Report: Will Tourism Save Greece?

The Greek tourism sector is showing signs of restructuring that may simultaneously imply higher productivity and a smaller potential for absorbing unemployment, according to a recent strategic analysis by Levy Economics Institute of Bard College in the United States.

According to the analysis, entitled “Will Tourism save Greece?” and led by Greek economist Dimitri Papadimitriou, the turnover index of Greek tourism in the first quarter of 2014 improved by 14 percent over the same quarter in 2013. However, the value of the index is still 30 percent below its peak performance in 2008.

“The rise in tourism activities has so far contributed only modestly to the improvement in both the balance of payments and employment, and it is unlikely to dramatically change the conditions that would result in a significant impact on either the balance of payments or employment in the short to medium term,” according to the analysis of the Levy Economics Institute.

“Harsh austerity programs” is not the way to go

Moreover, the analysis challenges the latest optimistic assessments of the International Monetary Fund (IMF) on the future of Greece and describes them as “wishful thinking.”

The authors of the analysis concluded that economic growth and increased domestic demand will not come about from private sector expenditures while the household sector, overburdened by ever-increasing taxation, continues to deleverage and the business sector is without viable options for financing investment.

“High unemployment and declining production, which weigh heavily on domestic demand, have pushed Greece into deflation territory, which is unlikely to be a relatively short-term phenomenon,” it is underlined in the analysis.

The analysis questioned the “harsh austerity programs” that deliver no growth and maintain unprecedented levels of unemployment.

“What are the prospects for economic recovery if Greece continues to follow the troika strategy of fiscal austerity and internal devaluation, with the aim of increasing competitiveness and thus net exports?”

The analysis indicated that the unprecedented decline in real and nominal wages may take a long time to exert its effects on trade — if at all — while the impact of lower prices on tourism will not generate sufficient revenue from abroad to meet the targets for a surplus in the current account that outweighs fiscal austerity.

“What must come to pass instead is a change in the fiscal policy stance toward lower direct and indirect taxation and publicly funded work (job creation),” the report concluded.

To read the whole report, press here.