Greece expects to receive € 32 billion from the Next Generation EU pandemic recovery plan (of which, € 19 bln are grants and € 12.5 bln are loans). Greece expects to receive a further € 40 billion in co-funded grants in the 7-year EU budget, from 2021 to 2027.
Brussels, Belgium: 21 July 2020
The Next Generation EU Fund
The European Union’s Next Generation EU fund has allocated € 750 billion to the EU Member States to support the recovery from the COVID-19 Pandemic. NGEU is based on borrowing: the European Commission will borrow up to € 750 bln on the markets over the coming years. These funds in turn will be distributed to each Member State.
Of the € 750 billion:
€ 390 bln will be distributed as grants
€ 360 bln will be distributed as loans.
Each Member State has the option to accept the loans, or to fund recovery activities using alternative resources. The amounts available under NGEU will be allocated to seven individual programmes:
Recovery and Resilience Facility (RFF): € 672.5 billion
ReactEU
Horizon Europe
Invest EU
Rural Development
Just Transition Fund
RescEU
The RRF is to be used for investments and reforms, including in the green and digital transition areas. It will be disbursed as loans and grants. For grants, 70% will be committed in the years 2021 and 2022 based on: unemployment 2015-2019; inverse GDP per capita; and population share.
The EU Multiannual Financial Framework 2021-2027
The EU Multiannual Financial Framework (MFF) is the EU’s 7-year budget between 2021 and 2027. The total budget agreed is € 1.07 trillion. The MFF will cover the following spending areas:
single market, innovation and digital
cohesion, resilience and values
natural resources and the environment
migration and border management
security and defence
neighbourhood and the world
European public administration
Additional resources are available, however, to Greek companies and institutions from programmes such as Erasmus+, Horizon and more.
Our Assessment
The recovery of the Greek economy depends significantly on public sector spending in 2020-2021 as well as investment promotion. With the latter likely to be muted by the crisis, Greek government funding will be decisive.
According to recent estimate by Bruegel, the government of Greece has allocated approximately € 5.9 billion in various forms to combat the COVID-19 crisis. This is about 3.1% of 2019 GDP, which was € 187.5 bln.
This commitment, together with the associated GDP fall anticipated this year, means that both the deficit and total debt will increase significantly in 2020.
The challenge with the European Union funding agreed is that:
The European Commission has not raised or distributed the capital envisioned from the Next Generation EU fund. This will be done in stages starting later this year and in the next years. The total amount is to be disbursed by 2026.
The disbursement timeline will take over 3 years, and probably more. So of the € 32 billion allocated to Greece, it is likely that the annual disbursements between 2021 and 2023 will not be more than € 8 billion per year, assuming the full complement of loans and grants are absorbed rapidly. The structure of EU fund absorption makes this highly unlikely.
A large share of the NGEU fund comprises development spending for digital transformation and green economy. This will not support the real economy of Greece in the short term, and will require long and complex public procurement procedures.
We believe that the economic situation in Greece is worsening rapidly due to predictable factors. These include the start of a second wave of COVID cases across Europe; the decline in tourist arrivals; the decline in international financial inflows and investments; the end of the unemployment furlough programme and the end of the loan moratorium.
We also note that relations with Turkey continue to decline, and will serve as a brake on trade, tourism and the domestic private sector economy.
We believe that the Greek government is on the right track, but should seek to simplify and accelerate any fiscal stimulus packages for Greek companies and citizens, and bring forward expenditure as rapidly as possible.
For further information, please contact us.
Managing Director
Sources and Further Reading
European Commission. 21 July 2020
European Commission. 21 July 2020
Ekathimerini.com. 21 July 2020.
Bruegel. 5 August 2020.
Bloomberg. 21 July 2020.
Bloomberg. 31 July 2020.
Navigator Consulting. 3 August 2020
Navigator Consulting. 18 July 2020
Navigator Consulting. 29 May 2020.