Cost of fires manageable, but environmental risks for Greece elevated-Moody's

The financial cost from the catastrophic fires that hit Greece are manageable, Moody's says in a report, underlining, however, that it would be a negative credit event, if tourism was affected by the fires. Moody's points out, however, that Greece is vulnerable to environmental risks, especially those stemming from climate change.

The credit rating agency outlines the current burden weighing on the economy and those that may be created in the future:

-The Greek authorities have indicated that most fires are now under control, but almost 90,000 hectares of land have been burnt since 1 August according to the European Forest Fire Information System. The damage has been concentrated on the island of Evia, the region of Attica around Athens (Ba3 stable) and parts of the Peloponnese region, though fires that threatened northern suburbs of Athens have since died back. The coastguard has said that it has evacuated almost 3,000 people across the country in the last few weeks.

-At a fiscal level, the government on 10 August announced 500 million euros (0.3% of nominal GDP) of measures for compensation, restoration and reconstruction. The government 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.

-Moody’s avoids giving an estimate on the financial cost arising from the fires but mentions 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).

-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 (Aaa stable) and funds available under the NextGen EU package will limit the wildfires' immediate negative fiscal impact. Greece has already received support under the EU Civil Protection Mechanism, including the deployment of nine planes, almost 1,000 firefighters and 200 vehicles from more than 10 EU member states, and the European Commission will also cover at least 75% of the related transport costs.

-We also believe Greece could access funding of around 2.5 to 3 billion euros from different sources, including projects for civil protection and reforestation. On 9 August, the EC disbursed 4 billion euros in pre-financing to Greece under the NextGen EU package, equivalent to 13% of the country's grant and loan allocation under the EU’s Recovery and Resilience Facility.