1×1 Discussion with Alex Patelis, Chief Economic Adviser to Greece’s PM
New York, Thursday, June 13, 2024 – In the first installment of the “Capital Link Invest in Greece Webinar Series”, a series of webinars aimed at raising the profile of Greece as a business and investment destination, Mr. Alex Patelis , Chief Economic Adviser to the Prime Minister of Greece, offered a brief presentation with the theme: “Accelerating Reforms, Investments, and Growth.” The presentation was followed by a Q&A with Mr. George Linatsas, Founding Partner & Group Managing Director of AXIA Ventures Group. In their discussion, Mr. Patelis and Mr. Linatsas detailed the Greek government’s planned reforms for a variety ofsectors, including the justice system, tax reform, and tactics to prevent tax evasion, investments, and banking.
The Capital Link Invest in Greece Webinar Series will culminate with the Capital Link Invest in Greece Forum, which takes place in New York City each year. This year’s event will be the 26th Invest in Greece Forum and will take place on December 9, 2024.
View below full discussion:
Highlights:
- Greece’s GDP grew by 2.1% YoY in Q1 2024, with a cumulative increase of over 7% since 2019.
- The country achieved the largest decline in government debt as a percentage of GDP in the EU over the past four years.
- Significant digitalization in public administration with over 1.5 billion digital transactions since 2019.
- Greece ranks fourth in the EU for electricity generated from wind and solar power.
- Government emphasizing structural reforms, including speeding up the justice system and combating tax evasion.
- Addressing the shortage of skilled labor by removing disincentives for pensioners to work and focusing on increasing labor force participation rates.
- Greek banks have cleaned up their balance sheets and become profitable, with plans to reduce stakes held by the HFSF.
Overview of the Greek Economy’s Current Status
Mr. Alex Patelis, Chief Economic Advisor to the Prime Minister of Greece, opened the webinar by providing an overview of the Greek economy’s recent progress and future priorities. Since the current ruling party took office in 2019, Greece has consistently outperformed the Euro area in terms of economic sentiment and GDP growth, Mr. Patelis stated. The country’s GDP grew by 2.1% year-over-year in Q1 2024, with a cumulative increase of over 7% since the end of 2019, outpacing the Euro area average.
He emphasized the government’s success in attracting foreign direct investment (FDI), noting a record high in 2022, though FDI fell in 2023 due to global monetary tightening coupled with elections. Despite this dip, the Greek government remains committed to attracting foreign capital to address the country’s investment gap, a legacy of the decade-long economic crisis.
Additionally, Greece’s export share of GDP has more than doubled, surpassing 50%, driven by shifts in energy and goods prices. On the debt front, Greece has achieved significant progress, recording the largest decline in government debt as a percentage of GDP in the European Union over the past four years. Mr. Patelis highlighted that the government’s goal is to continue reducing debt and improving net debt figures.
Digital Transformation and Green Transition
Among the many reforms implemented by the Greek government since 2019, digitalization has been one of the most impactful, Mr. Patelis noted, transforming public administration with over 1.5 billion digital transactions recorded since 2019.
When Mr. George Linatsas, Founding Partner & Group Managing Director of AXIA Ventures Group, asked about the government’s digital transformation and Green transition agenda, Mr. Patelis responded by emphasizing the progress already made in digital reforms, highlighting ongoing projects such as the digitization of health documents, court documents, and the pension system. A significant upcoming initiative is the launch of a single identity number for every Greek citizen, consolidating various existing identity numbers into one figure. He noted that the primary challenge in digital reforms is managing the bandwidth to execute multiple projects simultaneously.
Regarding the green transition, Patelis stressed its critical importance and noted significant advancements in renewable energy generation. Notably, Greece now ranks fourth in the EU for electricity generated from wind and solar power. The country has about two and a half times the number of pending applications for renewable energy projects compared to the licenses already granted, which are sufficient to meet its needs by 2030.
