Niamh Callinan | Europe and Eurasia Fellow
Greece has suffered significant and ongoing financial stress over the past decade. Despite this, Greece has shown its resilience announcing, in April 2021, “Greece 2.0 – the Greek Economic Recovery Plan”. The primary goal of Greece 2.0 is ‘to fill the large gap in investment, national product and employment’, a gap which appeared during Greece’s economic collapse and worsened during the pandemic. The plan is ambitious, however, and should see the economy recover quickly and be set up in the longer-term to service the debt accrued during the economy’s decline between 2008 and 2017; approximately €289 billion from three separate financial rescue packages.
Prior to the 2007-8 GFC, the Greek economy was already facing substantial economic instability and increasing debt. In 2001, Greece entered the Eurozone by concealing part of the state’s debt through ‘complex credit-swap transactions’ with the US investment bank Goldman Sachs. In 2004, Greece saw a rise in its deficit, a consequence of hosting the Olympics—the total cost of the Olympics (€9 billion) caused a rise of the state’s deficit. The compound of these events and Greece’s growing debt meant that by 2007, as borrowing costs rose and financing declined, the Greek government was faced with an inability to service its insurmountable debt and the Global Financial Crisis was the catalyst for the economy’s collapse.
In 2017, Greece started to see positive GDP growth (1.5 per cent) which continued upwards in 2018 and 2019. However, the economic recovery hit a significant setback during the COVID-19 pandemic, recording a GDP of €168 billion in 2020 as compared to the 2019 GDP of €183.6 billion. This was a result of the country’s heavy reliance on the travel and tourism sector, which made up approximately 20 per cent of Greece’s GDP in 2019.
In recognition of the economy’s heavy reliance on this sector and the requirement to service its debt, Greece 2.0 design “essentially changes the model of the Greek economy, making it competitive and outward-looking” according to Prime Minister Mitsotakis. The program aims to leverage €57 billion over six years—€31 billion received from the EU Recovery and Resilience Fund and the remaining amount sourced from banks and investors.
The Greek Economic Recovery Plan comprises of four main aspects. The first pillar, a Green Transition, includes investment a new National Reforestation Plan and the interconnection of the Greek Islands to reduce energy costs. The second pillar, Digital Transformation, consists of investment in the development of 5G network corridors and the digitalization of key files in various sectors (health, justice, immigration). Social Cohesion and Employment, the third pillar, addresses concerns around employment, education, digital skills and access to digital tools. The final pillar, Private Investment and Economic Reform is designed to produce strong incentives for private investment. The Plan also has a target of ‘increasing Greek GDP by 7 per cent and creating 180,000 jobs by 2026’.
The projects incorporated in Greece 2.0 (172 in total) are depicted to be ‘a bridge to the post-COVID-19 era’. The economic plan utilises positive investment in green projects, digital infrastructure and social development to address the impact of the COVID-19 pandemic and the requirement to run an ongoing budget surplus until at least 2060 to repay its debt of €290 billion.
The timeframe of Greece 2.0 is quite idealistic: it is implied that all 172 identified projects will be completed by 2026. Realistically each project requires discussion, design, implementation, and evaluation—all of which require resources and time. There is also the consideration as to which companies will take on individual projects—whether they will be local or international corporations—and if the execution of these projects will be timely. Further to this, the economic plan does not account for externalities that could further impede the economic growth. The recent wildfires that ravaged the Greek Islands is an example of this. A €500 million relief package was recently announced, which, if it becomes more than a one-off package, could become a hinderance to the investments of Greece 2.0 as state expenditure is redirected in the form of relief packages.
There are also some who have identified that a GDP of 7 per cent over six years is insufficient to alleviating the eight-year recession. However, The Bank of Greece’s monetary policy report (2020-21), depicts that the Greece 2.0 ‘blueprint can add 6.9 percent to GDP per the baseline scenario and 8.5 percent per the optimistic version.’ This will enable the Greek Government to pay back its loans at a high rate ensuring a faster depreciation of its debt-to-GDP ratio, mitigating the impact of high interest rates attached to the loans.
Fundamentally, Greece 2.0 is a well-designed plan which should provide sustainable improvement of the economy over a long-term period. The move away from solely economic measures towards the inclusion and investment in environment, digital and social sectors alongside economic reform solidifies the ability for a faster economic recovery by stimulating growth in these areas. Greece 2.0, if implemented thoroughly, could see the country’s economy finally achieve sustainable GDP increases after more than a decade of stagnation.
Niamh Callinan is the Europe and Eurasia Fellow for Young Australians in International Affairs.