Yannis Stournaras: The Greek economy and the contribution of
tourism to growth
Speech by Mr Yannis Stournaras, Governor of the Bank of Greece, at the Conference of the
Greek Tourism Association (SETE) "The Greek economy and the contribution of tourism to
growth", Athens, 17 October 2016.
* * *
Taking stock of the programme implementation
We are now a third of the way through the extent of the programme agreed in July 2015 and
ending in June 2018.
This agreement reoriented economic policy towards realistic goals and came up as the only
solution in view of the major risks that hanged over Greece in the summer of 2015.
As an interim stocktaking of programme implementation, our assessment is that progress has
been slow, but with expected positive results:
The completion of the first review and the recent enactment of the second set of prior actions
have strengthened confidence and the prospect of economic recovery. This development
brought multiple benefits, which have a positive impact on liquidity and should boost economic
activity in the second half of 2016.
In particular, following the reinstatement of the eligibility of Greek government bonds as collateral
for Eurosystem operations, Greek banks can now have access to lower-cost refinancing from
the European Central Bank (ECB), which, combined with changes in the domestic banking
system, can translate into lower borrowing costs for businesses. Moreover, the dissipation of
uncertainty, the stabilisation of private sector deposits and the progress made with the
restructuring of Greek banks have enabled since early June 2016 successive reductions of the
emergency liquidity assistance (ELA) ceiling for Greek banks, by €16.3 billion in total, so that the
ceiling currently stands at €51.8 billion.
The above developments, coupled with the lifting of restrictions on cash withdrawals when the
funds come from new deposits in cash (new money), should encourage, in the medium term,
the return of deposits to the domestic banking system, which in turn will allow a further easing
and ultimately the elimination of capital controls.
The economy's gradual improvement starts being reflected in the course of several
macroeconomic indicators. Specifically:
Industrial production rose by 2.0% year-on-year in January-August 2016, mainly due to a
significant rise in manufacturing (+4.8% yoy).
In July 2016, the retail sales volume index increased by 9.7% year-on-year, while the
seasonally adjusted retail sales volume index increased by 4.9% month-on-month.
According to data from the ERGANI information system of the Ministry of Labour, Social
Security and Solidarity, the balance of salaried employment flows in the private sector in
January-August 2016 was positive, with the creation of 237,817 new jobs, up by 51,793
relative to one year earlier.
Data from ELSTAT's Labour Force Survey for the second quarter of 2016 suggest a decline
in the unemployment rate to 23.1%, from 24.9% in the previous quarter and 24.6% in the
corresponding quarter of 2015.
The forecasts of the Bank of Greece point to economic recovery starting from the second half of
2016 and continuing in the years 2017 and 2018. Specifically, a small reduction in the order of
0.3% in GDP is expected for 2016, followed by growth of 2 5% and 3% for 2017 and 2018,
respectively. These forecasts are based on the assumption that the reforms and privatisations
agreed between the Greek government and the institutions will be implemented and the relevant
fund disbursements will be completed in time, so as to support liquidity in the Greek economy,
and that the ECB's monetary policy accommodation will remain in place.
Regarding the inflation outlook, the downward trend of prices is expected to bottom out in 2016
and be followed by gradual increases in 2017 and 2018. The unemployment rate is expected to
keep falling in 2016, although at a slow pace that should pick up in 2017-2018.
However, risks to the path of the Greek economy remain. Any delays in the completion of the
second review, and particularly in the implementation of reforms and privatisations, would
dampen the increase in economic activity, resulting in a resurgence of uncertainty, undermining
confidence and weakening the prospects for a definitive exit from the crisis.
Meanwhile, there are still a number of risks and uncertainties surrounding the outlook of the
European and world economy, relating to, among other things, the planned UK exit from the
European Union (EU) and a possible worsening of the refugee crisis. Also, risks are posed by a
potential surge of protectionism and more simplistic approaches to complex problems, on both
sides of the Atlantic, based on isolationism rather than cooperation and coordination. These risks
could slow the recovery of the Greek economy, through a negative impact on tourism and trade
or a slower-than-expected decline in Greek government bond yields due to risk aversion among
international investors.
To address these risks and confirm the positive outlook, we need to promptly and effectively
tackle a number of major issues lying ahead, which will ultimately determine the outcome of the
programme as a whole and Greece's ability to regain access to markets thereafter.
1st Speeding up the implementation of the programme
The first and most important issue refers to commitment to the programme's objectives, in
particular the need to speed up the implementation of the agreed reforms. The next few days will
see the start of the second review, which will be looking at a number of fundamental structural
reforms, with expected positive effects on economic activity. The review must be completed
without any delay. This will allow these positive effects to be felt soon, thereby strengthening the
prospect of growth in the Greek economy at an accelerating pace from 2017 onwards.
