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August 26, 2020

Europe

GREECE: A tough summer, a tougher autumn

BY Wolfango Piccoli

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( 6 mins)
  • The increase in Covid-19 cases, poor returns from the re-opening of the tourism sector and tensions with Turkey in the East Med will continue to occupy Athens for weeks to come.
  • The re-opening of schools is the most immediate matter that requires careful handling by the authorities as it could tarnish the support for ruling ND.
  • Turkey’s provocative actions in the East Med will remain a major source of distraction for the Greek government.

Infection spike put strains on the government

The end of the domestic lockdown in May and subsequent re-opening of the borders sparked a substantial increase in the number of Covid-19 cases in August. Related developments over the last few weeks have threatened to tarnish the reputation ND earned earlier this year when the government dealt competently with the arrival of the pandemic in the country.

Between 15 July and 15 August, the seven-day moving average of confirmed coronavirus cases jumped from 41 to 211. During the same period there was a 75% increase in the number of cumulative cases, which stood at close to 9,000 on 25 August.

The spike in cases has brought the ruling New Democracy (ND) under pressure from the opposition, which accused it of not minimizing the influx of cases among travelers by failing to demand negative Covid-19 tests and giving the local population the impression that life was returning to normal after authorities dealt with the first wave effectively. The criticism includes the scrapping of daily televised Covid-19 briefings after the lockdown ended, the mixed messages issued by the presence of ND officials at mass gatherings where social distancing was not practiced and other seemingly contradictory policies concerning the usage of masks.

ND is also under pressure over the opening of schools, which is scheduled for 7 September. Opponents and teachers’ unions argue that class sizes should be reduced but the government has so far only said that pupils will have to wear face masks during lessons. Safety at schools is also an issue that cuts across party lines and one over which ND could lose support if not handled well.

Tourism and economy

Recent developments have led to questions about whether the calculated gamble of re-opening the borders to provide the tourism sector with a lifeline has actually paid off. Despite efforts to promote Greece as a safe destination, the tourism season proved underwhelming. The rise in coronavirus cases in August probably means that hopes of further arrivals in September and October to extend the season will not materialize.

According to the Bank of Greece, travel receipts in H1 barely reached EUR 678mn, dropping by EUR 4.74bn compared to last year. During the first seven months of the year, there were 74% fewer flights, according to the Civil Aviation Authority. Many hotels did not open for the summer and, even then, occupancy rates mostly hovered around 20 to 30%.

The troubles in the tourism sector are being reflected in the state budget figures. The primary deficit increased by nearly 30% month-on-month to EUR 8.2bn during the first seven months of 2020. It is projected to settle at 5% of GDP by the end of the year as the authorities will be forced to endorse another support package for the economy. This is aimed at mitigating the impact of the recession, which seems on course to be in line with the adverse scenarios published earlier this year, which put the contraction at around 10% of GDP.

Kyriakos Mitsotakis is due to announce in Thessaloniki on 12 September, during the prime minister’s traditional economic policy speech, a new package of support measures for businesses and households. Much of the focus is expected to be on the beleaguered tourism sector, with the total scope of the interventions set to reach up to EUR 5bn.

Mitsotakis is also due to announce plans to bring forward the lump sum payment of back-pay for pensioners, reaching EUR 1.4bn in total. The government hopes that this could increase liquidity and spending power among some households. The government is also expected to announce the extension of all employment support schemes until the end of the year. Greece is due to be allocated EUR 2.7bn from the EC’s SURE scheme to protect jobs.

Greek authorities have a challenging winter ahead as the lack of tourism revenues will feed through the economy and state budget over the coming months. The Finance Ministry hopes that on 11 September, the EC’s proposal for fiscal rules to be set aside also for 2022 will gain the approval of member states. Clarity on the fiscal front will allow Greek officials to design next year’s budget with more flexibility and perhaps even squeeze some fiscal space for permanent reductions to tax and social insurance contributions that the center-right government has promised and would like to implement as soon as possible.

East Med tensions

During August, the Greek government has also been forced to contend with a foreign policy crisis after Turkey sent a seismic research vessel into areas of the Aegean Sea that Athens deems to be above its continental shelf.

The latest flare-up comes after Greece signed an agreement with Egypt on 6 August aimed at a partial delimitation of an exclusive economic zone amid a scramble in the Eastern Mediterranean for possible hydrocarbon reserves. The deal, which had been many years in the making but whose signing came out of the blue, angered Ankara, which had penned a similar agreement with the Libyan government a few months earlier.

Greece is also pushing for the EU to adopt sanctions against Turkey should Ankara continue to challenge what Athens believes are its sovereign rights in the Aegean. The matter is due to be discussed at the informal EU Foreign Ministers meeting in Berlin on 27-28 August before being put to the European Council in September. Currently, it appears doubtful that Athens has across-the-board backing in the EU for any such action against Ankara.

Domestically, though, the Greek prime minister is under pressure to show that he is standing up, and responding, to what is portrayed by the local media and parties across the political spectrum as bullying by Turkish President Tayyip Erdogan. There appears little chance of age-old disputes being solved in the current adversarial climate and it is likely that the spikey relationship with Turkey will be a distraction for the government for the foreseeable future.

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