Going to Greece?

31st May 2012

New data released this week shows vacation bookings from Germany as well as the rest of Europe have taken a sharp decline, with bookings in May down by one-third compared with May 2011. Hopes of reaching last year's 16.4 million record visitors are dashed; early reservations for the summer tourism season have dropped 15% from last year.

Tourism revenues down 48%

The news follows a 3.5 percent decline in international arrivals throughout January-April 2012, compared to 2011. George Drakopolous, Director General of SETE, the Association of Hellenic Tourism Enterprises, told CNBC that it is hard to predict bookings since many are made closer to departure. But with tourism revenues down 44.7% from last year for January and February combined, the Greek tourism sector is precarious at best-and raises the question of how tourism impacts an economy.

The decline in bookings throughout Europe is thought to be largely political; many Greeks blame Germany for austerity measures resulting from two EU bailout packages, and the May 6 elections that have left the country without a stable government have potential tourists fearful of potentially violent protests.

Banking on the Drachma?

Some readers have other ideas. Wall Street Journal reader Craig Mundo argues that tourists could be waiting to pounce on Greece's potential eurozone departure, arguing that in the event of an imminent exit, "the drachmas would lose three fourths of their value right on launch," resulting in a far cheaper vacation.  A German reader, Marco Gundel, expressed anger at being perceivably "blamed for" Greece's financial woes despite arguable support from EU subsidies and tourism. 

Whilst Mr. Gundel's comments are debatable, they raise the issue of how tourism can both boost an economy and fluctuate alongside the global market. Tourism to Greece accounts for 15 percent of the country's economic output as well as one in five jobs.

The Greek Tourism Blog proclaims tourism "the driving force of the Greek economy" and argues that advances in development that drive tourism benefit citizens on the community level.

One-fifth of Greeks depend on tourism

But National Bank economist Nikos Magginas says hopes for a stabilised market may come too late. With one-fifth of employment dependent on steady tourism rates, it has become apparent that dependency on outsiders has gotten Greece in trouble. Until second quarter numbers are in, the tangible impact of downtrodden tourism will be difficult to measure. In the meantime, the growth or lack thereof that accompanies an economy can be discussed on a general level.

Is tourism good for an economy?

A study by David Harcombe of Assumption University in Bangkok found mostly positive economic consequences of tourism, citing direct, indirect and induced multiplier effects of foreign money as forces that drive the economy of a host country. When tourists pay for everything from hotels and souvenirs to transport and sightseeing, the return for the host country materialises in the form of salaries, payroll taxes, publicity, and loan repayments, amongst other advantages.

A second study by Daniel Stynes of Michigan State University uses the 100 tourists spending $100 per day example to illustrate the multiplier effect. Those hundred tourists would generate not only $10,000 per day in new spending, but, if sustained over a 100 day season, would accumulate a million dollars in new annual sales for the region. If 30% of that million was used to cover the cost of purchased goods not made locally, the remaining $700,000 in direct sales could yield $350,000 in income within tourism industries and directly support 20 tourism jobs.

This is, of course, a best case scenario. Successful tourism relies on a stable political climate in order to support everything from basic infrastructure to water supply and the multiplier effect only works well if international input exists as predicted. Add to that the fact that seasonal jobs tend to be temporary, poorly paid, and do not always benefit the local community if international companies such as hotel chains receive maximum profit, and it becomes clear why tourism cannot be depended upon as a stable source of revenue.

Earlier this year, author and Tilos resident Jennifer Barclay encouraged British tourism to Greece, comparing coverage of the Greek riots and the questioning of safety to asking whether it is safe to visit England following the riots in Croydon. But with countries such as Turkey seeing tourism income rise more than 2 billion this year, it may not be a question of whether tourists have money to spend as much as where they choose to spend it-and why.

 

More on Mindful Money: 

Pinterest: Venturing away from the VC's

Out of the fire: Is the Eurozone crisis creating new emerging markets?

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