2nd Non-performing loans
The second, equally serious, issue that represents a challenge for banks, the government and
the Bank of Greece alike, refers to the restructuring of the banking system, so as to restore
normal financing conditions in the private sector. Strengthening the banking system and
freeingup resources for financing the economy requires tackling the bulk of non-performing loans as
soon as possible.
Effective management of non-performing loans is key to both the recovery of credit expansion
and the restructuring of enterprises and sectors across the economy.
To this end, the Bank of Greece has stepped up its efforts by promoting, in cooperation with the
government, a number of major initiatives, the implementation of which needs to be accelerated
and completed in the coming months. Let me indicatively mention some of these initiatives:
the development of a secondary market for loans (performing or non-performing);
the reform of the framework for out-of-court debt settlements;
the improvement of infrastructure and expertise of the judicial framework;
the legislative reform to ensure that existing shareholders participate in the reorganisation of
companies, or otherwise immediately withdraw.
In parallel, however, banks need to adopt a more active NPL management policy, focusing on
long-term solutions, multi-creditor workouts and restructuring of viable companies, with the
participation of shareholders.
During the protracted period of the crisis, the private sector has paid a high toll. Uncertainty,
crumbling demand, funding constraints and high indebtedness as a legacy of the past have
driven many companies out of business, thousands of workers to unemployment and the volume
of NPLs to burgeoned levels. At the same time, though, we also see certain sectors of the
economy that have suffered less or no losses from the crisis, but still do not reduce - as one
would reasonably expect - their non-performing loan ratios.
Regarding the industries that are directly related to tourism (accommodation and food service
activities), during the crisis their shares in terms of both value added and employment have
increased. At the same time, however, the non-performing exposures as a ratio of total loans to
these sectors has also risen, to 54.3% at the end of the first half of 2016, a level much higher
than the corresponding NPE ratio for the total economy (45.1%). This is a phenomenon that
needs to be investigated and addressed.
3rd Debt
The third major challenge lying ahead pertains to the launch of in-depth discussions with our
partners on debt relief measures. Debt relief is crucial, in both the long and the short run. For, if
the Greek debt is seen as unsustainable, the country's predicted exit to markets in 2018 will not
be feasible. Therefore talks have to begin now and conclude as soon as possible. Besides, the
discussion of ways to alleviate the Greek debt is a commitment undertaken by our partners as
early as in 2012, and reaffirmed last May, but not fulfilled as yet.
***
The role of tourism in the new growth model
Unquestionably, the problems I mentioned are large and hard to solve. But I believe that we can
overcome them, if we act with prudence, determination and mutual understanding. I also believe
that the Greek economy has the ability and the potential to return to a sustainable upward path
through a new extroverted growth model, taking advantage of its strong comparative advantages
and the opportunities presented. In this process, tourism has a key role to play, for the following
reasons:
It is by definition an extroverted industry.
It has been comparatively less hit by the recession and has preserved its productive
capacity. Especially from 2013 onwards, it has shown remarkable growth performance, as I
already mentioned.
Second, it represents a sizeable share of GDP. In 2015, travel receipts contributed directly
about 8% of GDP, compared with 5% in 2008. In terms of macroeconomic multipliers,
various studies estimate that every euro in tourist spending adds €2.2-2.6 to GDP. Research
also suggests that the sectors which benefit the most from the development of the tourism
product are trade, financial services, property management, construction and
manufacturing.
As regards the export performance of the economy, for 2014 tourism services represented
roughly 43% of total receipts of the services balance, while net tourism receipts (receipts
minus payments) accounted for 62% of the services surplus. In 2015, due to the negative
impact of capital controls on shipping, the weight of tourism receipts rose to 50.6% in total
receipts from services, while net tourism receipts accounted for about 71% of the services
surplus.
Third, tourism as a business activity is being modernised, and the quality of the tourism
product is being improved: search for new markets, promotion and exploitation of the cultural
product of Greece, new innovative units, promotion and development of the country's cities.
Surveys conducted by the Bank of Greece
The Bank of Greece recognises the importance of tourism to the Greek economy and
understands that timely and objective information on the development of tourism-related
aggregates is essential for fulfilling its mandate. We attach great importance to the collection of
reliable and comparable statistics over time on the tourism sector. For this reason, we go
beyond what is required to meet our obligations to the ECB and international organisations, and
collect more thorough and detailed data regarding this sector.
