Greece faces growing fiscal risks from summer wildfires and heatwaves as the country works to restore damage from major natural disasters, the prime minister's chief economic advisor Michael Arghyrou warned in a recent interview with Reuters.
Arghyrou said rising temperatures and forest fires present an increasing medium- and long-term financial hazard for Greece and the broader Mediterranean region. He stated that the government is promoting investments in water and energy infrastructure across popular tourist destinations while evaluating measures to improve insurance coverage against climate damage.
Greece is attempting to address the fallout of the climate crisis through a budget of 4.5 billion euros allocated for damage restoration, infrastructure reinforcement, and civil protection. The government has also created an annual reserve of 600 million euros, funded by a dedicated climate crisis resilience fee, to provide immediate compensation to affected citizens.
Funding disaster recovery and tax revenues
The fiscal burden arrives as the government prepares its economic policy package for the annual Thessaloniki International Fair. Revenue from efforts to combat tax evasion is expected to exceed 3 billion euros, playing a decisive role in shaping the upcoming budget measures.
The Thessaloniki International Fair is Greece's premier commercial and political venue, where the head of government traditionally delivers an annual keynote address outlining national economic policy and fiscal priorities for the coming year.
Funding needs have grown following severe weather events in recent years. Major storms over the past five years have cost more than 6 billion euros in damage, culminating in Storm Daniel, which inundated entire regions of central Greece. Work on several restoration projects related to the storm remains ongoing.
Economic impact and missing data
Despite the heavy costs, official data tracking the overall economic impact of seasonal disasters remains unavailable. Greece currently lacks an official state estimate for how much summer wildfires and natural disasters reduce gross domestic product when accounting for both structural damage and suspended business activity.
Credit rating agency Moody's estimated that wildfires in 2024 alone reduced Greek gross domestic product by up to 3 billion euros. Moody's is one of the world's major credit evaluation firms, providing credit ratings and risk analysis for sovereign debt.
The long-term economic risks could prove even larger without intervention. An earlier study by the Foundation for Economic and Industrial Research, an independent Greek research institute known as IOBE, calculated that an extreme climate scenario could result in an annual income loss of 16 billion euros and the destruction of 327,000 jobs if timely mitigation steps are not taken.
Insurance gaps and catastrophe bonds
To limit government liabilities, Greek officials are seeking ways to expand private insurance coverage. Worldwide measurements show that insurance companies cover only 25 percent of damages caused by climate change. In Greece and several other nations, that figure drops below 5 percent.
The government views this low insurance rate as a baseline for upcoming regulatory changes. Ministers are considering new financial incentives to encourage households and businesses to buy coverage, while asking insurance companies to expand their policy offerings for climate risks.
However, the government does not plan to issue catastrophe bonds to cover climate costs due to Greece's high public debt. Catastrophe bonds are high-yield financial instruments that allow governments or insurers to transfer disaster risk to capital markets, but investors risk losing their interest payments and principal if a major disaster occurs.
European climate pressures
The fiscal challenges facing Greece mirror broader trends across Southern Europe. Since 2020, Mediterranean countries including Greece, Spain, Southern France, Italy, and Turkey have absorbed the heaviest consequences of climate change, enduring significant loss of life alongside economic damage.
Extreme weather has also spread north in recent years. Cities such as London, Paris, and Berlin have recorded severe heatwaves, while falling river levels and forest fires have disrupted parts of Northern Europe.
The worsening weather has prompted widespread response across the European Union. European leaders have identified reducing state expenditure on natural disaster repair as a primary economic goal for member states, as the bloc seeks to protect public finances from future climate shocks.
