March 9, 2021

Europe

GREECE: Targeting gradual opening of the economy as of late March

BY Wolfango Piccoli

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( 5 mins)
  • Despite intense pressure on the public health system due to Covid-19, the government is planning for a re-opening of the local economy in the coming weeks.
  • Athens will increase the economic relief package for 2021 to 6.5 % of GDP, which is more than EUR 11bn, from the EUR 7.5bn it had planned earlier.
  • A new legislative push is expected between now and June, which among others will include a labor reform bill.

The authorities set out this week a broad timeline for the resumption of economic and social activity over the coming weeks as the ruling New Democracy (ND) party tries to focus on potentially brighter days ahead compared to the current problems caused by the coronavirus. Currently, stores, schools, bars and restaurants are closed to customers. But, according to the government’s plan, the retail sector will reopen by the end of March, secondary education and outdoor dining in April, and tourism by mid-May.

In the meantime, though, hospitals are being stretched by the high number of Covid-19 patients needing treatment. Almost 500 patients were intubated as of 8 March, leading to most hospitals in Athens running out of ICU beds for those infected with the virus and obliging the government to look to state hospitals outside the capital and private hospitals for assistance.

There is more welcome news on the vaccination front as the level of coverage in Greece is ahead of the EU average. As of 8 March, more than 1.1 million doses had been administered, and around 750,000 individuals had received at least one dose. This amounts to almost 7.2% of the population, while the equivalent EU average is around 6.5%.

According to health officials, Greece is on track to vaccinate by early May all citizens over 60 who decide to take up the jab. This is seen as a significant help in plans to start welcoming tourists to the country from May. Greece has been at the forefront of calling for simpler travel arrangements this summer for Europeans who have received the vaccine, using a digital certificate to prove they are protected. Athens believes that this provides a better chance of recovery this year to the tourism sector, which is vital to the Greek economy and which saw arrivals drop by 76.5% in 2020, from 31.3 million visitors in 2019.

Prime Minister Kyriakos Mitsotakis says Greece’s aim is to bring in this year 50% of the revenue of 2019, when it reached more than EUR 18bn. Greece has already reached an agreement with Israel to facilitate travel for visitors who have been vaccinated and Athens is also in talks with the UK government about a similar arrangement. An improved tourism season will be a key component for any economic recovery this year.

In the last quarter of 2020, real GDP dropped by 7.9% year-on-year. However, it grew by 2.7% on a quarterly basis, leading to an overall contraction of 8.2% last year. This is well below the contraction of around 10% that the finance ministry and the European Commission (EC) had estimated. In nominal terms, 2020 GDP shrunk by 9.6%. The 5.2% drop in household consumption was partially offset by a 2.7% rise in government spending through relief measures. Exports of goods and services collapsed by 21.7%, capturing the tourism sector’s troubles. Investments increased by 4.9% as firms built up inventories.

The other bonus of the smaller GDP shrinkage is that it will reduce the carry-over effects into 2021. However, this has to be offset against the fact that Greece has spent the first quarter of this year in lockdown, a development that was not anticipated when the forecasts for 2021 were compiled.
Even if the retail sector opens up for the last week of March, the first quarter could see a double-digit GDP drop on an annual basis. Reaching the goal of 4.8% growth this year will be a major challenge that would require the economy to grow by more than 10% in the last three quarters of the year.

The economic setbacks on the fiscal front were formally reflected for the first time in the latest post-program report released by the EC and since then confirmed by the Finance Ministry. As a result, the government is increasing the economic relief package for 2021 to 6.5% of GDP, which is more than EUR 11bn, from the EUR 7.5bn it had planned initially. The Greek authorities will take some comfort from the signals coming out of Brussels that fiscal policy will continue to be accommodative even next year.

Understandably, trying to mitigate the economic impact of the prolonged coronavirus crisis has taken up much of the government’s capacity. But Mitsotakis has been keen to emphasize recently that ND wants to push on with its planned reforms with a new legislative drive between now and June. A labor reform bill is the standout piece of draft legislation being prepared by the government. Some of its provisions are expected to trigger a vocal reaction from opposition parties and unions. They include for example the introduction of electronic ballots for industrial action, the loosening of Sunday trading rules, and changes to mediation procedures, collective bargaining, and firing procedures.

The ruling center-right party continues to govern from a position of strength. Apart from still commanding an eight-seat majority in Parliament, it still holds a double-digit lead in most opinion polls despite suffering some wear and tear as Covid-19 has tested the country and caused some missteps from ministers. A GPO poll published over the weekend in Ta Nea newspaper had ND leading SYRIZA 36.4% to 22.7% – a gap of 13.7 points.

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