Since 2002 the Bank of Greece conducts the Border Survey, aiming not only to record inbound
and outbound traveller flows, but also, and most importantly, to calculate travel expenditure in
Greece. The survey on incoming travellers is based on a very large sample, of at least 25,000
inbound visitors. The Border Survey is fully harmonised with the guidelines of international
organisations (IMF, ECB, Eurostat). In particular, the relevant mirror statistics, compiled on an
annual basis by Eurostat (in the context of the Travel Working Group), show Greece's travel
expenditure and traffic data to be fully consistent with the corresponding figures of the other
EU28 countries, with differences of below 2%. The Border Survey, among the most
comprehensive ones in the EU, is conducted at the 12 largest airports of the country, which
cover around 95% of visitors, at all seaports of entry and at the six main road entry points. The
resulting data are combined with administrative information and regularly cross-checked against
respective data from the visitors' countries of origin, so as to ensure compliance with the
standards set for the quality checks carried out by the ECB.
The Border Survey is conducted at the time of departure from Greece, when visitors know
exactly how much they have spent here. To calculate expenditure, respondents provide an
estimate of: (a) their total expenditure; (b) any relevant amounts they have paid in their home
countries (e.g. through a travel agency, directly to an airline, etc.) for transport, accommodation,
other services or a cruise package; (c) if possible and more specifically within the previous
category, any amount corresponding to travel costs; and (d) the breakdown of the amount spent
in Greece for accommodation, cafes and restaurants, transportation, entertainment, and
shopping.
The Border Survey is conducted according to a consistent methodology over time to ensure
intertemporal comparability, but its content and scope are expanded and adjusted in response to
changes in international rules and to the changing information requirements. Since the beginning
of 2016, the Border Survey has included a specific question about the visitors' geographical
destination within Greece, and the first data should be published towards the end of this year.
This information will be particularly useful in the development of the tourism satellite accounts,
which is a long-standing demand. Further to the Border Survey, in 2012 the Bank of Greece
launched a more focused Cruise Survey. This survey, unique in Europe, relies mainly on
administrative data from 16 major ports that account for 85% of total cruise traffic, which -
starting from this year - will be enriched with data from targeted sample surveys.
Recent developments
In 2016, Greek tourism faced a number of challenges after a record year in terms of arrivals and
receipts in 2015. Let me recall that in 2015 Greece welcomed over 26 million tourists, 7.6% more
than in 2014, while tourism receipts exceeded €14 billion, rising by 5.5%. In addition to economic
weakness in Europe, where most visitors come from, the refugee crisis combined with
geopolitical developments in our region and increased fears of terrorism have discouraged
visitors from coming to Greece. It is estimated that during the first half of this year, when the
impact of the refugee crisis was stronger, road arrivals decreased by 15%, while to date flight
arrivals to the islands of the eastern Aegean are particularly reduced. The UK's decision to leave
the EU has been a further negative factor. In this respect, let me mention that in July, the first
month after the British referendum, the decline in tourism spending by UK citizens in our country
exceeded 35%, whereas previously the British had been one of the most robust categories of
visitors. Without this reduction, total receipts in July would have increased instead of decreasing.
Tourism stakeholders in our country have tried to respond to external challenges by redoubling
efforts to attract visitors. The number of arrivals has thus remained on an upward trend in 2016
as well. To some extent, however, this was achieved by highly competitive pricing, something
that ultimately had a negative effect on total travel receipts. For the year as a whole, prices are
likely to show a decline, slightly faster than the average rate of decline observed in the last ten
years. On a positive note, however, the downward trend in average stay in our country has
bottomed out, and the first half of 2016 saw a slight increase.
The differentiation of tourism demand
The decline in tourism receipts despite the growing numbers of visitors is partly attributed to
lower prices, as noted above. However, it also relates in part to a longer-term trend, namely the
decline in spending per visitor and per night of stay, observed in the past few years. Since 2005
such spending has fallen on average by 2.5% annually, coming down to €598 per visitor in July
this year, from €746 in 2005. To some extent this reflects the downward trend in the average
days of stay in the country, from 10.7 days in 2005 to 7.2 in 2015. This is a result of changes in
both the income situation of visitors, as Greece attracts fewer high-income visitors, and the mix
of visitors' countries of origin, as well as of long-term trends in the global economy, such as the
entry of new competitor countries and the use of the Ιnternet that allows price comparisons and
intensifies competition. Moreover, arrivals, mainly from traditional markets (UK, Germany, etc.)
are close to a saturation point. This means that the tourism growth model has to be adapted,
aimed towards a further improvement in product quality and higher specialisation.
