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

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

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

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

Greek Prime Minister Kyriakos Mitsotakis pitched the plan as a jobs creator and economic growth driver that will make Greece more sustainable, entrepreneurial and equitable.

But transformation doesn’t come cheap.

The government says a little less than half of the money to fund the economic transformation will come from banks and investors.  The rest – some 30.5 billion euros ($36bn), will come from the European Union’s 750-billion-euro ($886bn) Recovery and Resilience Facility (RRF), launched last year to fight the COVID-19 recession. The EU wants states to spend at least 37 percent of their share of funds on renewable energy projects and a fifth on bolstering digital services and research.

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

Altogether, total EU and Greek government investments in Greece over the next seven years could reach more than 113 billion euros ($133bn), equal to two-thirds of the country’s gross domestic product (GDP) last year.

“This is the largest inflow of funds that Greece has ever seen … it is more important even 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 contribute to raising the growth potential of the economy,” he tells Al Jazeera.

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

George Pagoulatos, the Hellenic Foundation for European and Foreign Policy

For example, one reform would digitise and speed up the creaking justice system. Another would streamline state services, so that one arm of government wouldn’t duplicate another. State records ranging from planning offices to social security would go digital.

Tax filings and collection would also move online to make sure businesses pay their fair share. Sales receipts from retail businesses would be automatically tallied into their tax declarations, while artificial intelligence would be harnessed to zero in on tax evaders.

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

“All these are reforms that were being flagged as necessary in most of the reports about Greek competitiveness and how it can improve,” says Pagoulatos. “Greece will be a different country in seven years’ time if all this is implemented, in terms of transition, of digital infrastructure, of business environment, of extroversion and attractiveness to global entrepreneurship, education and training structures.”

A distressed economy

Though impressive in its scope and ambition, Greece 2.0 has its sceptics.

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

“Seven percent of recovery in the next five years is totally insufficient,” says a senior financial executive who declined to be named. “What we need is liberalisation of small enterprises from endless bureaucracy and accumulated debt obligations during the COVID shutdown, so that they can jump-start, and lower taxes that incentivise investment.”

When he came to power two years ago, Mitsotakis promised to slash the corporate tax rate from 29 percent to 20 percent over two years – and he managed to lower it to 24 percent before the COVID-19 recession hit government revenues [File: Loulou D’Aki/Bloomberg]

Greeks currently owe banks 47 billion euros ($55bn) they cannot repay, according to the country’s finance minister. They owe a further 108 billion euros ($128bn) in unpaid taxes and 38 billion euros ($45bn) in social security arrears. Altogether, that amounts to 115 percent of GDP.

When he came to power two years ago, Mitsotakis promised to slash the corporate tax rate from 29 percent to 20 percent over two years. He managed to lower it to 24 percent before the COVID-19 recession hit government revenues.

Since then, the government has spent 40 billion euros ($47bn) to tide over distressed taxpayers and debtors, but the economy remains cash-poor. Although growth this year is forecast at 4.8 percent by the government, a point above the euro-area average, that will still leave it 6.2 percent smaller than it was in 2019.

A new beginning

Corporate lawyer Yanos Gramatidis agrees that small enterprises, which provide 90 percent of employment, won’t feel the benefits of Greece 2.0 for at least a couple of years. But the reset of the economy, he believes, will be profound after that, because Greece 2.0 is acting as a government-side accelerator to public-private investments.

For instance, it will now provide the state-owned railway network funds to match a 750-million-euro ($885m) private investment from Ferrovie dello Stato Italiane, the Italian rail operator that Gramatidis advises. “The entire national railway system will be electrified, and trains will be equipped with a Wi-Fi signal that will run through the rails,” he says. “The government is even interested in bringing hydrogen-powered trains.”

He says a new set of investment incentives is in the works, and a new law that will expedite public procurements making the playing field “more fair for developers”.

“This is the first time a government is looking at the Greek state as a private company,” Gramatidis says. “I have never seen managers of state-owned enterprises and ministers work so hard in a new way – modern, innovative.”

This is the first time a government is looking at the Greek state as a private company.

Yanos Gramatidis, corporate lawyer

The financial executive says recent experience suggests conventional growth will provide real relief this year. “The Greek economy grew at two to three percent a year by itself without any ’emergency packages’ in 2017-2019 due to tourism pick-up, which flows quickly to the granular level – not just large hotels, but also smaller Airbnb places, cafes et cetera – keeping the cheap youth easily and quickly employed,” he says.

After that, though, it will be the turn of the government’s master plan. If all goes well, it should clear EU approval by the end of July, and advance payments should come almost immediately.

A political boost?

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

Assuming he won on the promise of Greece 2.0, Mitsotakis would saddle the opposition Syriza party with a second defeat in as many years, buying time to make good on his pledge to create growth. He could help secure a third election victory in four years, when the effects of Greece 2.0 would be clear.

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

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