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%.
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 programme.
According to the “Strategic directions of the National Recovery and Resilience Plan” published by the government, the green transition related reforms and investments funded from the RRF amount to €6.2 billion of grants. This represents 38% of RRF grants (€16.4bn), but only 21% of total RRF funds (€29bn; grants and loans). It is important to note, however, that the public draft RRP lacks the detail needed for a proper assessment. A calculation of the actual green spending share mirroring the Commission’s methodology for assessing national plans against the green spending benchmark of 37% will only be possible once more information is available.
According to publicly available information, the €6.2 billion grants dedicated to the green transition include investments in new fossil gas distribution infrastructure although the precise amounts haven’t been disclosed to this date. Similarly, the RRP seemingly includes substantial infrastructural investments, particularly transport road infrastructure that stabilizes a high carbon intensity status quo.
Although a comprehensive quantitative assessment is not possible at this stage, we anticipate the disclosure of the full RRP in the first quarter of 2021 and will update our assessment accordingly once this information is available
Along with a number of clean energy, energy efficiency, and clean transport investments that can help Greece accelerate its decarbonization, Greece leverages RRF funds to support the coal phase out by 2028 by mobilizing additional investment in coal regions for a just transition. The Just Transition Fund itself actually provides only relatively limited funds for this.
Greece’s recovery measures include investments in new fossil gas distribution infrastructure, which could lock Greece’s energy system in a high carbon intensity path for many decades. Additionally, against EU guidelines, these investments have been classified as “contributors to the green transition” in the (draft) RRP.
The 2021 budget introduces the notion of green budgeting for the first time in Greece. In 2020 the government joined the OECD’s Paris Collaborative on Green Budgeting and is currently developing methodologies for tracking the climate contribution of budgetary and fiscal policies.