This would involve:
Increasing the number of target markets through appropriate marketing policies and
marketspecific advertising campaigns. Particular emphasis should be placed on countries with the
highest expenditure per night.
Extending the tourist season throughout the year, by developing the tourism product beyond
the traditional "sun and sea" model, creating diversified products, focusing on alternative
forms of tourism such as cultural, conference, religious and medical tourism and theme
parks. Particular emphasis should be placed on attracting visitors for short stays (city
breaks), which are typically associated with higher expenditure per day and are less
concentrated in peak summer months.
Establishing Greece as a homeporting and last port country rather than just a port of call for
cruises.
Reforms
A crucial contribution in this direction, i.e. towards stimulating and diversifying tourism demand,
will come in the future from the reforms undertaken in recent years. These reforms will
strengthen long-term potential growth by removing existing barriers and increasing competition.
Actually, by improving the long-term prospects of tourism, such reforms have already helped
boost investment in high-quality hotels (for instance, between 2009 and 2014 the number of
fivestar hotels increased by 34% and the number of beds by 32%). Therefore, the improved future
prospects as a result of reforms should further encourage investment and speed up recovery.
The positive experience of tourism should make all other sectors of the economy equally
receptive to reforms that enhance competition and extroversion, and ultimately benefit the
sectors themselves by increasing demand for their products.
Here are some examples of the reforms already enacted:
The privatisation of the 14 regional airports, which will strengthen their competitive position
and enable the development of new tourist facilities with direct flight connections to the cities
of departure.
The simplification and acceleration of the tourist visa procedure for visitors from emerging
market economies (Russia, Turkey, China).
Regulatory reforms such as the removal of cabotage restrictions, which have already
encouraged the development of cruise tourism.
Setting up a "one-stop shop" service by the Greek National Tourism Organisation for the
promotion and licencing of large tourism investments.
Simplification of the licensing procedures of all tourism businesses in order to reduce
administrative costs and licensing lead times, speeding up the procedures for starting a
tourism business (which refers to any type of license, such as installation, operation, taking
up of business and environmental permits), and processing of licensing applications
electronically and, in some cases, on the same day.
Development of a new form of integrated tourism companies, i.e. tourist complexes. These
refer to five-star hotels constructed on land plots of no less than 150,000 square meters,
together with (a) furnished tourist residences with a minimum surface area of 100 sq.m.
available for sale or long-term lease as separate properties; and (b) special tourism
infrastructure facilities, such as golf courses, conference centres, marinas, thalassotherapy
and spa resorts, rejuvenation centres, etc.
Liberalisation of the tourist guide profession, allowing archaeologists and historians to
become tourist guides, which was not permitted in the past.
Streamlining of procedures and elimination of restrictions on the operation of travel agencies
and car rental companies.
Introduction of extended visiting hours for museums and archaeological sites during the
spring period.
In addition to these reforms, there are a number of other actions that would further strengthen
tourism, including:
Modernisation and upgrading of the other regional airports in the country.
Strengthening competition between airlines, as the reduction in air fares will stimulate
tourism demand.
Upgrading and development of infrastructures such as marinas, which can help to increase
sea and nautical tourism, further boosting tourism traffic in Greece.
Upgrading of port infrastructures and establishment of a national plan for the development of
cruise tourism - especially home porting cruises.
Overall, the enhancement of infrastructures is a prerequisite for the improvement of the tourism
product. A lot needs to be done in this respect. In particular, I would like to refer to the utilisation
of public property and the settlement of outstanding issues regarding land use planning. This will
enable us to attract new investment, which will upgrade the tourism product.
During the crisis period, the tourism industry - like all other sectors of the Greek economy - was
forced to operate in an environment of increasing tax burdens, which affects competitiveness.
The Bank of Greece has repeatedly pointed out this issue and has stressed that fiscal
adjustment should focus on reducing public spending rather than increasing tax rates. Equally
important, though, are the adjustment gains to be achieved through a more effective use of public
property and through privatisation.
If this happens, it will be easier to alleviate the tax burden by lowering the tax rates. This is
essential for creating a business-friendly institutional environment and attracting new investment.
***
In closing, I would like to point out that the structural reforms implemented in the past few years,
coupled with lower prices, have supported the growth of tourism and mitigated the impact of the
economic crisis, through a sectoral restructuring of the economy. Increased investment in
highquality hotels and the upgrading of hotel capacity, combined with the tourism industry's proven
adaptability to the new economic conditions, must not be merely continued but intensified, so that
tourism can be a driver and an example of the new growth model the country is in need of.