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December 8, 2020

Europe

GREECE: Struggling with the pandemic; betting on the EU recovery fund

BY Wolfango Piccoli

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( 5 mins)
  • The government has labored with the second Covid-19 wave after being praised for its sure-footed approach earlier in the pandemic crisis.
  • Nevertheless, this has not yet had a significant impact on New Democracy’s opinion poll ratings.
  • Athens submitted its Recovery Fund proposals to the EC. Green transition, digital transition, employment and skills, and private investments and economic transformation are the priorities.

The Greek government has been forced to extend the national lockdown, imposed in early November, as the number of Covid-19 deaths remains high and the public health system continues to be under great pressure. Greece has around 650 beds in coronavirus-dedicated ICU units across the country and for most days over the last couple of weeks, more than 600 of these have been taken up. More than 2,000 Greeks died in November after contracting the virus, meaning that over half of the total Covid-19 deaths so far this year occurred last month.

Given that the lockdown has only had a limited effect in bringing Covid-19 numbers down, authorities announced on 7 December that schools, the food service sector and courts would remain closed for another month. Movement between the country’s 13 administrative regions has also been banned until 7 January. If the situation permits, the government is expected to allow some retail stores to open before Christmas, along with hairdressers and beauty salons.

Economy

The economic impact of the second lockdown was incorporated into the final budget tabled at the end of November and is reflected in all key components. The economy is now expected to shrink by 10.5% this year, from 8.2% previously. The Finance Ministry expects it to grow by 4.8% in 2021, compared to the 7.5% assumed in the draft budget. Leaving aside the optimistic recovery scenario outlined by the authorities, any bounce back in 2021 will largely depend on the trajectory of the pandemic and the tourism season.

Greece is seen running a primary deficit of 7.2% of GDP in 2020 and a 3.9% of GDP primary deficit in 2021. Debt will reach EUR 340bn this year at a 209% debt-to-GDP ratio, before falling to just short of 200% in 2021.

The impact of the pandemic was also visible in the Q3 GDP data, published on 4 December. The economy contracted by 11.7% year-on-year, but grew by 2.3% quarter-on-quarter. This means that in the first nine months of 2020, GDP has dropped by 8.5%, which suggests that even with the impact of the lockdown in the last quarter, contraction this year will be broadly in line with the Finance Ministry’s latest forecast.

EU Recovery Fund

Athens is hoping that the money from the EU Recovery and Resilience Facility (RRF)will play a significant role in healing the economic wounds quickly in 2021. Greece is entitled to EUR 19.4bn in grants and EUR 12.6bn in loans. The authorities presented on 25 November their proposals for the use of these funds.

The proposals’ main objective is to adopt transformative policies and projects in line with the EU’s goals for an accelerated climate and digital transition. As such, the Greek National Recovery Plan (GNRP) is based on four pillars: Green transition; digital transition; employment and skills; and private investments and economic transformation. The largest allocation – of EUR 6.2bn or 38% of the grants – is dedicated to the green transition. This is followed by EUR 4.1bn for employment, EUR 4bn for private investment and EUR 2.1bn for the digital transition.

The authorities are planning to use the EUR 12.6bn to help finance private investments on a 50-50 share between state and private resources, either through own funds or bank lending. In the 2021 budget, Athens estimates that EUR 5.5bn from the RRF – EUR 4.2bn in grants and EUR 1.3bn in loans – would be deployed in 2021.

Looking beyond the proposal, making the most of the opportunities offered by the facility will hinge on the efficient absorption of funds and on speedy implementation to satisfy the bi-annual reviews attached to disbursements. This could turn out to be a significant challenge.

Vaccine

On the public health front, the government is pinning its hopes on the imminent arrival of the Covid-19 vaccine to make the situation more manageable. Health Minister Vassilis Kikilias has said that the vaccination process will begin within 24 hours of the European Medicines Agency approving the jab.

Greece plans to offer free vaccines, from the stocks acquired by the EU, to all citizens on a voluntary basis. According to the preliminary plan presented by Kikilias, 2.11 million citizens will be vaccinated each month at 1,018 centers nationwide that will be working two daily shifts for six days a week. The vaccinations will take place by appointment, which can be booked by SMS, online or by phone.

Priority will be given to health workers, followed by vulnerable groups, before the vaccines are made available to the general public. Opinion polls indicate that between half and two-thirds of Greeks are intending to get the jab, with the rate rising among older citizens.

In political terms, the vaccine might also provide some relief for the government as its handling of the Covid-19 second wave has drawn some heavy criticism, particularly with respect to the opening of the tourism sector over the summer and the health system’s level of preparedness.

According to a survey by local polling firm Kapa Research, 49% of respondents had a negative view of the government’s approach to Covid-19 in November compared to 22% in April. While this has contributed to a slight erosion of New Democracy’s vast lead over SYRIZA, the ruling party is still in a dominant position. According to Kapa Research, the gap between the two leading parties has shrunk by almost 3 points since June but support for ND still reached 37.4% last month, while SYRIZA languished at 23.4%.