The Greek economy has performed strongly in recent years, showing significant surpluses and achieving a notable reduction in debt. At the same time, the country is called upon to remain on a path of reforms in order to boost its productivity. This was highlighted by the EU Commissioner for Economy and Productivity, Implementation and Simplification, Valdis Dombrovskis, in an interview with Athens Digest’s John Papageorgiou.
Referring to support measures in response to the consequences of the crisis in the Middle East, the Commissioner stressed that these should be temporary, targeted, and should not lead to an increase in demand for oil and natural gas. He noted that the fiscal space is now more limited than it was during the COVID pandemic or during the first energy crisis.”

You have followed the Greek economy in far more difficult times than today. However, the national as well as the global challenges that also Greece must face remain significant, with the most recent being the economic consequences of the crisis in the Middle East. Prime Minister Mitsotakis has announced a second national EUR 500 million-package of measures, within the available fiscal space and in line with EU fiscal rules. The Commission announced its ‘EU Accelerate’ proposal. The Greek Prime Minister also stressed that we should be ready for a ‘plan B’ if needed. So, first, how do you assess Greece’s growth potential in the post-RRF era? And second, in your view, how should the evolving consequences of the crisis be addressed at both the national and EU level?

The Greek economy has been performing strongly in previous years, or in recent years with economic growth rate exceeding EU average and budget being in surplus. So, all in all, it’s a strong performance. We see that last year’s budget surplus came out larger than previously forecast. That’s all good news. Debt to GDP ratio has also come down some 43 percent of GDP. since its pre-COVID peak in 2018.
That said, there are challenges that persist. One challenge we have in Europe in general, but in Greece in particular, is the question of productivity growth, where Europe is lagging behind other major economies like U.S. and China, already for two decades. And productivity level of Greece is among the lowest in the EU. Therefore, it’s important to stay on a reform course as regards productivity, improving the business environment, investing in innovation. That is what is going to sustain economic growth going forward.
And obviously there are now challenges linked with the conflict in the Middle East and related oil and gas price increases, which is spreading to broader economy and causing what we can call a stagflationary shock with simultaneously lower growth rates and higher inflation. In terms of policy response to this, what we recommend from the European Commission side is to be targeted and focused. The measures taken in response to the crisis should be temporarily targeted and not lead to an increase in demand for oil and gas. And we need to be mindful that fiscal space now is more limited than it was during the COVID pandemic or during the first energy crisis. Interest rate environment is also different. During the COVID, when we did broad-based fiscal stimulus, interest rates were around zero. Now, interest rates are much higher. Therefore, we need to keep also those fiscal sustainability aspects in mind and that also holds for Greece, even though there is some fiscal space and the government is using it. But Greece still has the largest debt-to-GDP ratio in the EU, so it means that one needs to remain prudent in this regard.

You have already referred to competitiveness. It is also the first time, due to global challenges, that the EU has been called upon to address security and defense issues. The Union has already used common borrowing tools. Do you believe we have reached a point where a further realistic discussion on Eurobonds issuance is mature, or are we still far from that?

This common EU borrowing is becoming more… common, one can say.  We have it for the Next Generation EU programme. We also have it for defense; we have the 150 billion euros SAFE program. And we also have the 90 billion Ukraine support loan, again, financed by common EU borrowing. So, there are initiatives like this. And going forward, in the European Commission’s proposal for the next Multiannual Financial Framework, we foresee the possibility to use common borrowing to respond to some emerging challenges and issues. In a sense, we don’t know what the next crisis could be, but what we can see from the experience that…  there are crises happening, and we need to act on ad hoc basis then. Therefore, we foresee the possibility, in a next MFF, that the EU can respond to the crises also using the common borrowing.

As you said, the discussion on the next MFF is currently underway. There is already a proposal from the Commission aimed at strengthening competitiveness. At the same time, there are reactions from Member States and the European Parliament regarding both the adequacy and the direction of the funds. Do you believe that with roughly the same resources we can achieve more objectives?

This dilemma, obviously, is always there when we have those EU budget negotiations; and when we put forward the proposal for next MFF, we were keeping this in mind. There are, in a sense, limits to how much larger EU budget would a number of Member States accept. You rightly noted that right now both the Council and European Parliament are preparing their negotiating positions. The discussions go a bit in different directions. So, in a council among Member States, discussions are more going in direction how to reduce the overall amount of EU budget, whereas in Parliament, the discussions go in direction how to increase the overall amount of the EU budget. This may be an indication that the Commission, with our proposal, has struck a middle ground here – also in terms of how we are addressing both new priorities, competitiveness, security and defence, as well as our traditional priorities, which we also should not forget, like cohesion, Common Agricultural Policy.

Could the RRF model prove effective and functional in the disbursement of the next MFF funds?

When we were preparing the MFF proposal, we had the lessons from the RRF already in mind. So, we kept the approach for national and regional partnership plans and combined this approach with reforms and investments. Because it’s also important that we continue with reforms to strengthen competitiveness and productivity growth and also continue this performance-based approach like we have in RRF, with milestones and targets. At the same time, we also learned some lessons. So, we proposed to conduct these plans under shared management like cohesion policy, not under direct management like the RRF. We also proposed involving more regional and local authorities in both designing and implementing the plans. That was one of the criticisms addressed to the RRF, that regional and local authorities were not sufficiently involved. Moreover, we’re mindful of administrative burdens, trying to limit those as well, as that is what we also hear from stakeholders, member states, but also recipients of the funds. It comes with quite substantial administrative burdens, so we have been also trying to streamline it.

Finally, a question on what I consider to be the greatest challenge you have been called upon to address: reducing red tape and accelerating procedures to enhance competitiveness. How ready are national capitals to respond to the packages proposed by the Commission? Where do we stand today, what should we expect in the near future, and most importantly, what tangible benefits do you believe will ultimately materialize in practice?

When we look at our EU competitiveness agenda, one of its important elements is also the reduction of administrative burden.  The majority of EU businesses are saying that administrative burden is an obstacle for growth and investment.  And the majority of SMEs say that it’s a main obstacle, too. Therefore, we need to act. So, all in all, we have set ambitious targets of reducing administrative burden by 25% for all companies and by 35% for SMEs. In quantitative terms, it would amount to some 37.5 billion euros of reduction in terms of annual recurring administrative costs. And so far, we have come forward with the so-called omnibuses proposals, which, if legislated, without losing the ambition, would generate some 15 billion euros in terms of annual administrative savings. It shows that we have made a good start, but there is still lots of work ahead of us to reach the 37.5% burden reaction target. So, we will continue with this. There are further omnibuses, foreseen in this year’s European Commission’s Work Programme, and more than half of all proposals will have what we call strong simplification dimension, meaning that they need to generate net savings in terms of administrative costs. What we see is that, yes, the momentum for simplification is there. Many member states, including Greece, have also launched their own work streams to reduce administrative burdens at the national level, and also looking at this issue, in a sense, not to implement EU rules in a more stringent way than the EU is actually requiring. So, I would say so far, we are making good progress, but it’s important to sustain it.