The edge of the volcano
There is much talk of chaos in Greece this summer, in the wake of elections that have failed to produce a working government. Are travel insurers, assistance companies, tour operators and their clients prepared for a full-blown crisis? Robin Gauldie reports
First published in ITIJ 137, June 2012
There is much talk of chaos in Greece this summer, in the wake of elections that have failed to produce a working government. Are travel insurers, assistance companies, tour operators and their clients prepared for a full-blown crisis? Robin Gauldie reports
So what is the best advice for clients travelling to Greece this summer and concerned that Greece may leave the euro, with all the chaos that implies?
It may not happen – basically, it depends on which economist is speaking when you are listening. Most Greeks would like to retain the euro, but want an easing of the draconian austerity measures that they have been living with for a year or more. Meanwhile, the troika of the European Central Bank, the International Monetary Fund and the European Union (EU), along with Greece’s creditors in the banking sector, are also keen to keep Greece within the eurozone. Whether they can do so is anybody’s guess.
A caretaker government is in place. A new election is scheduled for 17 June but there is no guarantee that it would produce a functioning government. Meanwhile, if Greece remains without a government – or ends up with one that refuses to implement more austerity measures – the troika may pull the plug, in which case the Greek government and banks would run out of cash by July.
Professional prediction
Economist Dr Thomas Kirchmaier of Manchester Business School went on record last summer – when the Greek drama was already unfolding – as saying the only way to de-leverage Greece was either to get it to pay very low interest or to write off some its debt.
“Failing that, you miraculously find a way of increasing Greek productivity so they become more productive. But none of that is happening, so all they are doing is buying time.” In fact, since then, Greece’s debt has been reduced. In March, banks agreed to write off €100 billion. But Kirchmaier stands by his earlier comments. “It is hard to believe that German politicians will allow a Greek default, given the fallout for its banks,” he says.
The prospect of a national default looms larger than at any time since the formation of the euro, according to Kirchmaier, who says his earlier analysis is still right: “I still believe that an exit would be the worst possible option for both Greece and the euro countries. It is possible that the state will run out of money and default a second time, but still stay in the Euro.” A more likely option, Kirchmaier believes, is the possibility of a widespread bank run and the collapse of the Greek banking system: “The banks will then be nationalised, and should be re-capitalised by the state.”
He points out that the state will find this difficult, and Greece could thus be forced out of the euro if several of its banks fail at the same time: “In both cases, bank run and exit from the euro, a temporary disruption to the payment system can be expected.”
Meanwhile, the leader of the private sector delegation in negotiations to write off a substantial tranche of Greece’s debt has urged the troika to give Greece more time to put its political house in order.
Speaking at a meeting of the Institute of International and European Affairs in Dublin in May, Charles Dallara, head of the Institute of International Finance, said Greece’s departure from the euro was ‘far from inevitable’.
The travel industry is determined to play down the possibility of a crisis
But serious disruption to everyday life is a real possibility, and it may create problems for visitors who are over-reliant on using credit and debit cards to settle hotel and restaurant bills, pay for car hire and withdraw cash from ATMs. All of these transactions are vulnerable to the kind of industrial action that Greek workers are so fond of. Strikes by bank, utility and telecoms workers and civil servants could interrupt online banking and make it difficult or impossible to pay by card or access cash by ATM. Action by airline and airport staff, ferry line workers and taxi drivers may disrupt travel arrangements, leaving homebound holidaymakers in limbo and in need of emergency cash to pay for accommodation, food and drink.
“No one knows exactly what would happen if, and that is still an if, Greece left the euro, however, it is likely there would be a transition period when holidaymakers would still be able to pay with euros in bars and restaurants,” says Mark Tanzer, chief executive of the British travel trade association ABTA. Agents should advise their clients to take plenty of cash with them in case of problems with the use of credit and debit cards.
The political action seen in Athens has also prompted some violence. The UK’s Foreign and Commonwealth Office (FCO) warns: “Demonstrations regularly take place around Syntagma Square in central Athens. Demonstrations have also taken place in a limited number of other towns and cities. You should avoid demonstrations and protests and observe instructions and advice given by local security authorities. Violent incidents have occurred at and in the margins of such protests. Tear gas can be used.”
But Tanzer points out that most holidaymakers fly direct to resort islands. “Demonstrations that we have seen on TV have been sporadic and limited to parts of central Athens and the second largest city, Thessaloniki, neither of which are visited in significant numbers by UK holidaymakers,” he says.
Most German and other EU holidaymakers, as well as Russians (now tipped to become Greece’s third largest market) also bypass Athens in favour of island and mainland resorts, according to ABTA. The travel industry is determined to play down the possibility of a crisis that would cripple Greek tourism this summer.
“That is very much a worst-case scenario,” says ABTA spokesman Sean Tipton. “We have already seen demonstrations and strikes in Greece since last year and they have had a minimal effect on tourists.” The impact of Greece leaving the euro and transition to a new currency is difficult to predict, Tipton concedes. “Certainly it would not mean that, overnight, Greek hotels, bars and restaurants would cease to accept euros, and it is difficult to conceive how credit and debit cards would not be accepted in the usual outlets.” Tipton said that package holiday clients ‘would be looked after in any scenario that were to occur, such as flights having to be rerouted or rescheduled due to strike action’.
Independent travellers, though, would be more at risk of being inconvenienced or out of pocket, Tipton warns. But ABTA’s message, essentially is: carry on and don’t panic. “The need for widespread evacuation of customers is incredibly unlikely,” says Tipton.
