The forecasts of the government’s Medium-Term Fiscal Structural Plan for 2025-2028, which was released in October, confirmed the concerns of many analysts about the future of the Greek economy. According to the estimates of the Ministry of Finance, which was responsible for preparing the plan, the annual growth rate in the five-year period 2029-2034 will range from 0.2-0.4%, a performance showing stagnation and deviation from the European norm.
Behind the return to low performance lies the exhaustion of the EU Recovery and Resilience Facility’s (RRF) momentum, which expires in 2026. The choice of European leaders to establish the Facility in the midst of the Covid-19 pandemic had two objectives: One was acknowledged – the coronavirus threatened to consolidate the economic deficit of countries like Italy, which put the cohesion of the EU at risk. The second was unacknowledged: the euro crisis in the first half of the 2010s had left a bitter taste in the mouths of the European leaders who managed it, and now they “seized” the opportunity to “compensate” Greece and other countries of the South. This is why the main beneficiaries of the funds are, in absolute terms, Italy (194 billion euros in the decade 2021-30) and then Spain, while in relation to the size of the national economy, it is Greece (the amount that is due to us over a decade corresponds to approximately 15% of the GDP of 2025).
The logic of the RRF is not hand out subsidies: the huge resources made available to national governments, together with those of the National Strategic Reference Framework (NSRF) and other European programs, aim to upgrade the productivity of economies that had lagged behind, so that they converge with the most dynamic economies of the EU. In this light, the provisional data are not encouraging. The forecasts of the Medium-Term Plan speak for themselves. Furthermore, a recent analysis by the European Commission estimates the total benefit for the Greek economy at only 29.6 billion euros (over a decade), compared to 36.6 billion euros allocated to the country from the RRF resources. Instead of the expected multiplying and permanent effect, the benefit is less than the resources that flow in: in technical terms, the multiplier is estimated for Greece at 0.81 (compared to 1.05 for the entire EU).
What is the reason for this disappointing performance? On the one hand, there is something obvious, and on the other, something paradoxical. The obvious, is that the obsession with “absorbing” European funds on the part of all Greek governments since 1981 undermines the efficient management of those resources for the benefit of the national economy, and leads to a waste of funds. In extreme – but not rare – cases, it even creates unhealthy phenomena such as the OPEKEPE farm subsidy scandal.
It is clear how little the Greek state actually believes in what it writes in the reports submitted to the EU for aid from its systematic refusal to put its money where its mouth is. Greek governments always assure Brussels that after the end of its funding for e.g. nurseries, it will assume their operating costs from the state budget, and each time they add them again in the next round of EU funding. In extreme – but not rare – cases, the Greek state refuses to pay its own part of its pledged funding, resulting in the cancellation of European support.
The paradox is that the medium-term benefit of a national economy from a fiscal “injection” of the type offered by RRF also depends on the position of said economy in the international economic system. For example, the resurgence of manufacturing production in country A will lead to increased demand for industrial equipment produced by country B. The European Commission’s analysis shows that if the diffusion of the RRF’s benefit is taken into account, its main beneficiaries are expected to be Germany in absolute terms (after Italy and Spain), while in terms of GDP, Slovakia, Slovenia and the Czech Republic. Also, part of the benefit is diffused outside the EU: the overall multiplier is 1.36. In other words, economies with a strong production base that are well positioned in international value chains will benefit.
Meanwhile, Greece continues to carelessly squander the bucket-load of money offered by European programs, and with them the opportunities to modernize the state and the economy.
Manos Matsaganis is a professor of public finance at the Polytechnic University of Milan, and head of the Greek and European Economy Observatory at the Hellenic Foundation for European and Foreign Policy (ELIAMEP).