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Bailout Tax Hikes Already Hurting Greek Tourism Spots' Business

Greek businesses that depend on domestic tourism already are feeling the impact of the bailout and many owners fear higher sales taxes will do them in.
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An hour west of Athens, the pebbly beaches by turquoise waters and pine-covered mountains are nearly empty as the Greek sunbathers who normally pack them stay home amid fears their country's economy could implode.

Only a few dozen people sit down for a fresh grilled seafood lunch at the beachside restaurant Mary Cromba has owned for 15 years in the tiny village of Psatha. That's down from the hundreds she served most days last year in July.

Now beachgoers on day trips from the capital find parking spaces easily and haul their own food in coolers.

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"Last year the beach was packed with people, from the sea to the parking lot," Cromba said, her eyes welling. "This year I had to let three employees go."

The consumer paranoia keeping customers away, however, is overshadowed by a Greek government crisis solution that Cromba said could eventually kill her business and many others that depend on domestic Greek tourism. Sharply higher sales taxes are coming, part of the governing Syriza party's promises to the 19-nation eurozone in return for a third multi-billion euro (dollar) bailout.

The Greek meal sales tax in the bailout proposal being considered Sunday by European leaders would boost it from the current 13 percent to 23 percent, while hotels would see room sales taxes rise from 6.5 percent to 13 percent.

Cromba and many other merchants said they would be forced to offset the higher taxes with lower prices to keep their cash-strapped customers.

While the tax hikes will affect all of Greece's tourism industry, they are expected to hit Psatha and other places that cater almost exclusively to Greeks much harder than foreign tourist destinations like Athens — where many central hotels are now fully booked — and islands such as Corfu, Mykonos, Rhodes or Santorini.

"I'd love to sell out and go to Mykonos," Cromba said, looking out from her restaurant with dozens of empty tables. "But who would buy this?"

Mary Cromba stands at the cash register of the beachside restaurant she owns in Psatha, Greece, on July 11.Spyros Tsakiris / AP

As bailout Greek negotiations took place in Brussels, all the Greeks who had reservations to stay this weekend at the Efthimiou hotel canceled on owner Michail Efthimiou, leaving him with 10 vacant rooms. Luckily, his remaining five rooms were being occupied by Swiss archeologists who come every year.

"I'm already down more than 50 percent for my peak weeks in July and this is happening before the tax increase," Euthimiou said. "If there's a new deal with the Europeans, maybe there won't be so much uncertainty and Greeks will feel confident enough to go to the beach again. But they don't have the money to pay these tax increases. It's impossible."

Leonidas Rokas at the nearby Schinos beach has dropped prices at his hillside hotel with a pool from 70 euros ($78) per room in 2009 before the Greek economic crisis to 50 euros ($56). He says he'll have to need to lower them to 40 euros ($45) if the higher sales tax goes into effect.

"That's going to make it tough for me to pay my costs, but I don't have a choice," Rokas said. "Greeks would just drive out for the day instead of staying overnight. The foreigners won't have a problem paying a little more but it's tough for the Greeks."

Cromba noted that many small Greek businesses already evade sales taxes where some owners "don't give a receipt so they save the tax for the business and the customer."

Economists say the increased sales taxes will almost certainly lead to a rise in tax evasion, which Greek officials have vowed for years to rectify, with negligible results.

Greek businesses that cater to foreign tourists don't have as much of an opportunity to evade taxes because many of their sales are via credit or debit cards or bank transfers, said Aristidis Hatzis, a law and economics professor at the University of Athens.

Deal or Not, Greece is Running Out of Fruit

But small and mid-size establishments catering to Greek tourists paying in cash will likely "try to tempt Greek customers not to pay taxes by not asking for a receipt," he said.

"This is going to be another incentive for Greeks to tax evade," Hatzis said. "The economic situation of small businesses is so fragile right now that they will see this as their only opportunity to survive. They cannot pass the increases to the customers."

In Schinos, beachside bar and pizzeria owner Stavros Koteas sees the tax hikes as a final blow to what he calls the "slow strangulation" of small Greek businesses.

Greece's debilitating economy in recent years forced Koteas to shut down his four stores selling motorcycles and motorcycle parts, leaving him with the bar he opened in 2011 as a hobby.

"(My clients) hardly come anymore," he said. "Some are ashamed because they don't have money to spend. I can't raise the price with sales tax for the customers I still have, or no one will come."