When an economy is based around tourism and discretionary spending, that country’s economy will be quick to feel global economic pull backs. Greece’s economic troubles started back in 2009. Much like the rest of the world, Greece felt the ripple effects of a weaker US consumer and a faltering US economy, shaken by the “Great Recession.” Without going down the rabbit hole of a very complicated and political topic, I will try and give you a quick, high level overview of Greece’s banking crisis.
Greece joined the European Union back in 1981 and adopted the Euro in 2001. Both of these decisions dramatically increased economic growth and raised the country’s per capita living standards. With faster economic growth, more public and private loans (for infrastructure development) were being made (encouraged?) by the European Union. When the economic recession hit Greece, the decline in government revenues was significant enough that they couldn’t service their loans or pay their employees.
Over the next several years, there were a series of infamous bailouts, where the European Union and IMF (International Monetary Fund) both lent money to the tune of hundreds of billions of Euros and forgave large portions of the debt owed…However, each round of funding required increased Austerity measures, which focused on decreasing government spending or increasing revenues. This called for things such as freezing/cutting government salaries, increasing retirement ages, reducing pensions, and increasing taxes.
Passing austerity measures obviously enraged the people/civil servants of Greece, so strikes and riots broke out across the country, sometimes grinding ground and air travel to a halt. This reinforced the perception that Greece was in disarray, so less tourists visited, thus exacerbating their economic woes.
Economists and Politicians will debate the root causes of Greece’s recession, and it is important to understand the actually (and perceived) causes because it allows you to empathize with the cultural habits that have developed. Below is a common list of what may have caused or deepened the economic recession:
Rampant government corruption
Lethargic workforce and excessive benefits for government employees
Unnecessary loans forced on Greece by the European Union
Infrastructure spending for the 2004 Athens Olympics
Misrepresentation and underreporting of growth and deficit numbers by the government
Fast forward, it is now 2017 and we are 8 years removed from the bottom of the US economic recession, European economies are showing some signs of life, and wealthy Asian tourists are venturing out into the world too. With an abundance of history and beautiful islands, Greece will always naturally draw tourists…
Like most others’ trips, my trip to Greece was both unforgettable and incredible. My friends and I hiked Mt. Olympus (ascending +9,000ft), explored ancient ruins, and cruised Mykonos on ATVs… However, I couldn’t help but feel I was being nickeled and dime'd through out my trip.
First, when I arrived at the airport the foreign exchange window had a bid/ask spread I could drive a truck through. Translation: their exchange rates were a rip-off. I shook my head knowing most airport exchanges were rip-offs and looked for an ATM. The ATM informed me that the exchange rate would be $0.805 per euro. This translates to a $1.2422 to 1€ (1/0.805=1.2422) conversion rate, when that day’s market rate was $1.1120/€. This was a 11.7% mark up on conversion rate (ironically similar to the foreign exchange mark up). On top of that, their bank lathered a $5 withdraw fee…
This means that for every 100€ you withdrew, you were charged $11.70 in a currency translation fee and $5 in an ATM fee* to the Greek bank. That is absolutely egregious! Maybe I am hyper sensitive to this because I worked for a bank and understand Foreign exchange, or maybe I am not use to outrageous bank fees because US banks have been under tremendous pricing pressures since 2008. However, for a bank to charge north of 3% to change your money (let alone almost 12%) is criminal...
The Grecian banks might be presuming that since you are on vacation, you will say “YOLO**,” and worry about the charges later. Given the limited number of banks (aka competition), there is a monopolistic control over the supple of cash, while simultaneously your demand for cash is inelastic (“can’t live without”- unless you plan on having an awful vacation…). The banks are taking full advantage of this warped supply and demand curve, and the ATMs in Athens/other cities were only slightly better if not just as bad with their fees and rates.
Also, I found the 24% VAT (value add tax) surcharge rather aggressive. Tax is not something I consciously calculate when ordering my salad… when ordering my baklava (lets be real here) or renting my ATV. Maybe this is because most countries don’t tax on food and only tax slightly on consumption, and if they do, the tax rate rarely breaches double digits. Needless to say, my friends and I needed to adjust our spending estimates upward by 25%.
There were two other minor details that I noticed while traveling through Greece. First, the tolls on the highways were rather plentiful and expensive. Driving 4 hours north from Athens to Litochoro, we racked up over 40€ (roughly $45) in tolls. I wonder how this additional cost weighs on locals, eats into trucking companies’ margins, or effects business owners with significant shipping needs. Finally, certain restaurants and shops would say they accept credit cards, but later disclose they tack on 3% if you pay with a credit card. That being said, the restaurant owner might be struggling, so they pass on the credit card charge, and the 24% value add tax is most likely part of the austerity measures demanded by the EU/IMF for bailout money.
However, the banks are just being greedy with their fees, and it will lead to less business going forward. There are 18 other countries where you can withdraw extra Euros, before arriving in Greece, and most other banks exchange at the market rate (AKA no additional translation fee). Also, many of the tourists are coming from Europe itself, so they can easily bring their own Euros. “Fool me once, shame on you, fool me twice, shame on me.” These actions will ultimately lead to less business for the Greek banks…
How does the saying go? “Pigs get fat, and hogs get slaughtered?”
While individually none of these charges are significant, together they slowly add up, and when vacationers return home they might be slightly caught off guard by the damage done on their accounts. That minor skew in perception might ward off a return visit or produce qualifiers like “it was great, BUT a bit more expensive than we thought…” which has no context to someone with little prior knowledge around visiting Greece.
One of the keys to succeeding with consumers is reducing the amount of friction during their experience, ensuring the optimal experience. Another key is perception. Greece has an uphill battle with perception, given the current Syrian refugee stigma, but I can honestly say I did not see the effects from the current geopolitical situation. If Greece can change the perception from struggling economy to low cost island paradise, they will unlock more potential in their economy, and hopefully spark some additional economic growth.
As the internet-ifcation of information continues, other beautiful and more remote travel destinations will continue to surface on travel sites, list-icles (“15 MUST SEE PLACES”), and social media. Being proactive around this potential shift in traveling will be far less expensive than being reactive to a struggling economy (and civil unrest). Will taxes subside if Greece gets their debt in order? Will credit card charges still be passed on if businesses are thriving? I guess the real question is what will come first, the economic stability or more tourist?
*Hypothetically speaking if you draw more than 100€ at one time than the $5 is a smaller % charge since it is divided by a larger number, but consumers have a habit of drawing smaller sums of cash. Which ultimately leads to more and more charges.
**YOLO- You Only Live Once….