Greece sets ambitious reform targets under re-elected government

In an interview with the Athens Digest, Thanasis Kontogeorgis, deputy minister to the prime minister, outlines the New Democracy government’s ambitious reform agenda in its second term. Prime Minister Mitsotakis’ government, he said, plans to implement a comprehensive reform agenda, aiming to increase average salaries by 25 percent and further reduce social contributions, while targeting 3 percent growth, reducing the debt-to-GDP ratio, boosting investments and exports, and lowering the rate of unemployment to below 10 percent. Other reforms include a modernization of welfare state institutions and improvements in transparency, anti-corruption measures, the judicial system, migration and asylum policies, and the protection of social groups. Greece’s return to investment grade, Kontogeorgis argues,
Will help reduce borrowing costs for the government and households, fostering economic stability and growth, and attracting more investments and jobs.

Interview with John Papageorgiou

Following New Democracy’s re-election, the prime minister set a goal of delivering a strong reform agenda. Can you share with us the main axes of this agenda including some measurable targets set before the end of the second term of this government?

A coherent and ambitious plan of reforms and sound targets was formulated before the elections and approved by the majority of the electorate. A government plan that capitalizes the achievements of the last 4 years and focuses on healing the legacy weaknesses that still exist in the economy and the public administration after more than 10 years of economic contraction and social crisis. A plan that brings us on a path of convergence with the core European countries.

By the end of this tenure, we aspire to increase by 25% the average salary, decrease social contributions, decrease and gradually abolish the overhead tax. We aim to achieve growth rates of around 3% and continue decreasing the Debt to GDP ratio. This will be possible by increasing investments by 70% and exports by 60%, by actively supporting investments and exports in innovation and in high added value sectors and by reaching a 15% participation to the GDP for the manufacturing sector. Access to low cost credit sources is expanded by increasing the total available amount of loans from the RRP to 18 bn euros and by directing a large portion of the 17 bn grants of the programme to projects related with SMEs. It now seems achievable to break the threshold of 10% unemployment rate in a visible time horizon.

A modernization plan is also implemented in the social state. Nursing personnel is increased by 10.000 workers in order the country to reach the European average ratio of 2.2 nurses per hospital bed. Surgery and medical emergency delays will be reduced by 50% and 70% respectively. The reform of EKAB will improve its responsiveness, hospital management will be hired and assessed on the basis of transparent professional processes and KPIs. On top of that, 90 hospitals and 156 medical centres are upgraded or expanded, the most extensive health care modernization programme ever undertaken in Greece. Moreover, regarding social cohesion, Minimum Guaranteed income and disability benefits are increased by 8%, while we target to decrease gender pay gap by 3% by the end of this decade.

There is a plethora of areas, where coherent interventions take place. Our ambition is to synchronize the engines of economic and social growth in order to make the convergence of Greece towards its European peers not a statement but a reality and an active process that will reap benefits for all. And all of the above are being accelerated with a broad program of reforms in areas where there are chronic lags, such as public administration, judicial system, fair taxation, health and the welfare state.

Greek bonds regained investment grade according to S&P ratings. How do you plan to capitalize on this upgrade?

Investment grade recovery, after 13 years, is an important achievement that, despite the unfavorable international situation in the midst of successive global crises, confirms the market confidence in the Greek economy. Regaining the investment grade is a national goal that we have achieved thanks to major structural reforms and the government’s prudent, comprehensive fiscal policy. It is an achievement with significant impact on financing costs. It entails lower borrowing costs for the Government and reduced and less volatile costs of funding for households and businesses. This means that businesses could become more profitable, resilient, and stable, while households will benefit from lower interest payments, more spending power, and reduced cost of access to credit. The ever-increasing confidence in the Greek economy is bringing more investments, more and better-paid jobs and, consequently, an even greater increase in the disposable income of all citizens. We will continue on the path of fiscal balance and prudence while ensuring sustainable growth.

In the next period, we expect all details to be finalised for the new fiscal framework within the EU. What are the Greek expectations?

The new framework that will define the economic and social environment in the EU in the following years should combine fiscal sustainability and long-term growth. Building credibility with the markets regarding our fiscal policy is crucial, as our strategy should be clear. Discussions and decisions must recognize the positive transformations in the macroeconomic, fiscal, and structural landscape of the EU’s peripheral countries over the past decade, fostering faster-than-average growth, increased investment, employment, and a remarkable reduction in public debt, notably seen in Greece. While reducing fiscal risk is crucial, it is essential to acknowledge that some Member States, previously hit hard by crises, have made significant advances in risk reduction. This new framework should ensure the right conditions to improve EU competitiveness at global level, protect public investments, including the green and digital transition, and finally it should inspire ownership of national programs, as a means for compliance and self-commitment.

Since 2019, our journey has involved executing a national reform program, exiting enhanced surveillance framework, consistently achieving investment grade upgrades, securing improved borrowing terms, maintaining fiscal stability marked by primary surpluses, fostering growth, reducing the debt-to-GDP ratio by 35 points from 2019 to 2022, with an additional 10-point reduction in 2023. This progress has led to lower unemployment, heightened exports, a robust banking sector with reduced risk from non-performing loans, enhanced competitiveness, record foreign direct investment, and notably, a self-driven reform program.

