The New Greek Government Could Collapse Tourism.. And Not Even From the Grexit

The new Syriza government of Greece is against all-inclusive resorts. Seriously.

Greece’s tourism minister said that Athens had no plans to curb all-inclusive resorts on its islands, after suggestions new Prime Minister Alexis Tsipras had declared war on the popular packages.

“We don’t agree with establishing an ‘all-inclusive’ resort model, which to a great degree cuts off tourism from local economies,” Tsipras said in early December.

The tourism minister says that even though the Greek Prime Minister is attacking all-inclusive resorts as it identifies problems with the country’s economy, it has no plans to make crackdown on these properties ‘its mission’.

“There won’t be any action against all-inclusive holidays,” Elena Kountoura, from the right-wing Independent Greeks party in Tsipras’s coalition, told reporters.

When a President declares they have “full confidence” in a member of their cabinet, that cabinet member’s days are numbered. They will be ‘stepping down to spend more time with their family’ sooner than later.

When a new Greek activist government — under pressure to look like it’s doing something — declares that they believe all-inclusive resorts are bad because tourists stay on property instead of benefiting the local town economies nearby but promise they’re only talking theoretically and you should trust them that they aren’t going to do anything about it… you should trust them as much as you do that they’ll repay all of their bonds in full.

Everything is turned upside down in Greece when it’s said of the new left wing government,

“Syriza’s strategy is also in favour of low tax rates to encourage investment.”

The government won’t privatize airports and ports, which could have improved conditions (brought in greater investment and improvements) in tourism.

Instead their solution?

[E]xtending the tourist season and examining whether Greece should set up a state ferry line or re-establish its national airline.

The Greek tourist season isn’t what it is because the government has declared dates. It’s a function of the weather. As for re-establishing a state-owned airline (that would compete with Greek carrier and Star Alliance member Aegean), that’s never worked out well before… Former state airline Olympic is now a part of Aegean, with the surviving carrier having bailed out Olympic in a deal that had been opposed by the European Union.

Leaving aside even monetary issues, the likely exit of Greece from the Euro, and what it would mean for repatriating funds out of Greece (or for that matter even basic financial functioning, like providing for payroll from accounts outside of Greece), foreign investment in tourism isn’t likely to be encouraged by statements like,

“We don’t want to continue the current model of intensive tourism exploitation, which is already presenting signs of financial fatigue,” Tsipras said last month.

Tourism represents about a fifth of GDP. All-inclusive package tours are a key segment of the European market, especially for tourists coming from the UK and Germany.

Since tourism is important to the economy, and the economy is doing badly, it must be tourism’s fault..

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. A more informed analysis of the Greek government:

    Europe’s Greek Test by Paul Krugman

    “…Doing the right thing would, however, require that other Europeans, Germans in particular, abandon self-serving myths and stop substituting moralizing for analysis….”

  2. Genius! Your economic analysis is always spot on. You can spot one of those pesky activist governments at a thousand paces. Got get em!

  3. Krugman’s piece has nothing to do with this post.

    He’s certainly right that Greece could balance its budget without paying interest, and it could be theoretically wise for them to do that, though it’s not clear that this government which campaigned against austerity could actually politically survive if it lived within its means.

    And it’s reasonable for him to think that the Germans ought not moralize, should take their lumps, and that everyone would be better off if that happened. Except that doesn’t mean it’s at all politically possible for Germany to take that approach, to pursue a policy that would be seen by the German people as bailing out the irresponsible Greeks with their money. Germany is constrained by its politics, and Greece by its own.

    Krugman writes, “Doing the right thing would, however, require that other Europeans, Germans in particular, abandon self-serving myths and stop substituting moralizing for analysis.” In other words, for events to unfold as he thinks they should, Germans need to think differently than they do, and believe what he believes. If your predictions hinge on a world where peoples beliefs are different than they are, I’d surmise you’ve got a low probability of success or getting it right.

    So I do think that a Greek exit from the Euro is likely, even if Krugman thinks it’s unnecessary or unwise.

    None of which, of course, has anything to do with the new Greek government’s approach to an industry that’s 20% of its GDP… which is what this post was about. The Grexit issue is only raised in the context of, here’s something getting less play than the possible exit from the Euro but that also presents real challenges for their country and economy.