Dudley der Parthog, director of the UK’s leading Greece specialist tour operator Sunvil, says a total meltdown is vanishingly unlikely, and that tour operators have the know-how to deal with all forms of local disruption.
“We have dealt with Greek strikes for 40 years, and so have a wealth of experience and ways of getting around them,” he says. “Last summer, our clients on the ground were largely unaware of most strikes. We just work around them.” He added: “All customers booked though a tour operator are looked after as we have a duty of care under law, so none will be stranded at any airport no matter what reason.” Like ABTA’s Tipton, however, der Parthog cautions that independent travellers who book airline travel and accommodation online have no such back up.
Ultimately, the answer to the problem is to have enough cash in hand to cover emergencies. “Carry cash, and don’t panic,” says Simon Calder, travel editor of The Independent newspaper, and no stranger to offbeat destinations where money talks louder than plastic. “Low denomination euros are all you need. While the banking system will probably freeze for a week, rendering electronic transfers impossible, the cash economy will carry on – and the ‘real’ euro will be in high demand, compared with the overprinted ‘Greek euro’ that may emerge.” That may sound alarmist, but Greeks are said to be renewing their long-standing love affair with hard cash and spurning plastic. In the days following May’s inconclusive elections, more than €700 million was drained from bank accounts by people who feared losing their savings if banks collapsed.
A calculated risk
For travel insurers, then, there is a heightened concern that numbers of their clients this summer may be carrying large amounts of cash, making them tempting targets for pickpockets, bag snatchers and hotel thieves. As the FCO website warns: “Be aware that incidents of theft of wallets, handbags etc are common on the metro and crowded tourist places; leave valuables in safe custody at your hotel or apartment.” Most Greek hotels in three, four or five star category provide in-room safes; others offer safe deposit at reception, so guests can leave the bulk of their cash in safe custody, carrying only enough for each day’s needs.
Sunvil’s Dudley der Parthog says credit cards are not in any case widely accepted outside major resorts and upscale restaurants and shops. “Our clients are told not to rely on cards before leaving the UK, so most take a substantial amount of euros with them from the UK,” he says. In a pinch, tour operator clients may also be able to access cash through their local tour operator representative. “We have reps and local agents all over the country so we could easily take money on a card here [in the UK] and pay it out locally if necessary,” he says.
Were the British FCO, the US State Department or other government departments to advise their nationals to leave Greece, the repatriation of package holidaymakers would be the responsibility of the tour operator that sold them their holiday. Were the FCO to warn against ‘all but essential’ travel to Greece – its typical stance on destinations undergoing political revolution – it would yet again put travel insurers well and truly in the consumer spotlight. The old issue of whether or not a holiday is ‘essential’ could return to the fore, so travel insurers should be prepared to defend their stance should they choose not to pay out a cancellation claim following such a warning from the FCO.
Independent travellers, though, would be more at risk of being inconvenienced or out of pocket
The events of the ‘Arab Spring’ in Egypt and Tunisia last year, and the 2010 ash cloud scare, gave tour operators and insurers valuable experience in handling such large-scale crises. Tour operators showed a high degree of preparedness in evacuating their clients. That could prove valuable if things get worse in the Aegean this summer. During the ‘Arab Spring’ uprisings of 2011, clients who had booked holidays to Egypt or Tunisia were offered alternative destinations. Ironically, these included Greece.
Tour operators, including TUI and Thomas Cook, which between them dominate Greece’s two biggest source markets, are watching Greece closely, and say they have put unspecified contingency plans in place, with ‘tried and tested procedures for ensuring customers are looked after’, according to TUI. The company has hinted that it could redirect clients to other destinations if Greece descends further into chaos. Thomas Cook says only that it is ‘closely monitoring the evolving situation’.
Independent travellers might face different challenges and be more likely to call for assistance from their travel insurers. Again prompted by the ash cloud crisis, many insurers – including Aviva, Direct Travel and Columbus Direct – have expanded their portfolio of policies to offer add-on cover for cancelled flights and unforeseen alternative travel and accommodation expenses. Small print rules and if a strike had already been announced when cover was purchased, the consumer’s expectations of cover might well not fit in with the insurance provided in such an instance. That said, such policies should at least provide some cover in the event of the kind of ‘wildcat’, unannounced strikes and demonstrations that are characteristic of Greece.
Like most tour operators and travel insurers, assistance companies are taking a sanguine view of events in Greece. On one level, few think that Greece will jump (or be pushed) out of the euro. On another level, these are companies with deep experience in operating in situations that are more chaotic than anything that is likely to happen in Greece this summer.
Public hospitals and ambulances have been affected by strikes by public sector health workers this year, but such actions are less likely to impact on private hospitals and ambulances. Conceivably, industrial action by air traffic controllers or ground handling staff could close airports, but such action is nothing new in Greece (or in other Mediterranean destinations) and would be unlikely to disrupt medevac operations.
Tour operators … are watching Greece closely, and say they have put unspecified contingency plans in place
Meanwhile, some volcanologists say that the crater of Santorini – one of Greece’s three island volcanoes – is showing signs of activity after decades of quiescence. A real eruption to match Greece’s political eruption? Watch this space.
Should Greece default from the euro and potential chaos worsens in intensity, travel insurers should be prepared for the worst-case scenario – and get their houses in order to offer their customers, and the media, a cohesive and prompt response.