The implementation of this reform program aims at diminishing inequalities, investing in human capital, fortifying the welfare state, improving overall state efficiency through public administration restructurings, judiciary modifications, prioritizing the rule of law and addressing corruption issues. Additionally, our planning policies incorporate considerations for the dual transition, addressing climate change and adapting to the climate crisis while limiting the environmental footprint.

What are the goals of the revised national recovery plan? When do you expect the next disbursement following the latest request from Greece?

The revised plan includes 5bn euro of new loans for enterprises and 800 mn euro of grants through Repower EU for investments in energy infrastructure and projects. Projects that focus on energy efficiency for households and businesses, new storage capacity for renewables and innovative green transition projects.

Moreover, through the necessary adjustments and as a response to the unprecedented natural disaster due to the tropical storm and the floods in the region of Thessaly and the wildfires of summer period a set of new investments is introduced. An amount of 407 mn euros of investment is directed to forest management works and counter-fire zones. Additionally, 420 mn euros are allocated for the reconstruction of the road network in the affected areas and 180 mn euros for re-building a more resilient railway network, while 86 mn euros are invested into anti-corrosion works in the area of Thrace.

On the other hand, a set of new reforms is introduced. The completion of the personal doctor reform, a new set of tax reforms which aims to support electronic transactions, electronic reporting of income and the enhancement of the administrative capacity of IAPR and the completion and digitalization of Cadaster and its operations are core government policies implemented through the mechanics of RRP. Accordingly, the Repower EU programme includes further significant reforms. A new licensing framework for biomethane and green hydrogen, market regulations that support decarbonization and CO2 storing, improvement of spatial planning for onshore and offshore renewables, a legislative framework for the smart grid, among others accompany the energy investments planned under RepowerEU.

Discussions with the European Commission are underway, and we have ground to expect the approval of the disbursement for the third installment and the revised plan at the beginning of next month. The persistent and systematic work of the entire government and notably the competent Alternate Minister, Mr. Papathanasis and the Recovery and Resilience Facility Agency, as well as the credibility we have recovered and enhanced in recent years, have created an environment of good understanding and cooperation with the EU.

Finally, what is the Government’s plan in terms of improving the country’s position on rule of law issues? The opposition recently renewed accusations against the government that it tried to delay a judicial investigation into the Predator surveillance allegations.

The annual Report on the Rule of Law recognizes the significant improvement in Greece’s ranking in the CPI index of Transparency International. The country has made the highest performance in the last decade. Certainly, there are still issues that need to be addressed in order to fully align with the recommendations of the Annual Report on the Rule of Law, but also to accommodate all matters concerning individual and human rights. The government had already designed a detailed reform program in this direction, which pertains to the fields of transparency and anti-corruption measures, the judicial and penal system, migration and asylum, as well as the protection of rights of social groups including women, children and LGBTQI+ people.

In order to strengthen the independence and efficiency of Justice, we are proceeding with a major reform of the judicial system, which includes a New Organization of Courts Law, upgrading the selection and training system of court employees through the National School of Judges and concluding the reform of the Judicial Police, which will be entrusted with the task of strengthening pre-trial investigations and procedures. As part of the overall new Judicial Map Reform, we are designing the rational allocation of resources, both human and other, based on the collection and processing of all relevant data, in order to ensure the smooth and efficient operation of Justice and the digital transition. In the same direction, we are working on the reform of the penal system.

Significant improvements are already in force with the establishment of a comprehensive framework for the gift acceptance policy and the regulation of lobbying, as part of our National Anti-Corruption Action Plan. We have published the Code of Conduct on lobbying and interest representatives, with practical guidelines for communication with the institutions, to ensure transparency and integrity. Similar progress has been made with the improvement of the Electronic Asset Declaration System, as the new platform (e-pothen), will support interoperability with other platforms to facilitate and accelerate audits.

Regarding the management of migratory and refugee flows, we designed specific digital systems to guarantee the safety of guests, employees at the reception centers and accommodation facilities, as well as the local community, focusing on the digital transformation of the reception services. At the same time, we have ensured full access to the healthcare system for asylum seekers, which have also been granted with a Taxpayer Identification Number to facilitate their access to employment, as provided for in the Reception Conditions Directive. To this end, we implement training and employment programmes in the following sectors: agricultural, construction, tourism, provision of care in vulnerable groups. We have given special attention to the design and implementation of the National Strategy for the Protection of Unaccompanied Minors. In this direction, important initiatives were the launch of the voluntary relocation program of 1,285 unaccompanied minors from Greece to other member states of the European Union, the transfer of all unaccompanied minors (around 2000) from reception centers and police stations to suitable accommodations in the mainland and the abolition of the practice of “protective custody” of unaccompanied minors and a new comprehensive system of protection. Migrants’ arrivals have significantly reduced to the lowest point in a decade. In regard to the asylum services provided in Greece, we have managed to accelerate asylum procedures and examination of applications for international protection, to speed up issuing of residence permits and to formulate a modern immigration policy and to ensure social integration for third country nationals.

Furthermore, Greece has made substantial progress towards the protection of particular social groups such as women, children and LGBTQI+ people. We developed specific National Action Plans including a roadmap of activities for each ministry. Thus, the country’s ranking in the European index according to the Annual Review of the Human Rights Situation of Lesbian, Gay, Bisexual, Trans, and Intersex People 2023, improved from the 19th position in 2019 to the 13th position in 2023. All of the above highlight the interest and persistence of the government and the Prime Minister in these issues, since we consider the implementation of these reforms as a precondition for convergence but also for social development and cohesion.