Recovery and Resilience Facility (RRF), Greece 2.0

The pandemic hit the Greek economy after a decade long crisis and stagnation, at a moment when economic growth was timidly picking up. On the eve of the pandemic Greece’s economy was still 18% lower than prior to the 2010 debt crisis, while economic activity is expected to shrink by 10% in 2020. Greece entered the pandemic with a public debt legacy of 180% of GDP, while the combination of additional spending to shield the economy and of economic contraction will substantially increase Greece’s debt-to-GDP ratio, to more than 200%. According to the EU Economic forecast Autumn 2021, Greece’s economy rebounded strongly in the second quarter of 2021, by 3.4% compared with the previous quarter. Real GDP reached its pre-pandemic level in the second quarter of 2021.

A limited “fiscal space” means that the overwhelming majority of recovery expenditures is expected to come from the EU’s Recovery and Resilience Facility (RRF), of which Greece is one of the major net beneficiaries: available RRF grants and loans amount to €29 billion (constant 2018 prices), equivalent to 15.8% of Greece’s 2019 GDP. Additional €3bn in grants will come from other components under the Next Generation EU program.

After a decade of dearth of investments in the real economy, high unemployment and weak economic performance, the national recovery and resilience plan (RRP) can be perceived as a unique opportunity both for responding to the crisis triggered by the pandemic and for boosting transformational investments.

Overall, Greece’s recovery measures have the potential to make a moderate contribution to the green transition.

‍Green Spending

We find that Greece’s final recovery plan (RRP) achieves a green spending share of 14% (including Grant and Loan component), whereas the RRP incl. Grants only achieves a green spending share of 24%. Furthermore, we find that 44% (€13.5bn) may have a positive or negative impact on the green transition depending on the implementation of the relevant measures. The main portion of this is due to the loan component (€12.5bn) which is used for passing on guarantees and concessional finance to the private sector. Though the government published a guidance on how to channel this into green investments, it is not assessable yet to which extent these investments will contribute to climate mitigation.

According to the EU assessment, the plan’s climate spending share is 38%.* The divergence between these assessments can be explained by two factors: first, the fact that we could not assess the loan component (i.e. the end use of loans cannot be determined ex ante); second, that unlike the EU’s green tagging methodology, our methodology does not classify climate adaptation and biodiversity conservation as positive contributions towards climate mitigation, unless the link with the latter is direct.

*Our calculation of the green spending share aims to mirror the approach used for the official assessment of national recovery plans, which distinguishes between measures contributing fully to climate mitigation (100% coefficient) and measures contributing partly (40% coefficient). Therefore, we fully count “very positive” measures towards the green spending share, while “positive” measures are weighted using a coefficient of 40%, which is applied to the associated costs. All individual assessments can be accessed via the country page on our website.

 

 

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