Cheap Greece Vacations
Since the Greek crisis reappeared in headlines at the end of June, a number of people have somewhat sheepishly asked me if all this means it makes sense to go on vacation in Greece.
The short answer is: yes.
Greece is a good bargain
Above, you can find a chart of Greece's unit labor costs showing that Greece has "enjoyed" a decline in wages of more than 15 percent since 2009, which was designed to improve the country's competitiveness as a place to do business. This means that relative to other European countries, labor costs are now low and it is a relatively cheap place to operate labor-intensive hospitality businesses like restaurants and nice hotels. Meanwhile, reports are arriving that many international visitors are responding to negative headlines by canceling trips to Greece, meaning that even better deals may be emerging as bookings decline.
Grexit will make Greece even cheaper
If Greece ends up leaving the eurozone, as seems likely, the value of its new currency will fall rapidly relative to the euro and the dollar. A sharp currency devaluation in an economically healthy country would merely lead to higher wages as workers struggle to recoup their bargaining power.
But with a quarter of Greeks unemployed, very few workers will have the bargaining power to secure those wage concessions. What will happen instead is the real take-home pay of Greek workers will fall, turning Greece into a land of even greater bargains. That should increase the level of business activity in Greece and begin to reduce the joblessness rate. When that happens, wages will rise again. But in the transition period, Greece is going to go from being a good bargain to being a great bargain.
Bring cash to Greece
If you were to arrive in Greece tomorrow, you would find a country whose banks are closed and where there are sharp restrictions on one's ability to withdraw money from an ATM. A foreign credit card should still work fine, but the smarter move is bring cash into the country.
That's because if Greece leaves the eurozone, a Greek person's €1, 000 bank account is soon going to be worth less than €1, 000. By contrast, a stack of paper euro notes can always be stashed in a kitchen cabinet and will retain its face value. Consequently, the rational Greek person will prefer €1, 000 in cash to €1, 000 in a bank account. This is exactly why Greek officials have limited ATM withdrawals — they know everyone would scramble to get the cash out if they could. If you bring cash with you into the country, you ought to be able to get bargains if you are willing to pay in cash.
If your trip is scheduled for the future — after Greece has introduced its own currency — you should still plan to bring cash.
One very frequent scenario for a country that has recently depreciated its currency is to take legal steps to try to prevent its people from taking their wealth out of the country. This tends to create a situation where the "official" exchange rate that banks and credit card companies are forced to use is considerably less favorable to foreigners than the black market exchange rate. Any tourist visiting Argentina these days is well advised to bring plenty of US dollars in cash and use them to buy pesos on the black market rather than using credit cards. Greece is probably going to be in the same boat soon.