Reforms more vital than cash in long run


The loans from the Next Generation EU fund for financing private investments will have a greater impact on growth than grants for public works and programs. In the long term, however, even more important than the credit and the subsidies will be the reforms to be carried out the context of the national recovery and resilience plan.

This, according to sources, is the conclusion of a Bank of Greece study on the effect of the NGEU on the national economy that will form part of the BoG monetary policy report submitted to Parliament on Monday by central banker Yannis Stournaras.

By 2026, when the “Greece 2.0” blueprint is completed and NGEU resources are exhausted, BoG analysts calculated that the country’s gross domestic product will be boosted from 6.9% (baseline scenario) to 8.5%. A decade later the impact of the recovery plan will be 7% to 10.1% and 20 years later 6.6% to 10.5%, the study estimates.

The most optimistic scenario also factors in the effect from reforms improving the quality of governance and the efficiency of the justice system. Nevertheless, as the analysts concede, this is hard to quantify.

Over three-fifths of that 6.9% GDP boost by 2026 (some 4.3 percentage points) are expected to stem from grants and loans, while the other 2.6 points will come by way of reforms. In other words, over those six years spending on investments and projects will be more important than reforms: Loans will contribute almost 2.9 percentage points and subsidies will add about 1.5 points. The analysts attribute this to the low cost of borrowing that will increase demand for investments, while reducing domestic prices to enhance competitiveness and favor exports.

On the other hand, in the long run, the reforms will be much more significant than spending. After 10 years, according to the baseline scenario, from the 7% of additional growth only 2.1 percentage points will derive from loans (over 1.7 points) and grants (just over 0.3 points), as the projects will have already been completed – the impact of reforms at the same time will add 4.9 percentage points to the GDP.

The effect of reforms on GDP will rise to 6 percentage points 20 years on, while subsidies and credit will contribute only 0.6 percentage points.