The focus now is on enhancing the distribution network, boosting storage and battery facilities, and improving interconnectedness with other countries, Mr. Patelis stated. He expressed hope that the new European Commission will support projects to connect Greece with Germany, Central Europe, and potentially Ukraine, as well as expand the connection with Italy to increase energy exports.
Greek Elections and Future Reforms
After discussing the reforms Greece has implemented until the present, Mr. Linatsas of AXIA Ventures Group inquired as to the government’s plans, especially in terms of the recent election results last year, and the upcoming elections in 2027. Mr. Patelis responded by outlining the series of five elections Greece held over the past 12 months, including two national elections, two rounds of local elections, and one round of European parliamentary elections. He noted that the most recent election saw a low turnout of about 40%, with New Democracy securing a parliamentary majority but receiving approximately one million fewer votes than before due to high abstention rates. Despite this, the opposition parties also saw a decline in their actual votes.
Mr. Patelis highlighted that the government now has a clear three-year horizon until the next national election in 2027, providing an opportunity to focus on structural reforms. The Prime Minister’s agenda from the May and June 2023 elections will guide their efforts, with an emphasis on converging with the rest of the Euro area economically, politically, and institutionally. This period without imminent elections allows the government to address key issues facing the country and continue its reform agenda—Specifically speeding up the justice system and combating tax evasion, which remain critical areas of focus.
Regarding justice reforms, he acknowledged that a primary concern for not only businesspeople in Greece but also the citizenry at large is the slow speed of the judicial system. The government has prioritized expediting the justice process since the start of its second term and will continue to do so, Mr. Patelis stated. Efforts to improve the system include evaluating and promoting judges more effectively, establishing specialized courts, grouping cases for efficiency, training judges on complex issues, and digitizing court documents. Significant reforms in the past year have tightened penalties, reduced the allowance for case postponements, and addressed the concern of serial litigants. A major reform implemented by the government in recent years involved redrawing the judicial map to consolidate fragmented courts, aiming to reduce the average wait time for court cases from 1,500 days to 1,000 days, Mr. Patelis underscored.
Regarding the persistent issue of tax evasion and tax policies in Greece, the Chief Economic adviser to the Prime Minister noted that, since 2019, several initiatives have been implemented to combat tax evasion. Recent reforms include banning cash transactions over €500, prohibiting the use of cash in real estate transactions, and connecting POS machines to cash registers, ensuring that transaction data is automatically sent to tax authorities. This prevents business owners from evading VAT and income declarations.
Additionally, Greece has promoted direct payment systems, such as the “Iris” system, which offers free transactions up to €500. This initiative encourages cashless transactions, helping reduce tax evasion. Businesses are also required to upload all expenses to a digital system (myDATA) to claim deductions. New taxation methods for self-employed individuals ensure they declare incomes at least equivalent to the minimum wage. The government has shifted towards more automated, data-driven tax audits, improving efficiency and targeting.
Regarding future tax policies, Mr. Patelis explained that under the new European Union fiscal framework, budget balances are assessed over a cycle of four years, emphasizing the creation of financial buffers during periods of economic overperformance. This new system complicates tax and spending decisions. However, the government plans to reduce social security contributions by one percentage point in 2025 and 2027, depending on the new framework’s implementation.
Labor Supply Issues
A crucial factor in sustaining economic growth is the supply of skilled labor, of which Greece is currently facing a shortage. Mr. Patelis acknowledged, that while Greece once faced high unemployment rates of 28%, the current challenge is a shortage of suitable labor, a problem shared across Europe. He noted that Greece’s labor force participation rate is significantly below the Euro area average, particularly among women (the third lowest in the EU), young people, older individuals, and people with disabilities. To address this, the government plans to focus on interventions to boost the labor supply.
One such intervention was the recent abolition of a penalty that previously withheld 30% of a pension if the pensioner worked even for one month. This change led to an increase in the number of pensioners declaring themselves as employed, from 38,000 before the reform was implemented, to over 100,000 now, demonstrating the potential to expand the labor force by removing disincentives.
