Wildfire-related costs from the catastrophic wildfires will be manageable for Greece, but they highlight the country’s vulnerability to climate change, while tourism may also be affected, Moody’s said in a report on Wednesday.
The credit rating agency said that over the last two weeks, Greece has experienced its worst wildfires in decades in what Prime Minister Kyriakos Mitsotakis has described as a natural disaster.
It said European emergency funding will cover a large portion of the associated costs and additional reconstruction, and compensation expenses are manageable for the government.
The authors noted the Greek government’s pledge on 10 August to spend 500 million euros (0.3% of nominal GDP) for compensation, restoration and reconstruction, adding that it will also incur other firefighting-related costs, including the lease of special aircraft, and will need to upgrade other firefighting equipment and civil protection structures.
As a reference, the devastating wildfires in 2007 — the worst in Greece’s recent history which affected 270,000 hectares of land — caused estimated total damage of close to 3 billion euros (1.3% of nominal GDP), the report said.
“Aside from direct fiscal support, disruption triggered by wildfires, including power and water outages, poor air quality and road closures is also likely to weigh on tourism, a credit negative for the country’s local governments. Emergency support from the EU and funds available under the NextGen EU package will limit the wildfires’ immediate negative fiscal impact,” Moody’s said.
However, a “further increase in the frequency and severity of these events could weaken its tourism industry. In addition, environmental damage and a potential decrease in property tax bases pose longer-term credit challenges for local governments.”
“We believe the wildfires are indicative of the credit risks from climate change, which we capture in Greece’s ‘moderately negative’ environmental issuer profile score.”