International retailers such as Delhaize Group, which has seen almost double-digit growth every quarter for the past two years in Greece, will be watching the situation there closely.
Retailers operating in Greece will be breathing a sigh of relief following the news that eurozone leaders have approved a €110bn (£94.6bn) loan package to Greece, which will be backed by the European Union and the International Monetary Fund.
Greece’s spiralling debt, which had threatened to drag the euro under - taking other EU member states with it - seems to have been curbed for now. But the financial repercussions are likely to be felt for a long time to come; many economists fear the situation could yet arise again in another country.
Since joining the euro in 2002, Greece has been able to borrow money more easily than when it had its own currency, the drachma. Over the past eight years Greece has been on a debt-funded spending spree that included economically unviable projects such as the Olympics - London take note. The economic downturn involved the Greek government in increased spending just when tax revenue was falling.
A rise in VAT in March from 19% to 21% was designed to raise government income, but was met by a public outcry and disastrous consequences for the retail sector as customers cut back on spending. Retail sales had until February been declining at double-digit rates for almost a year. A slight rise of 1.7% in February was attributed to extended Christmas sales rather than an upturn in fortunes.
The Greek government is expected to raise VAT further next month to 23% and many retailers are concerned about the impact it will have on their businesses.
International retailers such as Delhaize Group, which has seen almost double-digit growth every quarter for the past two years in Greece, will be watching the situation closely and thinking twice about the €65m (£55.9m) investment programme it has planned for the country over the next two years.
Carrefour, Greece’s largest retailer, had planned to convert 380 stores this year from its Dia discount format to supermarkets under the Carrefour Marinopoulos banner but, again, this will need to be reviewed.
The news of the bail-out has calmed investors’ nerves for the time being, but Greece remains the most expensive country in the EU in which to borrow money.
The cost of borrowing in countries such as Ireland, Portugal and Spain has also increased. These countries could be in a for a bumpy ride, too, since the road to recovery is looking ever so slightly longer.
Greg Hodge is research director of Planet Retail.
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