Grexit may make holidays cheaper
Dabs Banner: January 2015
Holidays in the Greek Islands could get cheaper if the left-wing Syriza party wins power and the country pulls out of the Eurozone.
Many financial and political pundits are confident there is little chance of Greece choosing to leave the EU even if the Greek 'anti-austerity' Syriza party wins the elections scheduled for January 25.
But support is growing rapidly for the party that has threatened to default on international loans and end the austerity package that has hit the living standards of many Greeks and sent unemployment soaring.
The threat of political instability has already led holidaymakers to hold fire on booking a holiday in the Greek Islands until all the fuss has blown over.
And a withdrawal from the euro — still on the cards should the Syriza party win — would have a dramatic effect on the Greek economy and on the price of Greek island holidays.
The Greek islands is one of the favourite holiday destinations of UK holidaymakers with record numbers booking rooms at beach resorts last year and international arrivals as a whole up 23%.
Although a recent poll found close to three-quarters of Greeks want to stay in the Euro "at all costs' the Syriza party is demanding that European lenders write off a major portion of Greece's debt.
And Greek Syriza party leader Alexis Tsipras says he isn't afraid of market turmoil in case of victory at the general election.
The impact of a Greek exit from Europe on potential UK holidaymakers would be substantial. On the one hand the price of holidays is likely to fall, on the other the prospect of soaring inflation, holiday forms going bust and civil unrest could have the opposite effect.
There is little doubt that Greece would suffer very badly in the short term with the launch of a new currency (probably a return to the drachma) having to be propped up by the Government.
That couldn't last forever and eventually the value of the new drachma would fall substantially — probably by at least 50% according to some pundits.
The Greece economy would them almost certainly slip into 'depression' with a big rise in insolvency, unemployment and a substantial shrinkage of the economy.
To tourist visitors that would mean that their British Pounds, US Dollars and Euros would buy substantially more than the depressed new drachma but the prospect also of hotels closing and Syriza firms going bust.
Those booking package holidays are unlikely to be much affected as deals for hotels in 2015 have already been agreed and probably paid for in Pounds Sterling.
Holiday companies operating in Greece are making reassuring noises about the implication of a Greek exit from Europe.
Many package deals are covered by ABTA which insists that all-inclusive package deals would be the least affected while others claim they can handle a transition to a new currency.
Larger holiday companies insist they are well prepared, having taken precautions after the last year's scare over a possible Grexit.
They say customers would probably not notice the change to a new drachma, except that holiday spending on meals, drinks and souvenirs would almost certainly stretch much further.
Smaller companies are relaxed about the prospect as many contracts for Greek holidays are with local villa owners who are paid in advance in Pounds Sterling.
Tourism is hugely important to Greece's economy, with the Association of Greek Tourism Enterprises (SETE) claiming it now accounts for 17% of the country's gross domestic product (GDP) and provides many jobs, particularly in the Greek Islands where tourism is by far the biggest foreign currency earner.
Current Greek leader Prime Minister Antonis Samaras said on a visit to the island of Rhodes recently that Greece is now on a course of economic recovery, especially in tourism where it is expected to attract a record number of visitors this year.
However, a Greek exit from Europe could have a financial impact far beyond its borders. Greek banks could face collapse as the value of the new drachma plunges and Greeks rapidly withdraw their savings.
A run on Greek banks could trigger problems for banks in countries which have lent heavily to Greece, such as France, with a domino effect on banks outside the eurozone.
Stock markets, including London's FTSE 100 Index, could face steep losses over fears for the future of the eurozone with investors switching to traditional safe havens, such as the US dollar or gold.
A Greek exit from the euro could set the scene for a deep and long recession in the eurozone and possibly beyond with a knock-on effect on the UK economy.
But a weaker euro and drachma would be appealing to the rest of the world, boosting trade and attracting more tourist visitors at least in the short term, especially in countries like the US and the UK.
Many are waiting for the outcome and impact of this month's elections before deciding on whether to book a Greek Island holiday this year with early bookings down a reported 50% on normal levels.