The last time Greece tackled a crisis it lasted a decade, consumed a quarter of the country’s GDP, and forced half a million young Greeks to emigrate for a better life.
This time the crisis is global. Greece is tackling the same issues as many other nations in dealing with the COVID-19 pandemic. But there’s one difference: Greece is drawing on key lessons it learned from the Greek financial crisis.
A decade of reforms and policy initiatives means the Greece of today stands in stark contrast to the country that made international headlines when it sought an unprecedented bailout in 2010. It’s poised to respond quickly to a recovery.
“Many lessons were learned, sometimes rather painfully,” says Declan Costello, the European Commission’s former mission chief for Greece and Deputy Director-General of the Directorate-General for Economic and Financial Affairs. “While I don't want to play down the challenges, I do think Greece is in a relatively stronger state to meet the effects of the crisis.”
One of those lessons: focus on digital. From being a traditional laggard in the uptake of anything digital, Greece has made digital one of the four pillars of its National Recovery and Resilience Plan. The other three: green; employment, skills, and social cohesion; and private investment and economic and institutional transformation.
In Thessaloniki, an investment by Pfizer, the company that developed the first COVID vaccine, ticks three of those four priorities. Pfizer is hiring some 200 project managers, software engineers and data scientists for its digital hub in the northern Greek city – with an aim to draw home those young Greek graduates who emigrated abroad 10 years ago.
Nico Gariboldi, Senior Director at the pharmaceutical company’s Global Digital and Technology Hub, says among the reasons Pfizer chose Thessaloniki for the EU investment were the high academic level of talent and quality of the local population. And in contrast to the years of the Greek financial crisis, Greece today offers a stable political environment, solid economic prospects, and a focus on digital technology.
Apart from Pfizer, important investment signals have come from Volkswagen, which is working on making the island of Astypalaia a model for emission-free mobility with purely electric transport systems and ride-sharing; Microsoft, which will build data centres to add Greece to the world’s largest cloud infrastructure footprint; and Fraport, which operates and manages 14 regional airports, one of the biggest investments in recent years.
From the beginning of the pandemic, Greece was led by a well-designed policy, moving many services, including vaccination, quickly online, says Foreign Minister Nikos Dendias. “By embracing technology, Greece has rapidly made leaps into the future,” he adds.
As in many countries, Greece’s economy was battered by the lockdowns put in place to stem the spread of the disease. Before the outbreak of the crisis, according to the Bank of Greece, the projected growth rate in 2020 for Greece was 2.4% and 2.5% in 2021 compared with 1.1% and 1.4% for the euro area, respectively. In 2019, GDP grew 1.9%, boosted by tourism.
Last year, the Greek economy contracted by 8.2%, according to provisional figures released by the Hellenic Statistical Authority. That is still an improvement on the estimated 10.5% drop in the 2021 budget and the 10% forecast by the European Commission in February.
The Commission expects growth of 4.1% this year, accelerating to 6% in 2022. While those forecasts factor in the huge uncertainties surrounding the recovery of tourism, they also incorporate the impact of the launch of projects within Greece’s Recovery and Resilience Plan, Greece 2.0, which could provide a significant boost to domestic demand, according to the Commission.
Greece’s roadmap for the transformation of the country’s economic model rests on NextGenerationEU, a stimulus package developed by the bloc to help boost Europe’s recovery from the coronavirus pandemic, along with European Structural and Investment Funds. In total, an estimated €97 billion of EU-backed investments, loans, grants, and funding for projects and enterprises will be injected into the Greek economy, over a six-year horizon, in what is considered a once in a generation opportunity for growth and reform.
“We are determined to seize this opportunity, through the implementation of our National Recovery and Resilience Plan, Greece 2.0,” says Finance Minister Christos Staikouras. Its 170 projects, investments, and reforms are expected to add up to 7 percentage points to Greek GDP, while creating 200,000 jobs, he adds.
Clearly, the pandemic has also been devastating to traditional sectors of the economy, such as tourism. The number of visitors to Greece fell 76.5% to 7.3 million last year, compared with 31 million in 2019. Travel receipts fell by €14 billion to €4.3 billion.
Bank of Greece Governor Yannis Stournaras has said the coronavirus pandemic is expected to significantly worsen some of the legacy problems from the debt crisis – high public debt, high unemployment, high non-performing loan (NPL) ratio and the large investment gap.
But there are elements that can ameliorate the impact. For example: the overall contribution of tourism is not as large as assumed by many analysts in the past, Stournaras says. Bank of Greece research shows that the direct share of tourism in GDP is 6.8% and, indirectly, the total share is about 10%, rather than the 10% to 20% of GDP previously estimated.
Meanwhile, efforts to clean up banks’ balance sheets, such as the Hercules NPL reduction scheme, are bearing fruit. “By the end of 2020, NPLs in Greek banks were reduced to €47.5 billion, against €75.3 billion in June 2019. This is a reduction of more than 35%,” says Staikouras.
Vasileios Koumpis, the General Manager of Katikies Hotels, which has eight properties in Mykonos and Santorini, says being a Greek company operating in a pandemic on the heels of an economic crisis was instructive. But while 2020 was a difficult year, it was also one that gave tourists who visited a unique experience.
Those who decided to travel last year to the company’s hotels in Santorini and Mykonos experienced “unique moments of tranquility and relaxation.” Visitors had the chance to see and experience the islands during high season but with significantly fewer crowds, he said.
The industrial sector has also performed relatively better compared to the euro area. Industrial production in Greece has been growing faster, on average, than in the euro area since mid-2016. Since January 2020, the decline in industrial production in the euro area was three times higher than in Greece.
The relative resilience of Greek industry is probably related to the fact that Greece is not strongly integrated into global value chains as a typical euro area economy, Stournaras says. In addition, composition matters. For example, foods and pharmaceuticals have outperformed during the pandemic, supported by robust external demand and low income elasticity.
Exports have also shown resilience, with figures for February showing a sixth consecutive month of export growth – exports increased 3.3% last year from a year earlier.
European solidarity, combined with structural reforms, has been instrumental in maintaining Greek funding costs at levels that have not crippled the economy, according to Dimitris Tsakonas, Director General of the Public Debt Management Agency. “The historically low current level of interest rates has also come at a very opportune time for Greece,” he said.
One of few countries running a surplus when the pandemic began meant that Greece was in a position where it could borrow to fund essential public spending to support health care, households, and business and industry, Costello said. Public debt, while nominally high, is long-term focused thanks to restructuring and interest is significantly lower than European partners.
Costello says that Greece wasn’t the only country to benefit from the lessons of the Greek financial crisis. The shared experience meant that Europe had learned some important lessons too.
“If you compare the speed of the reaction to COVID to the reaction to the financial crisis back in 2008 and 2009, Europe has reacted quickly in response to COVID with financial support,” he said. The Recovery and Resilience Facility “should provide significant financial support to countries like Greece, which have been badly affected by the crisis.”
And while there are hurdles ahead, the global rollout of vaccines is raising traveller confidence, and, with it, hopes of a quick recovery of the tourism industry. This, coupled by what is considered a one-off opportunity to transform Greece’s economic model are good reasons for the country to look towards the future with a bout of optimism.
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