Just outside the medieval walled splendor of Rhodes’ old town, tourists and locals sip iced coffees at the pavement tables of the Gran Caffe restaurant and bar. Its Greek owner, islander Seltsouk Atakli, is laughing and joking with customers.
“Keep smiling is what I always say, but sometimes a smile is not enough,” he shrugs.
As the latest proposed deal to avoid Greece’s bankruptcy threatens to unravel, a row is raging on Rhodes and several other Greek islands over fears that they are being unfairly targeted. To the surprise of locals, one of the government’s proposals to its creditors is to get rid of the special lower value added tax (VAT) rate that applies to a number of Greece’s far-flung islands — not just the famous tourist destinations of Mykonos and Santorini, but scores of little-known smaller islands with aging and depleting populations.
Greece has thousands of islands scattered over a vast area, fewer than 250 of which are populated. Some of those furthest from the mainland have long depended on a special VAT rate 30 percent lower than elsewhere, which offsets the the high cost of having to ship basic everyday goods long distances.
Rhodes, Greece’s fourth-largest island, is a case in point, along with all the other Dodecanese islands scattered at the nation’s furthest southeastern point between Crete and Turkey.
Sunbathers on Rhodes can contemplate the nearby Turkish coast from their loungers, while Athens is more than 230 nautical miles (426km) away.
Everything from milk to medicines has to be transported.
Many other nations have similar reduced VAT schemes to support isolated territories, such as Spain’s concessions to the Canary Islands. Indeed, for years the special rate for far-flung Greek islands was considered untouchable.
In January’s Greek election , the radical SYRIZA party topped the poll in Rhodes, where islanders believed the special lower VAT rate was protected. A party spokesman this week acknowledged that scrapping the special VAT rate would have a repercussion on island residents. SYRIZA’s coalition partner, the right-wing Independent Greeks Party — keen to court voters on islands — has vowed this week to oppose any abolition of the special island rate “even if the government falls.”
In his restaurant, Atakli said: “At least 90 percent of my supplies have to be brought in from the mainland. Vegetables are grown here, but all milk, cheese — even olive oil — has to be shipped very far, it’s expensive. I’ll have no choice but to absorb this VAT rise myself. I’m not going to put up prices in the restaurant. It’s more important for me to keep my customers. I’ll take a cut on profits.”
However, profits are already down after years of crisis. He has cut staff, negotiated staggered payments for his many unpaid bills and is spending less on his family, clothes and supermarket shop. His restaurant, which has been going for 25 years, once flourished.
“That seems like a fairy tale now,” he said.
The VAT issue is about more than economics — it is about keeping Greece’s islands populated.
Atakli, a proud islander from a Muslim family going back generations on Rhodes, is a symbol of its centuries-old multiculturalism. Islanders across Greece are crucial to the nation’s rich cultural identity. With many of the poorer and smaller islands losing services, jobs and seeing their younger generations leave for the mainland, there are fears that their populations will gradually decline, leaving ghost villages and tourist ghettos.
Politically, Greece has always seen it as important to keep up the population of the Aegean islands that face Turkey.
Rhodes, which has a healthy population of 100,000 and welcomes about 2 million visitors a year, is at the richer end of the island spectrum. It has always been famous for a range of tourism, from world heritage sites to drunken teenage bar crawls, but tinier islands face harder challenges and could be far worse hit by the VAT proposals.
Beyond Rhodes is the small remote island of Halki, with an aging population of only a few hundred that swells slightly with tourists in the summer months. It relies on all products coming in by boat, even drinking water, which arrives by tanker every week. Many islands in Greece are particularly difficult to reach, most do not have airports and sea connections can be cut off by bad weather in winter.
In her Rhodes hardware store, Maria Kantarzoglou wears a T-shirt saying: “All is fair in love and war,” but there is no fairness being applied when it comes to taxation for islanders, she said.
“People here feel forgotten by Athens. Everyone will be affected by this and life here is already more expensive than on the mainland. It costs me more to travel to Athens than it costs a tourist to come from Amsterdam to Rhodes for a week with everything included,” she said.
“I love my island and I’d never leave,” she added, but her brother, feeling the economic squeeze at the start of the crisis, has already moved to the Netherlands and found work in a spare-parts company.
Tourism is Greece’s biggest industry and Rhodes is one of the nation’s largest tourist destinations. If VAT goes up, it could have repercussions on the holiday trade. Already, amid uncertainty over a bailout deal, tourist numbers to Rhodes have slightly declined. Holidaymakers also generally spend less than they used to.
In the warren of shops and tavernas of Rhodes’ old town, cheap prices are a key draw.
“Not expensive,” shout the waiters outside restaurants.
Bars proudly display their “cheap drinks” list. The tanks lined up for fish pedicures and the shops selling novelty T-shirts with slogans such as “I don’t need Google — my wife knows everything” also claim to give tourists a better deal than elsewhere.
Islanders point out that other nations competing with Greece for tourism, including Italy, Spain and France, already have special lower tourism VAT rates, while nearby Turkey and Cyprus have an even lower sales tax. Rhodes business leaders warn of a “triple blow” to the island because the bailout proposals also include other potential VAT rises on the restaurant sector and hotels.
At a vast hotel and spa along the coast from Rhodes town, the manager, who did not want to be named, said: “The situation is still vague and we don’t know what’s going to happen. It’s frustrating because this is the time of year we carry out our tendering for next season — we’re unable to prepare our price lists for next year because we don’t know how VAT will change. It’s difficult. Most people won’t have any choice but to put their prices up. We’ll have to find a way to survive.”
Pappou Ioannis, president of the Chamber of Commerce and Industry of the Dodecanese, said that the special lower VAT rate in the Aegean islands is “not a privilege, but a necessity.”
Abolishing that rate, he said, would prove to be “the tombstone of any productive activity in our islands.”
Ioannis warns of sabotage against the tourist industry and said entrepreneurship on the island “will be the equivalent to a crime.”
Crucially, he said, a VAT change would have a massive and “tragic” effect on the lives of islanders themselves.
“Life for the islanders is very difficult due to the particularities of island territory,” he said. “Even islands that are considered rich have huge gaps in key areas such as health, education and infrastructures. The increase in VAT rates will further complicate islanders’ lives. The increase in cost for crucial items and services will be a heavy blow, especially for the vulnerable social groups — the people with lower income, pensioners and the unemployed.”
“The damage to the economy and to Rhodes society will be tragic, as none of the industry sectors will remain unaffected. Unfortunately, recent years have proven that this is a road that can only lead to even greater recession,” he said.
Without businesses absorbing the costs themselves, a VAT rise on far-flung Greek islands could see the price of holiday packages rise by approximately 10 percent, said Michael Arghyrou, a reader of economics at Cardiff University.
“That is not a negligible amount of money, particularly since there is strong competition from tourism in countries such as Spain, Portugal or Turkey,” he said.
Arghyrou would rather see reform of the most bloated non-essential areas of Greece’s public sector than VAT rises that push up prices for everyone, regardless of wealth.
Wandering through Rhodes old town, Liina Tiiter, an engineer on holiday from Estonia, said she is drawn to the island by the sunshine and the historic sites.
Looking up toward the medieval fortifications as they catch the evening sun, she added: “Even if prices did go up, I’d still make the journey to see this.”
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