  4. So the logic is, an all-inclusive resort forces all of a tourist’s money to one (maybe international, definitely big) company instead of many smaller businesses. And this is a terrible idea because people will only go to Greece if they pretend it’s Mexico and never leave their encampments?

  5. As a hedge fund trader in Manhattan, I’m pretty much as far from a socialist. That said, there are two ways that the Euro will end:

    1) the “rich” countries in Europe will set up permanent fiscal transfer mechanisms to fund the “poor” countries.

    2) the “poor” countries will leave the Euro.

    I hate to break it to everyone but in the US the “rich” states give money to the “poor” states every year. It’s the only reason that such vastly different States like California and West Virginia can exist under one central bank policy. All the rest of this crap that you posted Gary is meaningless.

    The Greek government doesn’t want to sell ports and airports? Do we have many large airports, port (or infrastructure in general) in the US that are privately owned? I can think of a few toll roads that were effectively privatized and have since went bankrupt but I’m drawing a blank as to the stock ticket of major airports. So because Greece is under a monetary system without a proper fiscal system they should be forced seller of infrastructure assets at that champions of Capitalism (the united states) all have as publicly owned? Give me a break.

    And finally, to the main point: travel. If the Greek government bans all inclusive resorts it will have little to no impact on tourism. There are many many people all over the world who have been to Greece (or have dreamed of going) and very very few of them want to go because they want a copy of cancun or some shitty Caribbean island.

  6. @Julian – No kidding! And why on earth should the Germans bear even more responsibilty for Greek fiscal mismanagement? Default already…

  7. Krugman seems to assign as much blame to the (largely German) creditors who financed Greece’s binge as to the previous Greek governments who spent beyond their means. Oh, if the owner of my mortgage was only so generous.

    I’d have to look at the numbers, but at first blush, I am skeptical that Greece can cover operating costs if it were only relieved of interest obligations. Were that generally so, they would not be in their current predicament.

  8. Comrade Krugman appears occasionally on a Sunday morning news show and he seem to assume that socialism will make this nation economy better. By the way, doesn’t Greece have an ongoing problem of citizens openly not paying their taxes.

  9. Kevin

    the Greeks pay the TAX!! –Greece is a poor country – many have to live on $600 a month income —

    The Gov’t introduced a real estate tax that was required to be paid via the electric bill , if you did not pay the tax the — electricity was turned off!!.-the tax rate was based on a valuation 6 years ago before the market collapsed 60% –later they even went an applied the tax 3 years retroactively

    the deduction for when one is required to pay income tax was reduced from $6000 to ZERO -NOW they PAY FROM DOLLAR ONE

    people who lived on a $400 a month pension were cut to 300- AND had the same tax obligation -just try living on that!

    1/3 of the population live below the poverty level- unemployment is 25% and for youth 50% the economy is off 25% in the last few years

    What has been tried just has not worked – Greece needed to try to change things that is why they elected a new Gov’t– not everything that is said will be tried -not everything will work–but– a country must try to do something to improve the situation for it’s citizens -what the trioka imposed and past Gov’t accepted could never work

    People criticize to quickly!! this Gov’t is less than a week old- go back and read all the things Obama , Bush, Clinton. promised to do and never did,

  10. @Julian When you said “Krugman’s analysis is the opposite of informed”, you forgot to add: “as usual”.

  11. Europe can’t let little Greece exit the Euro. Then big Spain would immediately and huge Italy soon after.

    The terms on the Greek loans are already almost interest free and stretched out maybe 50 years. Hard to enhance that but Europe will somehow have to.

    From the Greek standpoint bankruptcy would be best. Argentina’s doing really well now and is a wonderful place to visit. Greece would become a vacation paradise after bankruptcy too.

    But Europe will do whatever it takes to keep little Greece from starting a chain-reaction.

  12. @tassojunior: “Argentina’s doing really well now”.

    Huh? Really?

