Athens The corona crisis should give Greece the strongest investment and innovation surge in many decades. The country expects a total of around 32 billion euros over the next six years from the construction fund with which the European Union wants to cushion the economic consequences of the pandemic. Most of the money will flow into “green” projects and into the digitization of the economy and administration. The government speaks of a “unique historical opportunity” for the country.
The “Next Generation EU” development plan, which the heads of state and government agreed on after tough negotiations in July, comprises 750 billion euros. Of this, 390 billion will be paid out as grants and 360 billion as low-interest loans.
Hungary and Poland are blocking the EU budget and thus also the Corona billions in aid because of the dispute over violations of the rule of law. In Greek government circles, however, it is expected that the conflict can be resolved in the next few weeks and that the first funds will be made available next summer.
Greece is to receive grants of 19.4 billion and cheap loans of 12.7 billion euros from the program until 2026. The total of 32.1 billion corresponds to 17 percent of last year’s gross domestic product (GDP).
This means that the country receives more aid than any other EU country in relation to its economic output. “It’s a lot of money,” says Deputy Finance Minister Theodoros Skylakakis. “We want to promote investment and at the same time implement reforms.” The amounts available are “so large that, if used correctly, they can change the course of our country,” said Skylakakis when presenting the program.
In the past decade, Greece experienced the longest and deepest economic slump in post-war history as a result of the debt crisis and strict austerity requirements. The country lost a quarter of its economic power, incomes fell by an average of 30 percent, and household wealth even shrank by 40 percent. Only in 2017 did Greece leave the eight-year recession behind. Now the corona pandemic is causing the economy to collapse again. For 2020, the government expects GDP to decline by 10.5 percent.
But thanks to the billions from the EU’s recovery plan, the pandemic could give the country a significant boost in growth and modernization in the coming years. Around 6.2 billion euros are to flow into “green” projects such as the promotion of renewable energies, the connection of the islands to the electricity network of mainland Greece, energy-saving measures for buildings and the development of a charging infrastructure for electric vehicles.
A second pillar of the program is digital transformation: 2.1 billion euros are earmarked for the expansion of the fiber optic network, the transition to 5G technology and the digitization of public administration.
Loans should primarily go to companies
The government wants to promote digitization in the private sector with tax incentives. The third pillar is labor market reforms such as measures for vocational and further training, employment incentives and the fight against discrimination. The government plans to spend 4.1 billion euros on this.
The fourth priority of the program, which accounts for around four billion euros, is measures to strengthen the competitiveness of the Greek economy. These include tax reform, the modernization of public administration, the fight against corruption and money laundering, judicial reform to accelerate court proceedings and the promotion of research projects as well as closer links between universities and business.
The government intends to pass on the loans from the EU development program primarily to companies in order to promote sustainable private investments. So far, this has been a major weakness in the Greek economy: gross fixed capital formation only made up 10.1 percent of GDP in 2019. In the EU average, the investment rate was more than twice as high at 22.2 percent.
The Greek government submitted the draft of its plan to the EU Commission in mid-November and is now awaiting their comments. A final version should then follow in March 2021. Approval from the Commission is expected in Athens at the end of spring and the first payments in June or July 2021.
More: The debt pandemic: How Corona is ruining public finances.