A recent study titled The café economy: Structural transformation in Greece in the wake of austerity and “reforms” published by the Hellenic Observatory at the London School of Economics (LSE), offers a critical analysis of Greece’s post-bailout economic transformation.
The study warns that Greece has transitioned into a café economy that’s increasingly reliant on hospitality, accommodation and low-cost services, collectively known as the Accommodation and Food Service Activities (AFSA) sector.
The AFSA sector, which encompasses tourism, hotels, restaurants, bars and other tourism-related activities, is a substantial employer in Greece. And while AFSA remains a vital source of foreign income, employment, goods and services for Greece, its expansion also carries risks.
AFSA is a low productivity sector and has contributed to a drastic reduction in Greece’s overall productivity. Sixteen out of twenty high productivity sectors saw a decrease in their levels relative to 2009. This is at odds with the structural reforms and market liberalization that were promised to boost efficiency in Greece. That’s because, when labor is cheap, there is less pressure for companies to innovate and adopt labor-saving technologies.
The result is that, according to the study, labor productivity in Greece was 16% below its 2009 level as of 2024. There has also been a significant decrease in real wages in Greece’s total economy by about 26%. But the AFSA sector recorded the largest decline in real wages among all sectors, decreasing nearly 60% between 2009 and 2023.
Apart from the decrease in productivity, scaling up tourism can, sooner or later, encounter significantly decreasing returns. It also degrades the environment, commodifies culture, and exacerbates the housing affordability crisis due to the prevalence of short term rental platforms.
The authors warn that without a strategic shift, Greece’s emerging café economy risks putting the country in a long-term equilibrium of stagnation. A successful path would require policies that strategically foster high-productivity sectors, support technological upgrading, restore demand, and ensure that Greece’s “de-development” trend is counteracted with more inclusive growth.
Read the full analysis here:
