Greek fire costs manageable though environmental risks just got bigger

The financial cost from the fires that hit Greece this month is manageable, says credit ratings agency Moody’s, but the events highlight the country’s elevated exposure to environmental risks, particularly those stemming from climate change.

Over the last two weeks, the Greece has experienced its worst wildfires in decades in what Prime Minister Kyriakos Mitsotakis described as a natural disaster. Authorities have indicated that most fires are now under control, but almost 90,000 hectares of land have been burnt since August 1, according to the European Forest Fire Information System, with most damage concentrated on the island of Evia, the region around Athens and parts of the Peloponnese region.

In response, the government announced 500 million euros (0.3% of nominal GDP) of measures for compensation, restoration and reconstruction, says Moody’s but other fire-fighting related costs will also be incurred, including the lease of special aircraft and the need to upgrade other firefighting equipment and civil protection structures.

As a point of reference, 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,” says Moody’s.

“Emergency support from the EU (Aaa stable) and funds available under the NextGen EU package will limit the wildfires' immediate negative fiscal impact. 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," it adds.

Nevertheless, Moody’s points out, “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 (E-3). “

“While the causes of the blazes have yet to be determined, Southern Europe has experienced its worst heat wave in almost three decades, with Greece seeing temperatures of up to 45 degrees Celsius. This is significant in the context of the findings of a report published by the UN's Intergovernmental Panel on Climate Change on 9 August that suggested that once-in-50-year heat waves are now likely every decade,” the report says.

“Although Greece is likely to continue to benefit from financial support from European institutions, 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,” it added.