Banks re-opened today throughout Greece, for the first time since the imposition of capital controls. As has been the case throughout this latest crisis, the Greeks have remained calm, standing in line when necessary, arguing about politics as usual, but generally taking it all in stride. The daily withdrawal limit of 60 Euros has now been replaced by a weekly limit of 420, which should eliminate the lines at ATM’s.
The biggest change though is the new VAT (sales tax) rates that went into effect today. Higher taxes in an extremely depressed economy can hardly be helpful to stimulating demand, but the full effects are hard to predict. One sector that is certain to take a big hit, though, is the restaurant industry, particularly in those non-tourist areas that serve primarily Greeks. Restaurant sales tax goes up from 13 to 23%, meaning that either prices will have to rise significantly, or restaurant owners’ generally modest profits will be squeezed even more.
I asked Maritza, the owner of our favorite local taverna what she expected the outcome to be. Her response was straightforward and depressing: “Hardly anyone is going out to eat now with the little money they have in their pockets. Now, if we have to raise prices, no one will come. We will probably have to close.” This would be a real blow for us and for the neighborhood–there are already a dozen or so empty storefronts in the commercial block adjacent to our building.
The effect on the broader tourism industry, though, particularly in the areas that serve primarily foreigners, may be less significant. The Kathimerini newspaper published a graphic today showing how Greece’s VAT rates for hotels and restaurants compare to those of other European countries and you can see that Greece is now on the higher end of the scale but definitely not the highest. These taxes are still higher in London, Copenhagen, Prague, and Budapest than in Greece. And restaurant and hotel prices in Greece tend to be quite a bit lower than for comparable establishments in northern Europe, so the total cost is still a pretty darn’ good deal for most places in Greece. (Even Italy, where we spent some time last month, is about twice as expensive as Greece in general for tourism.)
So my guess is that once the rest of the world feels that Greece has calmed down and it is still the wonderful land of sun, sand, and great food, foreign tourism will bounce back in a healthy way. But I fear that the effects on many local businesses will be more of the same from the last five years–more layoffs, more business closings, and more suffering.