The eyes of the world are now on Greece, watching and waiting to see if it will accept the terms of a third bailout, and ultimately whether it will leave the Eurozone. The more fundamental question, however, is what impact the Greek crisis will have on the larger European Economy?
One way to gain insight into this question is to closely examine business travel data regarding Greece and the European region. Why business travel data? Because it closely tracks larger economic activity and can often predict larger economic trends in a given country or region.
First, the silver lining in this otherwise dark cloud: for the larger European economy, the sky is not falling. Greece’s
economy has contracted 25 percent since 2007, and is now just the 45th largest economy in the world, similar in size to the economies of Pakistan, Ireland and Portugal. Not coincidentally, business travel in Greece has fallen in line with GDP, approximately 26 percent in the same period.
So even if all business travel to and from Greece were to stop entirely, which is extremely unlikely to happen, the European Economy would lose only about $1.1 billion in business travel spending, less than one tenth of one percent of the global total, and less than 0.4 percent of the European total.
In a similar vein, when you take into consideration all economic activity generated in Greece, the impact across Europe would be very limited as well.
To be sure, the impacts to Greece itself and its people would be significant, and we should not minimize that. There will be major losses in GDP, personal wealth, jobs and a significant impact on pensioners. It will take years, if not decades, to fully recover from this economic fiasco.
Ironically, we could see travel to Greece increase, as leisure and business travelers alike take advantage of favorable exchange rates and lower prices from everything from hotels, air fares and rental cars. In fact – as of today — tourism in Greece is as healthy as it has ever been and business so far remains unaffected. This is not surprising since leisure travel spending is largely coming from abroad.
And, importantly, there are no ATM restrictions for travelers. International tourists traveling with credit cards and bank cards will still have access to cash. So one of the most helpful things that we can do for Greece is to continue to travel there, whether for business or holiday travel.
In the medium term, the domestic component of Greek business travel should continue after a short pause, albeit at higher prices. Where there may ultimately be some real pain is with travel abroad, originating in Greece, what we call international outbound travel. Greek business travelers will likely postpone outbound trips until the dust begins to settle, and they will face higher travel prices, especially if they have to convert drachmas into euros, dollars and other currencies. This is one of many negative impacts that will happen to the already battered Greek economy.
Yet, business travel data also reveals the true danger to Europe. The real risk is contagion. If Greek default or an exit out of the Euro extends to the other major indebted countries in Europe — including Italy, Portugal, Ireland and Spain – then we’ll see major reasons to be concerned. These business travel markets and overall economies are far larger and far more influential. Annual business travel spending in these four countries are $31 billion, $4.8 billion, $4.9 billion, and $18 billion, respectively. Combined, this is 50 times larger than Greece.
So far, the crisis appears to be contained. Greece’s bond yields are up and stock prices are down. Not so for the other indebted nations.
But if the debt crisis in Greece spills over to these nations, our data indicates that it could very well drag Europe back into recession, put a damper on the slow progress made over the past few years and increase the already high unemployment rates.
Europe must avoid this at all costs.
GBTA releases a series of global business travel forecasts throughout the year, the most recent study, “GBTA BTI™ Outlook – United States 2015 Q2,” will be available tomorrow, July 7.