International press reports and scenarios talking about capital restrictions in Greece have caused concern for tourists who plan to visit the Greek islands in the coming weeks. Some of them have already called their tour operators and hotels asking about the situation and especially whether to carry extra cash with them, in case Greek banks are closed.
Antonio Fardella, from Milan, who is in Athens for business and will visitthe nearby island of Syros for a few days, told CNBC he brought extra cash in his luggage. “A bank run and capital controls were on my mind, but I needlessly worried. Everything seems remarkably calm,” he said.
Greek hoteliers are not encouraging tourists to carry extra cash, as they do not believe this is necessary or desirable from a security perspective. They invoke the recent experience of Cyprus—where capital controls applied from March 2013 until April 2015—to reassure tourists that the situation is not alarming.
“Capital restrictions in the Cypriot banking system did not affect our overseas visitors,” Andreas Theodoridis, a receptionist at the Nicosia Hilton, told CNBC. Most payments were made with foreign credit cards that were not affected by the problems that Cypriot banks were facing, especially in the first period, he said. “I guess this would apply to Greece, too,” he added.
Alarming deposit outflows
The fear that today’s euro zone summit in Brussels will result in an escalation of the conflict between the Greek government and its lenders has led Greek citizens to massively withdraw their deposits from Greek banks. During the last week alone, deposit outflows exceeded 5 billion euros ($5.68 billion), forcing the European Central Bank to proceed to a double liquidity injection to the Greek banking system through the Emergency Liquidity Assistance (ELA) mechanism. Today it is expected that the ECB will provide additional liquidity to Greek banks as deposit outflows continued unabated.
Since mid-December 2014, deposit outflows from the Greek banking system have exceeded 40 billion euros ($45.42 billion). This bank run has led the ECB to grant additional loans of 87 billion euros ($98.79 billion) to Greek banks since the beginning of the year. However, a failure in the negotiations between the euro area and the leftist Greek government as to the mix of measures that Greece should take in order to access bailout loans will cut off—or reduce significantly—Greek banks’ access to liquidity. The next step in this case would be to enforce capital restrictions in order to ensure that there is no further bleeding of those deposits still in place.
Fear of the unexpected
Alex Vyzantiadis, owner of Kyklos Travel, one of the biggest travel agencies in Athens, which mainly operates with tourists from South America, believes that capital controls is not what foreign visitors fear most. According to Mr. Vyzantiadis, in 90 percent of cases and especially for the “all inclusive” packages category, tourists are paying with “plastic money,” so they will not be affected by what is going on with Greek banks.
“Tourists who get in touch with me are asking about the situation in the country and whether there will be unexpected events, such as demonstrations, shortages of products, vandalism and other incidents that will spoil their holidays. Although we do not have last-minute cancellations, many of our clients are expressing concern,” Vyzantiadis said.
But the problems do not begin or end with capital controls concerns. The uncertainty of the recent months has affected the liquidity of Greek tourism enterprises because their partners, foreign tour operators, do not pay on time.
“For a tourist who will come to Athens in July, the deposit must be paid in March and the rest of the payment in June. However, due to uncertainty, payments are delayed. The tourist does not pay his agent on time, and likewise, the agent does not pay us in time. When arrears accumulate, operational problems in businesses multiply. The costs from last-minute cancellations will take gigantic proportions if today’s negotiations lead to deadlock,” Vyzantiadis said indignantly.