Greece 2.0 seeks to transform the economy. Does it go far enough? | Business and economic news

On the day that US President Joe Biden presented his $ 2.3 trillion infrastructure bill, Greece unveiled a vision for state-led economic regeneration that shares many of Biden’s priorities.

Greece 2.0 aims to mobilize 57 billion euros ($ 67 billion) over six years to rebuild network industries, reform public services, attract investment and boost exports.

Among other things, the omnibus plan would rethink the power grid to absorb renewable energy, install high-speed fiber optic and 5G wireless networks across the country, digitize government, hospitals and schools, modernize railways. and reforest 16,500 hectares (40,772 acres) of burnt land. to land.

Greek Prime Minister Kyriakos Mitsotakis presented the plan as a job creator and an engine of economic growth that will make Greece more sustainable, entrepreneurial and fairer.

But processing doesn’t come cheap.

The government says just under half of the money to fund economic transformation will come from banks and investors. The rest – some 30.5 billion euros ($ 36 billion), will come from the European Union’s 750 billion euros ($ 886 billion) Recovery and Resilience Mechanism (RRF), launched the European Union. last year to fight the COVID-19 recession. The EU wants states to devote at least 37% of their share of funds to renewable energy projects and a fifth to strengthening digital services and research.

Another boon from Brussels is expected by 2027, when Greece is expected to receive $ 25 billion in EU structural funds for things like infrastructure and R&D. Greece aims to match that with 26.7 billion euros ($ 31.5 billion) in public funds. And Brussels will give an additional 8 billion euros ($ 9 billion) directly to local and regional governments.

In total, the total investments of the EU and Greek governments in Greece over the next seven years could reach more than 113 billion euros ($ 133 billion), or two-thirds of the gross domestic product (GDP) of the country. country last year.

“This is the largest influx of funds Greece has ever seen … it is even more important than the Marshall Plan for Greece in [the postwar] period, ”says political economist George Pagoulatos, who heads the Hellenic Foundation for European and Foreign Policy, a think tank.

“The logic is to select projects that have a high multiplier effect and help increase the growth potential of the economy,” he told Al Jazeera.

It is even more important than the Marshall Plan for Greece.

George Pagoulatos, the Hellenic Foundation for European and Foreign Policy

For example, a reform would digitize and speed up the crumbling justice system. Another would rationalize state services, so that one arm of government would not duplicate itself. State registers, from planning offices to social security, would go digital.

Filing and tax collection would also be moved online to ensure businesses pay their fair share. Sales receipts from retail businesses would be automatically counted in their tax returns, while artificial intelligence would be exploited to focus on tax evaders.

The Prime Minister’s economic adviser, Alex Patelis, described it as “the biggest step we can take towards social justice”.

“All of these reforms have been pointed out as necessary in most of the reports on Greek competitiveness and how it can improve,” Pagoulatos says. “Greece will be a different country in seven years if all of this is implemented, in terms of transition, digital infrastructure, business environment, extraversion and attractiveness for global entrepreneurship structures, d ‘education and training.’

A struggling economy

Although impressive in scope and ambition, Greece 2.0 has its skeptics.

Some argue it doesn’t go far enough to ease the pain of last year’s 8.2% recession, or the eight-year recession that cost a quarter of GDP in the post-2008 global financial crisis.

“Seven percent of the recovery over the next five years is totally insufficient,” says a senior financial executive who declined to be appointed. “What we need is to liberalize small businesses from the endless bureaucracy and debt accumulated during the COVID shutdown, so they can start up and cut taxes that encourage investment.

When he took office two years ago, Mitsotakis promised to cut the corporate tax rate from 29% to 20% over two years – and he managed to reduce it to 24% before the recession in Canada. COVID-19 does not affect government revenue. [File: Loulou D’Aki/Bloomberg]

The Greeks currently owe banks 47 billion euros ($ 55 billion) which they cannot repay, according to the country’s finance minister. They still owe 108 billion euros ($ 128 billion) in unpaid taxes and 38 billion euros ($ 45 billion) in social security arrears. In total, this represents 115% of the GDP.

When he took office two years ago, Mitsotakis promised to reduce the corporate tax rate from 29% to 20% over two years. He managed to reduce it to 24% before the COVID-19 recession hit government revenues.

Since then, the government has spent 40 billion euros ($ 47 billion) to counter taxpayers and debtors in distress, but the economy remains cash poor. Although growth this year is estimated at 4.8% by the government, a point above the euro area average, that will still leave it 6.2% lower than it was in 2019.

A new start

Corporate lawyer Yanos Gramatidis agrees that small businesses, which provide 90% of employment, will not experience the benefits of Greece 2.0 for at least two years. But the reset of the economy, he believes, will be deep after that, as Greece 2.0 acts as an accelerator on the government side of public-private investment.

For example, it will now provide funds for the public rail network to match a private investment of 750 million euros ($ 885 million) from Ferrovie dello Stato Italiane, the Italian rail operator advised by Gramatidis. “The entire national rail system will be electrified and trains will be equipped with a Wi-Fi signal that will cross the tracks,” he said. “The government is even interested in bringing in hydrogen trains.”

According to him, a new set of investment incentives is in preparation and a new law that will speed up public procurement and make the playing field “fairer for developers”.

“This is the first time that a government has considered the Greek state as a private company,” says Gramatidis. “I have never seen SOE executives and ministers work so hard in a new way – modern, innovative.”

It is the first time that a government has considered the Greek state as a private company.

Yanos Gramatidis, corporate lawyer

According to the chief financial officer, recent experience suggests that conventional growth will bring real relief this year. “The Greek economy grew 2-3% per year on its own without any ’emergency package’ in 2017-2019 due to the recovery in tourism, which is rapidly moving to the granular level – not just large hotels , but also the small Airbnb hotels, cafes and so on – keeping the cheap young people easily and quickly employed, ”he says.

After that, it will be the government’s master plan. If all goes well, it is expected to get EU approval by the end of July, and advance payments are expected to come in almost immediately.

A political boost?

Speculation abounds that Mitsotakis will seek an election in September, midway through his first term. The logic is simple. Mitsotakis seized power by promising prosperity. Instead, he put out fires. In February last year, he faced a border challenge as Turkey encouraged refugees to crush the EU’s door. At the same time, the coronavirus has struck. Greece has been forced to focus on national security and diplomacy ever since, as Turkey has challenged its claim for a continental shelf in the eastern Mediterranean.

Assuming he won on the Greece 2.0 promise, Mitsotakis would whistle the opposition Syriza party with a second loss in as many years, gaining time to keep his promise to create growth. It could help secure a third electoral victory in four years, when the effects of Greece 2.0 are evident.

Mitsotakis made no secret of his ambition to be an important statesman. In Greece 2.0, he has a six-year plan. The circumstances suggest that he will use it to its full political effect.

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