While most financial experts seem to agree that Crete, as well as all of Greece, has been somewhat shielded from the worst of the world's money problems, local businesses and consumers agree that the tentacles of the monetary monster have, indeed, reached our shores.

In an exclusive interview with The Khronicles, an official with Crete's largest banking institution explained to what extent the crisis has affected the country, and what we can expect for the New Year.

"All the economies in the world are interconnected," said Vangelis Pteroudis, Marketing and Network Development Manager for Pancretan Cooperative Bank, which has 52 branches throughout the island. "The problems started in the United States in the end of the 90s, when credit and mortgages were being handled wrong. Banks granted mortgages to people who had a small probability of repayment, but the profits were too good so practices continued unabated."

Mr. Pteroudis said that according to market estimates, up to three trillion dollars will be lost worldwide, due to the fact that many banks and other financial institutions, such as insurance companies, purchased investment packages backed by American mortgages. 

"In Greece, the amount lost by private individuals and institutions fluctuates from 350 to 600 million euros maximum," he said. "This amount is actually very small compared to what, let's say, French investment companies have lost. And that's because the Greek banks for the last 10 years have invested in the Balkans, like Bulgaria and Rumania and also Egypt, instead of the U.S.

"The Greek financial market has been running with development rates of an average of 30 percent per year in the last six years, which means that when the Greek banks had capital to invest, they chose the Greek market first, and then the foreign market.  When the crisis situation exploded all the banks became very cautious on lending to each other, and have completely stopped in the last three to four months. Banks that had the capital did not lend it out."

At that point, Mr. Pteroudis went on to explain, financing to other banks was restricted, so money became much more expensive because banks themselves were borrowing money at a more expensive rate.

Locally, that translates to fewer loans and mortgages in Crete, and people that do manage to borrow, are doing it at a higher rate of interest.

"The mortgage market was growing at a rate of 20 to 23 percent a year," Mr. Pteroudis said. "And for the last two years we have been saying that the market was constructing more houses than there was a market for. We estimate today, there are about 170,000 houses and apartments for sale in Greece. Normally this is a supply for about one and a half years. Now people are hesitant to buy because they don’t know in what financial condition they will be in a few months from now."

He said that in the last two to three months there have been reports that real estate prices are already five to six percent lower in Athens, and, while there is not enough data for Crete, it is estimated that the trend is the same.

"The mortgage rates went really up for the first nine months of the year, but now the European Central Bank (ECB) decided to lower the mortgage rates because when money becomes very expensive to borrow people don’t buy homes or open businesses," he said, adding that rates are now at 2.50, down from 4.25, and are expected to go down to one percent by the end of the year.

However, according to the banker the quality of lending will be more controlled because when people lose jobs, when economy slows down, people cannot make payments. For example, he said the bank will still lend to tourism businesses, but only to people that can support a reduction of, let’s say, a 20 percent drop in their earnings this year. He advises all businesses, not only those in tourism, to be cautious.

"I believe that the worst as far as interest rates are concerned is behind us," he concluded. "It’s encouraging that the Greek government is announcing many good programs and is standing behind the small businesses, like free loans for working capitol. People should be asking advice on how to benefit out of these government programs. We as an institution will continue to help financially and we also have begun to work very close with the municipalities in ways to stimulate the development of the economy."

Meanwhile, in other efforts to deal with the current economic situation, the Federation of Professionals, Industries and Tradesmen in the Iraklion Province has made several proposals, including the financing of small and medium enterprises via the Bonding Fund; suspension of businesses being auctioned off by banks because of unpaid debts for at least three years; more incentives in order for businesses to employ personnel from the unemployment lists; and an immediate reintroduction of tax-free reserve fund, so that small businesses can invest as a tax shelter and reinvest in their own businesses with the profits.

Iraklion MP Manolis Stratakis appealed to the ministers of Economy and Economics, and Development to accept the above proposals, "because it is important to stimulate the market place not just for the good of businesses, but also for the good of the consumers."

While heads of banking and government are taking decisive steps to deal with the crisis head-on, local businesses are bracing against a bleak 2009.

"As a hairdresser I am lucky in that I have a regular clientele, but, in saying that, we are still not as busy as before," said Gillian Stavroulaki of Top Cut in Malia.   "People are leaving it longer between haircuts and they are doing their own hair colouring and blow drying. There are not many steps we can take in our trade, but I will not be putting up the prices next year to try and help the situation."

Crete's substantial property market is especially hard hit.

"There are almost no enquiries about properties for sale," said Suzanne Schils of Nikou Real Estate is Sissi. "The first thing that people won’t do in an economic situation like ours, is think of buying or building a new home, especially with the mortgage situation. Also the fact that prices might go down influences the market, because potential buyers hope that by waiting a few months, they will get the same property a lot cheaper."

Not raising prices in 2009 seems to be the consensus of opinion among shop owners interviewed by this newspaper, but consumers, showing skepticism, have adopted a wait and see attitude, especially in the face of high inflation and rising unemployment.

According to a recent poll, 56 percent of the Greek households directly feel the impact of the financial crisis, and same percent of surveyed persons considered that the crisis will continue for the next two to five years.
And, an even more people – a whopping 79 percent – are pessimistic regarding the future of the Greek economy and fear for their financial safety.

As one observer of the local market put it, whatever happens next is anyone's guess at this time, but the pessimism prevailing on the street is indeed unprecedented.