In the shade of the Parthenon, on the eve of tourist season, there is an atmosphere of mixed feelings. The pandemic has not hit Greece with the intensity witnessed in other countries, and the management from the authorities has been positive, with numbers of cases and deceased among the lowest on in the EU: to the present day, Greece is reporting less than 11.500 Covid-19 related deaths, one of the lowest mortalities in the Union, and also considering overall cases, just above 360.000, Athens is performing among the best in the continent. This is largely due to a good management of the first wave, when restrictions have been promptly put in place to avoid overburdening the health system, weakened by a decade of recession and limited growth. A limited number of infections in the first wave allowed Greece to welcome tourists in summer, a key sector for the Hellenic economy, at least until the second wave in autumn.
Tourism and shipping industry under attack
However, if Athens has performed well in health terms, Covid-19 has severely impacted an economy that had just returned on the path of growth. In 2020, Greek real GDP has contracted by 8,2%, a recession second only to the -10,1 reported in 2011. Hellenic public finances have also taken a heavy toll form this crisis: last year public deficit has reached 9,7% of GDP, pushing the gross public debt up to 205,6% of GDP in 2020. The collapse of Greek GDP has not, however, translated into an exponential increase of the unemployment rate. Overall employment, still far behind pre-crisis level, has not decreased suddenly also thanks to a temporary freeze of layoffs, which has limited the decline of employment to -2,25%. In 2020, the yearly unemployment rate reached 19,8%, a much lower figure than the peak of 31,4% recorded in 2013. Going beyond the mere unemployment rate, however, the increase in the inactive population and the high female and youth unemployment depict a grim scenario, significantly worse than the EU average.
The worst effect of the pandemic in Greece has been the sudden stop to growth, a growth that had been reached through sacrifices and reforms and that, before the virus, seemed to have become steady. Covid-19 has severely hit various key sectors of the Hellenic economy, including tourism and the shipping industry. Greek naval industry, by far the largest in the EU, with 54,28% of all vessels above 1000 tons, has traditionally represented a cornerstone of Athens’ economy since the ancient times, and the slowdown of international trade induced by the pandemic has massively weighted on shipping activities.
Greece 2.0: priorities and strategies of the Recovery Plan
To include vitality into an economy that has experienced subsequent crisis for more than a decade, Athes is relying on Greece 2.0, the Greek national recovery and resilience plan, formally submitted to the EU Commission on April 27th. Greece could count on 18,2 billion euros in grants and up to 12 billion in low interest loans.
The ambitious and far-reaching Greek plan goes well beyond economic recovery and prospects a transformation of the Hellenic economy based on environmental sustainability and digital development. Among the priorities in fact, prominent are the green transition, which alone would absorb 38% of grants, and the digitalisation of the country (20%), both in terms of infrastructures and human capital, plus a large package of economic reforms to modernise industries (26,5%). The plan is structured on four pillars: green transition, digital transition, economic reforms, and human capital and social cohesion.
- Green Transition (6 billion euros). This programme features investment in green energy production and the modernisation of the infrastructure (to date unable to manage intermittent sources like solar or wind energy). For a total of 1,2 billion euros. Greece has, in fact, a large green potential, both in photovoltaic and wind energy, especially offshore. Almost half of the funds for the first pillar (2,5 billion) would go towards the energy efficiency of buildings, public and private, to reduce consumption and emissions. Sustainable mobility and transports could rely on 520 million euros, while the fight against climate change, biodiversity protection, and sustainable resources would receive 1,76 billion euros.
- Digital Transition (2,1 billion euros). Although digital transformation seems to absorb only a limited share of the 18 billion in grants form NGEU, in reality also within the other three pillars are contained measures in this direction. The largest share (1,3 billion) within the second pillar would finance the digitalisation of the public administration, a crucial element to increase its effectiveness and to make it easier for citizens and firms to interact with it. The rest of the resources would be destined to the digital infrastructures (453 million), with the extension of optic fibre cables to the islands, and to support the digitalisation of firms (375 million).
- Human capital and social cohesion (5,2 billion euros). To overcome some long-standing weaknesses of Greek economy, including low productivity, the Greek plan features massive investments in education and the development of digital skills, in schools, vocation training and re-training (2,3 billion). Also, the heath sector, hit by Covid-19 previous crises, has great importance in the plan, with 1,53 billion euros. Finally, social cohesion measures would allocate 760 million to facilitate the entry in the labour market, and 601 to inclusion.
- Economic reforms and investments (4,8 billion euros). Even though with apparently less resources than the other three pillars, economic reforms and investments are crucial to the success of Athens’ plan. The largest share (3,5 billion) would be destined to the modernisation of industries and infrastructures, including the E65 Corridor (linking Sweden with the Easter Mediterranean) and the highway along the northern coast of Crete. Other provisions in this pillar encompass the promotion of research and innovation (444 million), firms’ competitiveness and foreign trade (234 million).
