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MARCH 20, 2009
Risks Emerge in Greece's Cornerstone Industries By SEBASTIAN MO FFETT and ALKMAN GRANITSAS
ATHENS -- The restaurants and souvenir stores beneath the Acropolis are quieter than usual this year. The world economic crisis is keeping many would-be visitors to Greece at home, and days of riots by Greek youth in December persuaded others that Athens is a dangerous place to visit. "The TV terrifies the people," moans Isidoros Manolakis, a carpet merchant, who says his sales are down 80% from last year. "Even if they're making the same money as last year ... they are terrified so they don't want to go and buy a cup of coffee." Greece has been one of the accidental victims of the financial crisis. Though its banking system is healthy, it is heavily dependent on overseas sources of income, in particular shipping and tourism, which accounts for about one in five Greek jobs. The slowdown in both industries threatens to end years of strong growth, in addition to setting back the government's efforts to trim its budget deficit. Greece reaped €11.6 billion ($15.65 billion) in overseas revenue from tourism in 2008 -- equivalent to 5% of gross domestic product. Much of that comes from American and Northern European visitors, regions that are now in recession. Greek economic growth fell to 2.9% last year, down from 4% in 2007, and the European Commission forecasts just 0.2% this year. Public debt is equivalent to more than 90% of gross domestic product -- the second-highest ratio in the euro zone, after Italy -- and about one-sixth of government spending goes toward servicing this debt. In January, Standard & Poor's lowered its rating on Greece's sovereign debt to A-minus, from A. Benchmark 10-year Greek government bonds are now priced at about 2.75 percentage points over their German equivalents, up from as little as 0.5 percentage point two years ago. Greece expects to spend €700 million more this year servicing its debt than the €11.3 billion it spent in 2008. While other European economies have announced big economic-stimulus packages, Greece couldn't "without putting in danger the fundamentals of the Greek economy," Finance Minister Yannis Papathanassiou told foreign journalists this week. Instead, he unveiled Wednesday the first pay freeze in years for more than two-thirds of Greece's 700,000 public-sector employees. Like tourism, the Greek shipping industry was booming until recently, as China and other developing countries demanded increasing quantities of grain, coal and iron ore. But last fall, the loss of confidence in banks made it nearly impossible for companies to sign delivery contracts, says Angeliki Frangou, CEO of Navios Maritime Holdings Inc., one of Greece's biggest carriers of dry bulk goods. "All of a sudden, letters of credit did not exist," says Ms. Frangou. "We saw global
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20/03/2009
Risks Emerge in Greece's Cornerstone Industries - WSJ.com
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shipping coming to a standstill." She says shipping has picked up in the past couple of months, and that stimulus measures in other countries will boost demand for raw materials and, therefore, shipping. For the tourism industry, the situation looks worse. Early bookings this year are as much as 25% lower than last year, says Georgios Drakopoulos, director general of the Association of Greek Tourism Enterprises. He says there is "bad psychology" in the industry, and says he hopes that "this year will be the year of the last-minute booking." Hotel occupancy rates were down to 35% in December and January compared with 65% last year, says Mr. Drakopoulos. Mr. Manolakis, the carpet merchant, says the next few weeks are key. "At the end of March [the tourists] are starting to decide. This time, they will come later, if they come at all." Write to Sebastian Moffett at
[email protected] and Alkman Granitsas at
[email protected]
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