The European Commission praised the Greek government in the context of the 10th assessment after the memorandum for the measures to combat the coronavirus and for the continuation of reforms, and offered to allocate an additional 748 million euros for debt reduction, but at the same time pointed out the problems that threaten the future of the economy.
In its report on the correction of macroeconomic imbalances in the country, accompanying the assessment after the memorandum (similar assessments exist for all countries), the commission noted – in addition to high public debt, problem loans and high unemployment rates – three main problems hindering the country’s development prospects: population aging, the outflow of specialists (brain drain) and the depreciation of fixed assets after many years of continuous significant investment deficits. The report says that in 2019 alone, the investment deficit was 21.7 billion euros.
“The Greek authorities have continued their reform agenda despite the challenging conditions posed by COVID-19, but the accumulated imbalances will require further efforts in the coming years,” the commission said. The report mentions issues that have not been addressed, such as investment difficulties, including due to lack of communication between government agencies, emphasizes that the fast track strategy has not yielded the expected results, and that a new strategy for trade facilitation and foreign direct investment has not yet been achieved. adopted, and his draft shows a lack of strategic vision for developing high-performing sectors and creating incentives for business growth, innovation and extroversion.
At the same time, the report says that the potential growth rate of Greece is not high. Worse, the commission predicts a slowdown in growth after an anticipated rebound in 2022 (6%) to 2.4% in 2023 and 1.7% in 2024. The average growth rate will be 2% by 2029, and then will decline to 1.5%. This percentage is close to the IMF’s forecast of 1.4% in the long term. In turn, low growth rates negatively affect public debt and the ability to service it. The Commission’s baseline debt sustainability analysis predicts a primary surplus of 2.2% by 2060 just to service and sustain debt.
However, these primary surplus figures are simply commission forecasts, not proposals or agreements with the government, as was the case after the memorandum target of 3.5% of GDP by 2022.
Finance staff are looking forward to negotiating a new stability pact, which is expected to begin in the second half of this year but will not close until the situation clears up in Germany’s political landscape following the country’s elections in September.
Of course, they point out that the post-memorandum of understanding on a primary surplus of 3.5% of GDP by 2022 is already outdated, but it is unclear what rules will apply in the future. The intervention of former German Finance Minister Wolfgang Schible on the risk of a debt pandemic was a sign of the intensity of the upcoming negotiations, although analysts noted that Mr. Schible is now a thing of the past and will not set the agenda for Europe.
Concerns about rising prices
In addition to the three “old” problems, demographic, brain drain and investment gap left by the memorandums, two more were added that, according to employees, must be addressed soon: rising prices and a shortage of skilled labor.
The increase in world prices, which was also observed on the Greek market for food and not only, is considered as a possible market problem. Nevertheless, the financial staff never ceases to worry as they examine its size to decide whether and what kind of interventions will be needed.
Staff shortages have recently been identified in the catering industry with the opening of restaurants, but it doesn’t stop there. On a more serious scale, they extend to the specialized personnel that high-tech companies require.
Hope for solving old and new problems, at least some of them, rests on the investments of the Recovery Fund. The Commission, in its report, describes the national recovery plan as an ambitious step and highlights, among other things, the need to use it to harmonize education and training with the needs of the Greek market.
According to a table published by the Greek Stability Program Commission, the resource flow of the Recovery Fund is projected as follows:
1. Grants will provide amounts equal to 2.2% of GDP this year, 1.5% of GDP in 2022, 1.4% of GDP in 2023 and 1.3% of GDP in 2024, 2025 and 2026.
2. The fund’s loans will provide 1.4% of GDP in 2021 and 2022, 1.1% of GDP in 2023 and 2024, 1% of GDP in 2025 and 0.5% of GDP in 2026.