The economic dimension of natural disasters and the new risks for the country

The deadly floods of the last few days, which are testing the country's resilience and come in the wake of the major fires of the summer, have left unimaginable damage to infrastructure, production units, businesses, livestock, agricultural production, homes and the natural environment.

Worse still, the extreme weather has so far caused the death of six people and there are concerns that the death toll will rise.

There will be a significant impact on the budget, on public investment (by reallocating resources to repair damage to roads, bridges and other infrastructure that were destroyed), but also on banks, property management companies and insurance companies. At the same time, there is concern about the long-term impact on tourism due to climate change.

The inventory of the damage to homes, businesses and infrastructure is ongoing, but it is certain that the total damage caused by natural disasters will amount to several billion euros. 

In accounting terms, however, the major disasters will not only not have a negative impact on GDP but may even boost it. The reason is that the destroyed bridge or road is not deducted from the value of GDP, whereas the costs of reconstructing the new road and bridge will be added to GDP. 

The successive natural disasters and the many incidents that preceded them, such as those of Tempi, Anchialos and even the crime in the port of Piraeus, which highlight the wider problems of public administration, the state and institutional poverty, have also had a serious impact on the psychology of citizens.

Yesterday's stock market plunge with losses of more than -2%, against the positive economic news (GDP, Attiki Odos, etc.), is not unconnected with the general deeply troubled picture of the country, and reflects a series of new long-term risks for the economy and the country more broadly.

The successive setbacks in recent months, from the Tempi incident to the fires and now the deadly storms, are damaging the country's reputation by highlighting the serious problems of organisation and management. There are not many examples in Europe where a fire burns for 16 days (Evros) and the state mechanism is unable to deal with it. There have been many examples in recent years of the great inability of the state mechanism to deal with complex and demanding situations.

Finally, there are serious shortcomings in critical (and not only) infrastructure. There is no doubt that the intensity of the rainfall was an extreme event, but the effects were multiplied by the lack of infrastructure.

Several meetings at Maximos

The government and the financial staff have been holding successive meetings in the last 24 hours to record the extensive damage caused by the floods and to find funds to repair the damage, but the first estimates are that there will be no immediate significant impact on the budget. In the coming days, when a clearer picture of the damage will be available, measures and interventions to support the affected people will be specified. 

Government sources acknowledge that climate conditions are changing and shaping a new reality where new risks are emerging for the economy and the country.

"The critical question is what projections we make for the next 10, 20, 30 years for natural disasters, how all this will be reflected in a budget and how we should manage it," government officials note. This is an extremely important issue of great concern and some decisions are expected in the coming weeks.

The scale of the disasters has led to the postponement of the Prime Minister's speech at the TIF. Kyriakos Mitsotakis will be in Thessaloniki next week where he will give a detailed presentation on the situation and the reforms and changes he will promote to modernise the state.

The new risks

The frequency of extreme weather events combined with the inadequacy of the state mechanism and the lack of infrastructure bring to the surface a number of new serious and long-term risks.

Fiscally, extreme events and the disasters they cause require large capital cushions so that the government can support the affected people, repair infrastructure and build new ones to cope with the extreme events. Greater spending will also be required to strengthen the resources and people of government structures to respond to natural disasters. Given that Greece remains a country with very high public debt and extremely limited resilience and flexibility, this raises additional concerns.

There is also great concern about the long-term impact on tourism due to the change in climate conditions. There is a growing international perception that the Mediterranean countries are no longer such climate-safe destinations. Fires and frequent long heat waves with temperatures above 40 degrees Celsius are increasingly turning more and more people to more northerly regions.

New serious risks are also emerging for banks and insurance companies. Banks will begin to incorporate regional environmental risks into their lending policies. It is noted that banks are already in consultation with the supervisor, the ECB, to incorporate climate risks into their lending and risk measurement models. If, for example, the volume of water that fell in the past few days in Pelion had fallen on Parnitha, which is stripped of the fires, the amount of damage in Attica, which also lacks serious infrastructure, would be enormous with incalculable economic consequences.

Similarly, insurance companies, despite the fact that they do not seem to be seriously affected by the damage caused by floods, mainly due to limited insurance especially in the provinces, will also have to measure and price the risk of natural disasters.

Measures announced by banks - servicers

Immediately banks and also the servicers will announce measures to provide relief to borrowers in the affected areas. Among the measures discussed within the Union of Greek Banks is the 6-month suspension of payment of loan instalments and a corresponding "freeze" of the debt and interest and other measures similar to those announced in similar natural disasters.

Measures will also be announced by the servicers and among those announced will include suspension for six months of any enforcement action concerning affected borrowers as well as suspension of telephone harassment actions to affected borrowers.

The aim is to announce the measures quickly and independently of when the affected areas will be officially registered by the competent state authorities.