    Inflation over 25% (a good number if you live in CCS!), GDP contracted over 2% last year, the auto industry off by half last year (destroyed by taxation), bleeding foreign reserves by about $4 billion last year (come on baby light my peso!), and on and on…

    Great place to visit with a fistful of US$$$ but hardly “doing really well now”…

  13. inFLIGHT

    Saw your Greek blog — I am an American that lives in Athens – can not read or speak Greek ( as you know, almost everyone in Athens speaks English )

    I can Google to translate – It would be much better if had a English version ,did not see a button to change form Greek to English

    People who do not live in Greece have no idea of how the Greeks have suffered by the Trioka policy -For the Greeks it is equal to the American depression of 1929 -soup kitchens n bread lines – I have lived in Athens 20 years and only in past few years do you now see the homeless sleeping in doorways of empty shops

    If Germany wants to be the economic engine of Europe and keep the “EXPORT” machine going they need to “let up” on the poorer weaker countries — if not the E.U. can not survive

    All my life I have been a conservative republican – but when you see people suffer one needs to be HUMAN too

    What Mike wrote – he is so right — American has a huge debt that is going to be unsustainable- why not now sell off all the infrastructure—- I-95 as a toll road ? Sell white house and do a lease back? – how about leave tax rate as they are and remove all deduction and do it 3 years retroactively

  14. The point of this post has nothing whatsoever to do with Germany. Greece could have all of its debts (money that it borrowed, and spent, that belonged to other people) forgiven and it would still be a basket case. Greece’s fundamental problem isn’t that it owes money (its own past bad decisions) but that it continues to make poor decisions. In other words, its problem isn’t Germany but itself.

  15. Following last year’s 22.1 percent increase in arrivals, the highest in Europe, Greek tourism is continuing to gain ground this year.

    Total bookings in the hotels’ online systems are still showing an rise for 2015, while the balance of foreign press reports on Greece as a holiday destination remains positive too.

  16. As one of the, probably, few Greek readers living in Greece [hey @inFlight and @Roger Smith – after 20 years maybe you could have learned SOME Greek! ;)], I won’t delve into much of the macroeconomic policy issues raised in the post and comments, but this is my sense of the all-inclusive resorts and their “impact” on tourism:

    Charter flights bring in people from abroad (northern Europe for the most part), they are picked up by the resort at the airport and driven to the resort. And as these places have their own beaches (though for some incomprehensible reason the pool is disproportionately preferred), (mediocre) food and (cheap) booze it is not uncommon for many of these guests to stay in the resort until it is time to be driven back to the airport.

    The net benefit to the Greek economy? Limited to the taxes and fees for the airport slots and any taxes paid by the resort. Small businesses who have relied on tourism as a means to live (rooms to let, car rentals, shops, tavernas etc) see no benefit. I have heard this from many acquaintances in areas where all-inclusive resorts exist: “tourism” is way up, but noone is making any money!

    And its not like Greece is like some areas of the world where you would want to stay at the resort because of security concerns.

    So Gary, its not that its tourism’s fault. But its a bet on the part of the government (a pretty safe bet in my opinion), that it can shift tourism from the model of all-inclusive resorts to more “traditional” tourism – increasing thereby its benefits to a wider base – without damaging the desirability and availability of Greece as a tourist destination.

  17. Stratos

    I will not reply to learning Greek other than I do understand some Greek and have ZERO problem communicating –

    Greece needs to attract more upscale tourist who will spend more and keep the main driver of the economy growing in $ spent.

    Greece has the weather, yet does not have what is required to attract the higher spenders -you see to many tourist with knapsacks and bed rolls -sure they have a “few” real 4&5 star hotels , golf courses almost none – fine dinning few offerings -as far real European service .I am, sorry to say the Greeks think it is beneath them to serve – tourist spend only one day in Athens, a historic city, need to ask WHY? . It is almost as if the tourist industry is run by amateurs who are first starting out in the business
    and lets not forget many things outside of the inclusive resorts are OVER PRICED!

  18. Roger, the comment about learning Greek was purely in jest, I hope that it was conveyed as such!

  19. @Roger, in regards to the rest: I do not believe that it has to be a choice between backpackers and “high rollers”, there is plenty of everything. And in terms of luxury hotels (both in global brands and Greek ones) and in terms of fine dining.
    I agree that certain things are overpriced, certainly from the point of view of Greeks. But I am not convinced that the “expensive” options in Greece are comparatively more expensive than similar options in Spain, Italy or the south of France – quite the opposite. So staying outside of all inclusive resorts would NOT burden the budget of the traveler which chooses Greece over comparable alternatives.

