announced the first measures last week to address the economic impact on companies and parents can take special paid leave as long as schools are closed.

“We’re monitoring reservations and cancellations hour to hour,” said Alexandros Vassilikos, president of the Hellenic Chamber of Hotels (HCH).

Michael, who runs one of Greece’s almost 10,000 hotels, says trips are being canceled at a rate of above 20%. “We had lots of reservations through to the end of April, including for Easter, but now the situation is a disaster and it’s likely to continue through May,” she said. “Right now, the last thing people are thinking about is summer holidays.”

Greek hotels generated revenue of 8.7 billion euros ($9.8 billion) in 2019, a rise of more than 7% compared with 2018, according to HCH data. The number of tourists visiting from abroad reached 31.3 million people in 2019, almost triple the country’s population, and they spent 18.2 billion euros.

Tourism won’t be the only sector to suffer, Vassilikos predicted, but urged the government to prioritize the industry because if it collapses “the consequences will be felt from the accountant in Rhodes to the plumber in Athens.”

The virus outbreak has come at a delicate time for Greece. While the Mediterranean nation was benefiting from its lowest borrowing costs on record before the global pandemic pushed up bond yields, the real economy was still suffering.

Take Vassilis Karayiorgos, a 50-year-old pet shop owner just outside Athens. Even at the beginning of the outbreak, he already had a book with a list of struggling customers who had taken food for their pets and who said they’d pay when they get their salary or pension at the end of the month.

The government had forecast a growth rate of 2.8% for 2020, but economists now see the economy expanding by less than 2% — in a positive scenario. Growth could slow by as much as 0.9% depending on the length of the epidemic, analysts at Athens-based Alpha Bank said in a report last week.

Prime Minister Kyriakos Mitsotakis asked European counterparts in a call last week that any spending on combating the virus be excluded from budget calculations. Greece is under an enhanced monitoring program after exiting its bailout in August 2018 and had agreed to an annual primary surplus target of 3.5% of GDP until 2022. The government wants to cut the target to have more fiscal room to tackle the outbreak.

What’s critical for Greek hoteliers is to secure enough liquidity. “For the moment we want measures to maintain our cash flow and to help us protect jobs,” Vassilikos said. The vast majority of Greek hotels are healthy businesses and shouldn’t be left alone to collapse for something that is beyond their control, he said.

Demands include the postponement of tax and social security obligations at least until the end of May, the granting of state guarantees to hotels so that they can borrow money and the suspension of loan installments to banks.

Bank Fears

Helen Michael is one hotelier who may suffer. She took out a loan to refurbish her hotel in 2018 and to open an organic vegan restaurant on the site. “I had no problem in making monthly payments, but now what will I do if I have no guests?,” she asked.

Greek banks have non-performing exposures of more than 70 billion euros and they’re trying to reduce them by 40% through an Italian-style plan, named Hercules, that uses state guarantees. A new wave of bad loans would hamper lenders efforts to clean-up balance sheets and re-establish credit lines to the fragile economy.

“I was due to hire three more people this week ahead of the summer season, but now I don’t know what to do as I may not have the money to pay them,” Michael said. “I will have to look at cutting spending, including the possibility of laying off staff.”

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