May 4, 2021


GREECE: Seeking a return to normality

BY Wolfango Piccoli

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  • Greece opened its food service sector on 3 May and is gearing up to officially welcome tourists to the country from 14 May.
  • Having submitted its Recovery and Resilience Facility (RRF) plan to Brussels, the government is now turning to the challenges of implementation.
  • To execute the RRF plan by 2026, Greece has to absorb double its usual annual rate of EUR 5bn in EU funds, and simultaneously increase private investments by 30%.

Given that the retail sector reopened last month, the gradual paring back of restrictions is being presented by the ruling center-right party, New Democracy (ND), as evidence that Greece has got over the worst of the pandemic even though Covid-19 numbers remain higher than when the lockdown began last November. The catering sector, a key employer in Greece, has been offered a EUR 300mn support scheme to help it reopen and Prime Minister Kyriakos Mitsotakis has said he expects it to bounce back, along with other sectors, over the months to come.

PM eyes return to normality and his original program

Shortly before this week’s reopening, and the Orthodox Easter celebration, Mitsotakis announced a collection of tax breaks for businesses and individuals, which he argued would boost the recovery. The interventions are a mixture of the extension of some tax relief measures along with some permanent cuts. For instance, this year’s corporate profits will be taxed at 22%, from 24%, while the temporary measure of reducing social insurance contributions by three percentage points is being extended into 2022 as well. The cost of the measures to this year’s budget is estimated at EUR 2.5bn.

The announcement of these measures is also an opportunity for ND to return to its original policy program, which was based around tax cuts and business-friendly reforms. Much of this has been put on the backburner because of Covid-19. The tax breaks could be seen as an attempt by Mitsotakis to re-connect with the middle voters that powered his center-right party to a landslide victory over left-wing SYRIZA in the 2019 general elections.

RFF plan submitted, delivery the next challenge

The government is also placing great emphasis on Greece’s national Recovery and Resilience Facility (RRF) plan, dubbed Greece 2.0 and submitted to Brussels last week, as a vital cog in the country’s recovery, but also its effort to transform itself. The plan consists of 106 investments and 67 reforms and runs to more than 4,000 pages. It is expected to inject up to EUR 30.5bn into the Greek economy by 2026, through roughly EUR 18bn of grants and EUR 12.7bn of loans. The government is hoping to almost double this to around EUR 60bn with the addition of private investment. Green Transition projects head the list for funding, accounting for almost EUR 6.2bn.

Athens has acknowledged that the absorption of these funds is going to be one of Greece’s biggest tasks going forward. It means doubling the annual amount of EUR 5bn EU funds that the country normally absorbs, but also overseeing a significant increase in private investment. This is seen as a major challenge for Greece’s business community, not just the public administration. The government recently created a special task force to coordinate the implementation of the national RRF. The unit will have a staff of 40, including 20 civil servants and several consultants from the private sector. Twelve appointments have already been made from the public sector.

De-risking continues

Having been dogged by months of crisis management due to the pandemic and criticism about the way they handled the pandemic since last summer, the Greek authorities welcomed some positive developments on the economic front over the last few weeks. This was topped by S&P’s sovereign risk rating upgrade to a ‘BB’ rating with a positive outlook. Greece’s rating with S&P and Fitch is now just two notches away from investment grade, a goal that the current administration had set its sights on since it took office two years ago. Moody’s rating is one notch behind.

The government is hoping that this positive sentiment will be further buoyed by the influx of EU resources between now and end-2026. The European funds seen having a huge impact on the Greek economy through the EUR 40bn multiannual financial framework and another EUR 30bn from the RRF, a combined 40% of Greece’s 2019 GDP.

A limited rebound in 2021, high hopes for 2022

Greece’s latest official growth forecasts were set out in the Stability Program for 2022-2024, which the Finance Ministry submitted to Brussels last week. Athens had to tone down its budget estimates for this year, so growth is now seen at 3.6%. This is because the pandemic is still holding back the economy and limited RRF funds – EUR 4bn – are now expected to reach Greece in 2021, starting from late this summer. The full force of Greece 2.0 is expected next year, when investments will shoot up by around 30%, pushing GDP growth to more than 6% in 2022 and above 4% in the two following years.

The Greek authorities are also drawing confidence from Piraeus Bank’s successful share capital raise. The process is central to the bank’s plans to clean its balance sheet of bad loans through an extensive securitization program called Sunrise. It will leverage guarantees from Hercules II APS to bring the non-performing exposure (NPE) ratio down to single digits. The capital raise also intended to reduce the participation of the Greek state in the bank’s share capital structure. The Hellenic Financial Stability Fund became a major shareholder in Piraeus following the non-payment of the CoCos dividend at the end of last year due to Covid-related restrictions imposed by the European Central Bank (ECB).

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