  20. @gary “Greece’s fundamental problem isn’t that it owes money (its own past bad decisions) but that it continues to make poor decisions.”

    That’s what I disagree with. Greece’s main problem is that they are under the same monetary system as Germany without the fiscal integration. If we had the same system in the US (ie rich States didn’t give poor States money every year like they currently do) then West Virginia would be as much as a Greece is.

    That’s the fundamental problem. Obviously Greece needs to also enact reforms but they would not be in this problem if it weren’t for what I mentioned above and in my first post.

  21. @Stratos “The net benefit to the Greek economy? Limited to the taxes and fees for the airport slots and any taxes paid by the resort.” How about the construction jobs building the resort, and all of the jobs staffing the resort? And the businesses who sell supplies and food to the resort?

  22. Gary

    You will get better distribution and recycling if money was spent by visitors in the”local” establishments – it will be recycled into the economy many more times than with a large international operation , building ,sourcing, etc may or may not be the same.

  23. @Gary, fair point on the jobs, but not so much on the supplies. A lot of that comes deep frozen from abroad. As in most such issues, each action has costs and benefits. I simply believe that the costs of these resorts outweigh the benefits or, to put it better, the benefits are less than those “advertised” and certainly smaller than the opportunity costs.

  24. @Mike anyone who believes the main problem with Greece is monetary — and I do think they need to leave the Euro — the new government is auctioning its EU veto to Russia, and their top tax collector resigned over death threats. The country lacks the culture and politics to reform itself. The future of Greece is not as prosperous as they used to think it was.

  25. I think I did a pretty good job with confining myself to the issue of all-inclusive resorts. You are now talking about issues on a whole different level, certainly outside the scope of this blog. And since there are no winners in internet arguments, this is my cue to exit.

  26. @Stratos my comment directly above was meant as a reply to @Mike. I chose to let your comments stand, I thought that folks could just read them as-is without a response. I do not find them very persuasive.

    But if you must,

    * Cracking down on capital investment in existing resorts chases away foreign (and domestic) investment
    * You don’t just get to pick what kind of products are offered, demand matters the most here, all-inclusives are what draw German and UK tourists who will just go elsewhere
    * You may think you can cause different Greeks to benefit in varying amounts by pushing folks off resorts, but the total amount spent for the services of Greek workers and Greek food doesn’t change.

    Regardless, this is tinkering at the margin with tremendous downside risk. What do you think of the idea of taking money from the Greek people to start up a new state-owned airline, as suggested by the new government?

  27. ” What do you think of the idea of taking money from the Greek people to start up a new state-owned airline, as suggested by the new government?”

    DUMB or NAIVE !your choice

    Hope everyone knows that what politicians(all) say and what they do are not the same

    lets see in the first 100 days what gets done

  28. Gary, your comment showed up in the email alert as a reply to my comment. And I certainly would hope that you do not decline the publication of comments which you do not find persuasive! 🙂
    The state-owned airline is merely a talking point and certainly unattainable, so you can dismiss that out of hand. But to answer your question, I think it is a bad idea (though the Greek market could certainly benefit from competition…)

  29. @Stratos the talking points matter, they signal to investors the kind of climate and policies the government is going to pursue, the people in power are not serious about fixing Greece.

  30. Well, talking points are often just talking points and not action points. I would guess (hope?) that most institutional investors are savvier than taking them at face value. In any event, whether the people in power are serious or not is yet to be seen; judging a government in a week is, at best, unfair.

  31. @Stratos investors judge a government in less time than a week, they judge based on the words, they may not nationalize the all-inclusive resorts (!) but they make clear they’re demagoguing foreign investors. And they make clear that underlying problems would remain even if/after Greece exits the Euro — Greece’s problems aren’t fundamentally monetary problems.

  32. Yeah, being under one monetary
    system with no fiscal integration isn’t the problem. Greece is just a basket case. As is Ireland, Portugal, Italy, Spain and Croatia. Why can’t these countries be as hard working and non corrupt like Louisiana and West Virginia? I’m sure the fact that these states get money every year from other states in their monetary union has nothing to do with it. They are just as hard working and non-corrupt as every other state and that’s why the US works with high education States likes Mississippi going up against States like CA.

    Again, stick to miles…

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