He emphasized the importance of reforming the state to make it more flexible, efficient, and productive, reflecting the electorate’s dissatisfaction with the speed of reforms. He also noted that upgrading the healthcare system is a top priority, as it was a significant concern for voters alongside the cost of living crisis. The government aims to address these issues to ensure continued rapid growth for Greece.
Banking Sector and Investments
Mr. Linatsas shifted the discussion to the banking sector in Greece, noting its significant recovery from the crisis. He acknowledged that Greek banks have cleaned up their balance sheets, become profitable again, and are now able to distribute dividends for the first time in about 15 years. The AXIA Ventures Group Founding Partner & Group Managing Director inquired about the current state of Greek banks and the government’s plans regarding the remaining stake in the National Bank of Greece (NBG) held by the Hellenic Financial Stability Fund (HFSF).
Briefly summarized the journey of Greek banks from 2019 to the present, Mr. Patelis stated that in 2019, the four systemic banks in Greece had half of their loan books classified as non-performing, which was a significant concern. The government prioritized addressing this issue, leading to the implementation of the Hercules scheme, which helped transfer non-performing loans (NPLs) to servicers, thus reducing NPLs. Additionally, Greece introduced a single insolvency framework to improve bankruptcy and restructuring processes, aligning with future capital markets and banking union requirements at the EU level.
Significant reforms included the recapitalization of Piraeus Bank and Alpha Bank in 2021, which, along with ECB interest rate increases, returned the banks to profitability. The government’s objective has been to reduce the stakes held by the HFSF. Last year, the HFSF fully disposed of its stake in Eurobank and sold its stake in Alpha Bank to UniCredit, marking the first entry of a European bank into a Greek bank since 2006. The HFSF also sold a 22% stake in NBG and plans to sell the remaining 18% stake, likely after the summer, considering seasonal factors, he stated. Mr. Patelis also mentioned the ongoing merger between Attica Bank and Pancreta Bank, which will result in one of the largest banks in Greece.
The government has additional priorities, such as promoting direct payment systems and increasing digital transactions. The corporate loan market has expanded, but household lending, particularly mortgages, remains low. To address this, the government launched the “Spiti Mou” initiative, subsidizing mortgages for young people buying their first homes. This initiative has proven successful, and further funding is being secured for a second wave of subsidies.
Finally, the government aims to promote competition in the banking sector by allowing non-banking financial institutions to provide household credit, thus diversifying the financial landscape in Greece.
In his closing statement, Mr. Patelis highlighted the success of the Recovery and Resilience Facility (RRF) under the previous European Commission, noting the significant funds allocated to Greece. He mentioned that Greece had recently submitted its fourth payment request, with absorption amounts expected to increase from 2 billion euros last year to 3.5 billion euros this year. He emphasized that the impact on the economy would become more evident as companies spend the borrowed funds on multi-year investments, significantly boosting GDP in the coming years.
Addressing concerns about the future of the RRF, which is set to conclude in August 2026, Mr. Patelis suggested that it is too early to predict the outcome but anticipated that discussions would begin in early 2025 once the new European Commission is in place. He expressed confidence that a reasonable compromise would be reached to avoid a “cliff effect” when the RRF ends, ensuring continued support for economic growth.
As Mr. Patelis and Mr. Linatsas demonstrated, the Greek economy has demonstrated resilience and progress under the current administration since 2019, outpacing the Euro area in economic sentiment and GDP growth. Key achievements include significant advancements in foreign direct investment, export growth, and debt reduction. The government’s focus on digital transformation and green transition, particularly in renewable energy, showcases its commitment to modernization and sustainability. With a clear path ahead until the next national election in 2027, the administration aims to further structural reforms, particularly in the justice system and tax policies, to sustain economic growth and address labor supply challenges. The banking sector has also seen substantial recovery, paving the way for future financial stability and growth. Overall, Greece’s strategic initiatives and reforms position it well for continued economic development and integration with the broader Euro area.
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