A dog sleeps by a shop window advertising sales in Athens on July 25, 2011.LOUISA GOULIAMAKI
Greg Roumeliotis covers the European infrastructure sector for Reuters
Europe is promising to help kick-start economic growth in Greece as a way of dragging the country out of its debt crisis, but the scheme looks likely to move too slowly to have much impact in the next couple of years.
At last week's summit announcing a second international bailout of Greece, leaders of the 17-nation euro zone pledged "a comprehensive strategy for growth and investment in Greece" that would "relaunch the Greek economy".
The emphasis on growth is an important shift in Europe's approach to the crisis; the first bailout of Athens, launched in May last year, focused instead on slashing the Greek budget deficit, and the reduction in spending hit the economy hard.
Greece's recession was a key reason that it missed targets for cutting its debt under the first bailout. So ending its economic slump quickly would increase its chances of bringing its debt down to manageable levels over the next several years.
Details of Europe's plan so far, however, suggest it will be a limited scheme that concentrates on channelling funds for infrastructure development to Greece and has little impact over the next two years, which will be a key period in determining whether Athens forces more losses on private creditors.
"Greece will get the money, but most will reach the economy in 2014 and 2015. Too many projects have yet to be set in motion," said Nikos Diakoulakis, a former Greek development ministry official who advises the government on European Union funds.
Greece's economy shrank 4.5 per cent last year, worse than the 4.0 per cent contraction assumed in the first bailout plan, and the International Monetary Fund now expects it to shrink 3.9 per cent this year.
The IMF predicts meagre growth of 0.6 per cent next year but this may be too optimistic; a Reuters poll of private analysts conducted in June forecast expansion of just 0.1 per cent in 2012 and 0.7 per cent in 2013.
Greece has been trying to boost growth by streamlining regulation, cutting bureaucracy and reforming its labour market, but it may take years before such steps have much impact on the creation of jobs and businesses. So the EU's new growth initiative may be Greece's best hope in the short term.
Last week's summit statement was significant partly for what it omitted, however. The initial draft of the statement spoke of a "Marshall Plan" for Greece, a reference to the big U.S.-backed aid program that helped Western Europe recover after the Second World War, but that phrase was left out of the final version, perhaps in order to limit expectations.
The new economic plan for Greece focuses on the EU's National Strategic Reference Framework Scheme, which channels grants of money to member countries that need help with economic and social development projects.
Greece has €20.2-billion of such funds available to it between 2007 and 2013, and so far has tapped only a little over €5-billion. In theory, the remaining funds could add some 2.5 percentage points to annual gross domestic product growth over four years, assuming €3.5-billion is disbursed each year and there is then a "multiplier effect" as the money stimulates other economic activity, some analysts estimate.
One obstacle to Greece using the money is a requirement for it to match each disbursement of EU funds with some of its own money. Under a deal announced before the summit, the EU will raise its share of funding for Greek projects from an average 73 per cent to 85 per cent, and Athens is urging the European Commission to increase that further to 95 per cent.
But Greece has already lost valuable time in creating a pipeline of projects ready to attract EU investment, and even if the government can prevent corruption from siphoning off some money, bureaucratic obstacles will not disappear overnight.
"Greece has the most bureaucratic system in Europe for absorbing EU funds," said Georgia Zempiliadou, a Greek development ministry official overseeing implementation of projects with EU financing.
The Greek government says 4,762 development projects, with a total value of €5.5-billion, are stuck in the country's bureaucratic machine and has vowed to reappraise them so they can either move forward with EU investment or be ditched.
Most of the funds are assigned to major infrastructure projects worth €11-billion in total. These include five road concessions where construction has stopped, because banks have frozen funding in response to delays in areas such as securing land.
The government justifies channelling most EU funds to infrastructure by arguing that 40 per cent of the recession is due to a collapse of the construction sector, which lost a fifth of its jobs year-on-year in the first quarter of 2011.
Greek construction activity, measured by the number of new building permits, plunged 43.9 per cent year-on-year in March, according to the latest official figures. The share of public works in overall construction activity was just 4.3 per cent.
Some economists believe, however, that Greece could get more bang for its buck by investing in other sectors with quicker returns.
"We buy cement and bricks and build highways on which nobody will drive. Ports and airports are nice but we need tradable goods -- we have left only €3-billion to invest in things such as manufacturing and tourism," said Dimitris Mardas, an associate professor of economics at Aristotle University.