Capital controls hit Greek economy at worst time

June 29, 2015

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Capital controls have hit the Greek economy at just the wrong time. A week-long closure of Greek banks, announced on June 28, would have been bad for Athens at any time of year. But the restrictions are coming in just as the country’s core export sector – tourism – begins its peak season.

The holiday industry is one of the pillars of the Greek economy. In 2014, the sector generated 29 billion euros – 17 percent of GDP – the World Travel and Tourism Council (WTTC) says. Around 700,000 Greek jobs, a fifth of total employment, depend on the sector.

Tourism grew strongly in 2014 and the early months of this year. But unfortunately almost two-thirds of annual tourism revenue is generated in the third quarter, figures from the Greek central bank show. This activity is highly vulnerable to political and financial unrest. In the first stage of the 2009-10 Greek crisis, violent demonstrations meant leisure tourism revenue dropped 10 percent for two years in a row. Relative to the pre-crisis peak in 2006, about 15 percent of all jobs in tourism were lost.

The Greek government stresses that foreign visitors can withdraw unlimited cash – unlike domestic residents who are limited to 60 euros a day. But they still need to find an ATM that contains money. And a number of European governments have already amended their travel advice for citizens, recommending that extra cash be taken. German news website “Spiegel Online” reported that Greece’s holiday operators have received mass cancellations since Sunday. Shares in German tour operator TUI, which has also been hit by last week’s violent attack on a Tunisian hotel, dropped almost 7 percent on June 29.

Having been predicted to grow 2.5 percent during 2015, the most recent forecasts for the Greek economy are now for minimal growth: Greece was in recession during the first quarter of 2015. The ill-fated timing of capital controls will make matters much worse. If Greek citizens vote against euro zone bailout measures in a referendum on July 5, an event which could mean the country leaving the euro zone, transactional inconvenience could give way to social unrest. Greece would be left with fewer tourists – and even less money.

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