Summer in Berlin was shaping up to be glorious: People are soaking up the sun in parks and on lakeshores, restaurants are full again, and you no longer need to get a COVID test to visit the hairdresser. There were even no new cases recorded in the city on June 27.

Summer’s optimistic arrival was repeated across Europe at the end of June. People crowded along the banks of the Seine, celebrating the end of seven months of nighttime curfews and lockdown restrictions as France reported 29 deaths at the end of June, the lowest rate since September last year. In Spain, the sidewalks and terrace bars of Madrid and Barcelona filled with maskless residents as the country dropped its outdoor mask mandate. Across Italy, bars filled up on June 26 night as fans cheered on the Italian soccer team in the Euro Cup tournament.

“Everyone is buying this story that this is the end of the pandemic chapter,” says Christopher Dembik, director of research and strategy at Saxo Bank. “There’s a feeling that this is more or less over.”

But despite the apparent good news, European travel stocks crashed as the week began, with rising case numbers of the highly transmissible COVID-19 Delta variant (first found in India, and now widespread in the U.K.) leading European governments to worry aloud about a new disease wave—and to enact new travel restrictions that threaten to put the continent’s vital summer tourist season at risk.

There’s a lot on the line. Open borders are key to the eurozone’s economic fortunes as months of strict lockdown measures give way to yet another grand reopening. The 2021 version comes with even higher expectations as shop owners, hoteliers, and restaurateurs make plans for a big summer.

The Delta variant, which is even infecting some fully vaccinated adults, threatens to dash all that.

“Unthinkable damage”

Portugal, Germany, Italy, and Spain all announced enhanced restrictions, largely related to travelers from the U.K., where the seven-day case load per 100,000 inhabitants in cities like Edinburgh and Manchester surpassed 400, putting them well into the EU’s “red” zone.

As of June 28, unvaccinated U.K. travelers to Portugal will have to quarantine for two weeks. On June 29, Spain published new rules obliging people entering from the U.K. to provide a negative COVID test or proof of vaccination, reversing a previous plan that put the U.K. on an unrestricted travel list. And Germany placed tough new quarantine restrictions on travelers from Portugal and Russia, adding them to a list on which only the U.K. had appeared.

Italy, meanwhile, now mandates that all travelers entering the country from the U.K. go into quarantine upon arrival. They cannot exit isolation until five days have passed, and only after they’ve produced multiple negative COVID-19 tests.

Italian Prime Minister Mario Draghi has taken a particularly hard line on EU border policy. That has Italy’s hotel operators worried.

“It is unthinkable that one would come for a week or a long weekend having to undergo quarantine. The Russian and English markets are significant for us, and we risk losing them with more than significant economic damage for everyone,” Alessandro Giorgetti, head of the hotel trade group for Italy’s Emilia-Romagna region, told the Italian daily Corriere Romagna.

Stocks sink, euro slides

The new restrictions are making investors jumpy. Travel and leisure stocks crashed June 28, with the STOXX 600 travel and leisure index plunging 4.35%. In tourist-dependent southern Europe, Italy’s FTSE MIB dropped 1.1%, and Spain’s IBEX 35 fell almost 2%. On June 29 morning in Spain, travel firms Amadeus, IAG, and Meliá Hotels all fell again, down by some 2%. And German tour operator TUI Group tumbled 4% lower.

Not surprisingly, the euro is under pressure, too, down more than 3% in recent weeks, a big drop in foreign-exchange terms. And the pressure is being felt in national capitals across the bloc.

Economic and political fallout

The willingness of European governments to put at risk an industry as vital as the travel sector—which accounts for more than 12% of GDP in southern European countries—in order to curb the Delta variant is proof of their realization that they cannot afford a resurgence of the pandemic, either politically or economically.

“The sole obstacle remaining on the path to a very strong return to growth in 2021, and a return to total normality in 2022, is the risk of variants,” Bruno Le Maire, France’s economy minister, said on network CNews June 29 morning. “The Delta variant is the only real risk for growth.”

Le Maire predicted 5% growth this year in May, after a disastrous 8.2% drop in GDP in 2020, and said that while that was still expected, it depended heavily on millions of French people being vaccinated against COVID-19. In France, the statistics agency INSEE estimated that the strictest lockdown, imposed in spring 2020, cost the government about €1 billion a day.

Both French President Emmanuel Macron and Angela Merkel’s successor in Germany face national elections in the next year, and a resurgence of the pandemic, with new lockdowns, could well scuttle their chances at the polls.

“Ignoring the Delta variant would be a serious mistake,” warned Markus Söder, the state premier of Bavaria, on June 28. Söder said he expected the Delta variant to soon become dominant in Germany.

Low infection rates—for now

For now, infection rates in Europe remain low. While Berlin’s zero-case count on June 27 is partly a product of Germany’s weak weekend reporting, it is a symbolically powerful reflection of reality on the ground. The capital’s new-infection rate has continued to fall, and currently stands at a mere 5.9 cases per 100,000 inhabitants over the past seven days.

In Spain, which reported 10 deaths over the weekend, the rate is 51.5. But infection rates have been creeping up, and superspreader events like massive end-of-school parties in Mallorca, which resulted in over 1,100 infections and 5,000 people in quarantine across Spain, have struck fear into the governments—and stocks—of a continent only just recovering from almost 18 months of punishing antivirus measures.

At the end of June, Chancellor Angela Merkel used what was probably her final address to Germany’s parliament—she will step down at September’s federal election—to urge caution. Germany and the wider European Union are “skating on thin ice,” she warned, thanks to the Delta variant. “We must remain vigilant.”

With additional reporting from Bernhard Warner in Rome.