Greece’s standoff with creditors is threatening the surge in tourism that helped drag the country out of a six-year slump in 2014.

A strong start to the year has tailed off in recent months with potential visitors deterred by the risk of being caught up in a cash crunch. Bookings from Germany were 0.7 percent higher than last year at the end of the first quarter after jumping 12 percent in January, prompting the Greek tourist lobby to consider ditching its forecast for a record number of visitors this year.

“We’re seeing a slowdown in some markets, particularly in Germany,” Andreas Andreadis, president of the Association of Greek Tourism Enterprises, or SETE, said in a telephone interview last week. “We’ve been losing ground in the last few months, we’re losing momentum, as long as the big picture remains unclear.”

Greece’s economy fell back into recession in the first quarter as Prime Minister Alexis Tsipras’s attempt to win better terms from the country’s creditors squeezed financing and deterred investment. The contraction raises the pressure on Tsipras to reach a deal, while also forcing deeper budget cuts to meet the conditions for aid.

The crisis has left Greece’s banking system hanging on the thread of emergency liquidity support from the European Central Bank, and raised the prospect capital controls may be imposed. Such an outcome could limit the amount of cash that visitors could withdraw from ATM machines.

Creditors’ Demands

The funding squeeze has already made it impossible for the hotel industry to reach its annual investment target of 3 billion euros ($3.4 billion), Andreadis said. Greek banks are charging commercial borrowers as much as seven percentage points more than competitors in the rest of the euro area, he added.

The bailout talks also pose a more direct threat to the tourist industry. The euro area is pushing Greece to eliminate the reduced rates of sales tax levied on its islands as a spur to tourism as a condition of any aid.

“The VAT on tourism has changed six times in the last six years and you cannot make a 10-year plan with this sort of problem,” said Andreadis. “It’s important to find a balance in the finances of the state, but how can you find a balance if you kill the investment climate?”

The slowdown in bookings has been most pronounced in Germany, Andreadis said, where press coverage and public awareness of the Greek crisis is particularly intense. Relations between the two governments have been tense at times as Greece revived demands that Germany pay reparations over World War II.

Tourism Records

Bookings have held up better in the U.K. and U.S., boosted in part by the euro’s decline relative to the pound and the dollar this year, Andreadis said.

The tourist industry accounts for 17 percent of the Greek economy and has seen record numbers of visitors in each of the past two years. The 24.3 million arrivals last year was a 21 percent increase on 2013.

SETE forecast 25 million will visit the country in 2015. But Andreadis is backing away from that projection now.

“Having a million more visitors to Greece this year from increased air traffic seems more difficult at this point in time than it did a couple of months ago,” Andreadis said. “If this slowdown continues, we won’t be able to achieve 25 million, for sure. We probably won’t even achieve 24 million.”

This article was written by Marcus Bensasson from Bloomberg and was legally licensed through the NewsCred publisher network.

Photo Credit: Women walk outside of the ancient Herodes Atticus theatre as the Parthenon temple is seen in the background in Athens. John Kolesidis / Reuters