Would A Greek Default Mean More Tourists?

Thursday, November 10, 2011

News broke this week of a German tour operator attempting to amend their contracts with Greek hotels to include language that would allow payments in a new Greek currency (presumably a cheaper valued one) should the country drop the Euro.

Which begs the question: Would a defaulted Greece mean cheaper prices for travelers? Not that I’m advocating such a move necessarily — leaving the Euro would certainly cause a severe financial crisis in Greece — but the quick answer is yes. A return to the drachma would allow Greece to devalue their currency, thus making their goods and services cheaper in relative terms to those countries with stronger currencies (the rest of Europe, Australia, the U.S., Canada, Japan, etc…)

As The WSJ noted:

Whether hotels agree to the provision now or not, the tour operator’s action suggests what may be in store for Greece’s all-important tourism industry should the country have to exit the euro bloc. Economists say the returning to the drachma would prompt a devaluation of as much as 50%.

That would likely spur growth in tourism, as Greek hotels, restaurants and other tourism offerings would become cheaper for foreign travelers. That, in turn, would boost Greece’s competitiveness vis-à-vis rival travel destinations, particularly neighboring Turkey, analysts say. But it also would cause a dramatic drop in Greek living standards, including those among tourism-industry workers.

As all savvy travelers know, a certain amount of currency arbitrage goes into every travel decision. A decision of whether to travel to Spain, Australia or Japan often results in travelers choosing somewhere where their currency travels much further such as Argentina, Southeast Asia or India.

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