Structural reforms and the role of multilateral institutions
The expenditures outlined in the plan would be accompanied by structural reforms, partly the prosecution of those initiated with the assistance programmes of the IMF and the EU, which aim to overcome several issues in the Hellenic economy, such as the high level of tax evasion, the sluggishness of judicial procedures, and the backwardness of the public administration. The goal is to make Greece attractive for private and foreign investors, thanks to an effective tax administration that would be digital and close to firms. The 12 billion euros in low interest loans provided by NGEU would in fact be available exclusively for private projects (covering up to half of the total investment cost) and would be distributed through international financial institutions.
The implementation of the Greek Recovery Plan would, in fact, witness the involvement of the European Investment Bank (EIB), in an unprecedented agreement between the institution and a Member State. The BEI would manage 5 billion euros of the Greek package, focusing on high impact projects that would channel available resources into high potential investments. Other than providing economic and financial expertise and evaluating several investment projects, the BEI could also offer additional financing, always according to the priorities of Greece 2.0.
The Greek plan, elaborated with the help of the Nobel Prize for Economics Cristopher Pissarides, has been welcomed very positively by the EU Commission, which has also received a detailed description of all the projects that would be financed. Athens has thus demonstrated, after years of financial assistance, a remarkable capacity to draft clear plans, complete, and coherent with the EU objectives.
Perspectives for growth and sustainable development
In 2021, Greek GDP would grow by 3,5% according to April latest forecasts by the EU Commission, while Greece 2.0 would contribute to the creation of up to 200.000 jobs. Notwithstanding the difficult first quarter, marked by the third pandemic wave, the gradual exit from the lockdown and the reopening of different economic activities, a rebound in the second quarter is expected. There are great expectations for the tourist season, which would depend on the Covid-19 vaccination rate.
To date, 22,9% of Greeks have received at least one dose, with 11,2% of total population being fully vaccinated. If the numbers of administered jabs are comparable with most European countries, what would make the difference in the Greek government strategy is the geographical distribution of the vaccines. After the most vulnerable people, in fact, priority has been given to the islands, with the aim of guaranteeing a “Covid-free” summer to the most popular tourist destinations, an essential element for the return of foreign tourists. The recovery of the tourist sector is a key part of the Greek return to economic growth. The last summer, with reduced arrivals form abroad, has also represented an occasion to imagine a less intrusive tourism, more respectful of the environment. An example is constituted by Clean Blue Paros, part of the Common Seas initiative, which aims at making the popular Aegean island the first single-use plastic waste-free one in the Mediterranean.
Islands are also at the core of the Greek energy renewal programme, with the goal of phasing out fossil fuels generators and develop clean energies, improving the existing submarine infrastructure. A remarkable model for the future of Greece can be seen in the island of Tilos, where the installation of a hybrid plant for wind and solar energy has allowed the island to become almost energetically self-sufficient with a low carbon footprint. The Greek sustainable energy strategy is therefore twofold: smaller and remote islands would have autonomous (off the grid) systems, coupled by storage unites to retain the energy not used immediately. Larger islands and the mainland instead would receive an upgrade of the existing infrastructure and the building of new energy capacity thanks to renewable sources.
The integration of renewables requires an overhaul of the Greek energy grid, to overcome the still significant use of fossil fuels. Athens in fact remains determined to phase out coal as an energy source (20% of the energy produced in 2019) by 2028 and to create 8,7 GW of additional renewable energy by 2030. In this endeavour, Greece would be assisted by the European Bank for Reconstruction and Development (EBRD), which would support Greek administrations and energy firms in the three components of this transition: 1) the building of large volumes of low-carbon energy capacity, 2) the upgrade of the infrastructure to support intermittent sources such as renewables, and 3) the oversight of socio-economic changes induced by the shutdown of large fossil fuels plants, to guarantee an inclusive transition.
Renewable sources outlined in the plan are primarily solar, wind and hydro. However, in its National Climate and Energy Plan, Athens considers also the use of green hydrogen as a long-term solution. According to an analysis of Fuel Cells and Hydrogen Joint Undertaking (FCH JU), the Greek potential for green hydrogen is high, even larger than the objectives presented in the national strategy, with applications mainly in industry and transports.
The Bank of Greece forecasts that the Hellenic recovery plan, centred on green transition and digitalisation, would contribute to a 7% rise of GDP by 2026 and would increase private investments by 20%, plus producing positive long-term effects thanks to economic reforms and the growth of productivity.
The goals of the Greek plan are undoubtedly bold, but if the quality of its implementation would be the same of its drafting, Athens would indeed return on a path of growth, and leave behind the most dramatic decade of its economic history.