Social Europe

politics, economy and employment & labour

  • Themes
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter

The Myth Of The EU’s €35bn Investment Package For Greece

André Kühnlenz 21st July 2015

André Kühnlenz (source: Peroutka/WirtschaftsBlatt)

André Kühnlenz (source: Peroutka/WirtschaftsBlatt)

We can all recall an enthusiastic Commission President Jean-Claude Juncker. Shortly before negotiations with Greece broke off at the end of June he supposedly promised Alexis Tsipras an investment package worth €35bn. At first glance this sounded pretty generous, particularly for a country in which, since 2010, the stock of capital has shrunk because Greeks are no longer fully replacing worn-out machines and plant.

Even so, the Commission itself assumes that the stock of capital will continue to shrink until 2016 at least. Just one figure is enough to give you an idea of the extent to which productive capacities in Greece have been laid to waste: in Germany the equivalent of €600bn worth of capital and thousands of jobs would have been lost by 2016.

EU Funds For Greece Also Shrank

So any seed capital appears more than welcome if the economic depression in Greece finally comes to a halt. But we’ve already learned that these promised EU monies are in the main drawn from current Structural and Investment Funds which each country can call upon willy nilly – just as with the subsidy pots for farmers.

What Mr Juncker didn’t tell us straight up – and the Commission didn’t publish in detail until last week – is that hidden behind the €36bn (the exact total) due to Greece in the period 2014-2020 there is a significant decline in EU aid. Compared with the period 2007-2013 Greece should get, on current reckoning, 14% less – that’s around €6bn less.

In concrete terms: Monies from the fund drop from €24bn to €20bn and the farming subsidies (direct payments to farmers and market support measures) from €17bn to €15bn.


Our job is keeping you informed!


Subscribe to our free newsletter and stay up to date with the latest Social Europe content. We will never send you spam and you can unsubscribe anytime.

Sign up here

Hardly a surprise therefore that Tsipras didn’t exactly shed tears of joy at so much generosity. Either Juncker himself didn’t understand what he’s talking about or he’s just acting like a demagogue.

The Asymmetrical Payments Model For EU Funding

So, whilst the EU is cutting back its aid in real terms for Greece, there’s another serious impact on top that is now choking the Greek economy’s recovery. This has to do with the EU’s payments model. Thus, many countries don’t draw down available monies until the end of a given financial period while a new period is normally very slow to get going.

We could easily see this model at work last year in several central and eastern European countries where, towards the end of 2013 and 2014, huge sums were drawn down from the pots of development funds. Hungary is the best example of this. Exactly the same thing happened in Greece as an EU Commission review reveals.

This website shows how the Greeks have drawn down monies from three funds which held a sum of €20bn available for Greece in the budget period 2007-2013 (excluding the €4bn from the CAP). These monies don’t fall due until 2015. And, of this €20bn, only just under 40% or around €8bn was paid out in the years 2013 and 2014 alone.

This payments scheme might have, as in eastern EU member states, helped bring about a substantial economic boost in 2014 in Greece. We recall that the Greek economy actually grew slightly and investments then rose for the first time since the financial crisis – albeit with an ever-shrinking stock of capital.

What has obviously helped is that the Commission reduced the co-financing element from the Greeks to 5% from 15%. What’s more, the start of the new EU budget period in 2014 brought with it a steep rise in subsidy payments. At end-May 26% or €4bn of the direct aid for farmers set aside for up to 2020 had already been paid out.

Let’s just assume that there was last year an extra financial stimulus via the EU of €3.5bn: this would have brought extra growth worth at least 2% of GDP – putting Greece on a sound path. It says a lot that this “sound path” was strongly influenced by this asymmetrical EU payments model – which is not wrong in itself.

The Economic Slowdown Was Foreseeable

But: This positive impact will have a dampening effect this year unless there are counter-measures. So far, out of the fund for 2014 to 2020, just about 2% or around €400m has been paid out.


We need your support


Social Europe is an independent publisher and we believe in freely available content. For this model to be sustainable, however, we depend on the solidarity of our readers. Become a Social Europe member for less than 5 Euro per month and help us produce more articles, podcasts and videos. Thank you very much for your support!

Become a Social Europe Member

So, if – only now (!) – the EU makes available monies from the old payments period (over €2.5bn) with zero per cent co-financing and adds on €1bn pre-financing from the new period then the effect would be that this economic dampener could be just about offset.

A genuine investment spur – urgently required – remains absent. And Syriza was right to demand from the moment it took office a better aid programme from the troika – and, with its back to the wall, tried everything. Of course, the former finance minister of Greece Yanis Varoufakis can be criticised somewhat but has anybody a better idea of how to break down the stubbornness of our German finance minister who obviously knows very little about economics if he goes on and on about rules that quite clearly strangle an economy to death?

So Mr Schäuble can continue to posture and assert that Greece was on the right path last year. No, it wasn’t and never could be if the Commission still expects a shrinking stock of capital until 2016 – something that normally only happens in wartime. But nobody is acting against this economic downward spiral; it will just be tightened even more with yet more spending cuts and tax rises. And this is what they call European solidarity. That’s simply too sad for words.

PS: A maximum €12.5bn is planned for investment out of privatisation receipts. But, first, Greece has to sell off assets for €50bn. Germany insisted at first that this be achieved in three years. The compromise now envisages 30 years while the €50bn figure is not really set in stone. Either way, we can simply forget about this €12.5bn.

André Kühnlenz

André Kühnlenz is a Managing Editor of the Austrian business daily WirtschaftsBlatt covering Central & Eastern Europe and Emerging Markets. From 2007 to 2012 he worked as an Economics and Financial Markets Correspondent for Financial Times Deutschland.

You are here: Home / Politics / The Myth Of The EU’s €35bn Investment Package For Greece

Most Popular Posts

European civil war,iron curtain,NATO,Ukraine,Gorbachev The new European civil warGuido Montani
Visentini,ITUC,Qatar,Fight Impunity,50,000 Visentini, ‘Fight Impunity’, the ITUC and QatarFrank Hoffer
Russian soldiers' mothers,war,Ukraine The Ukraine war and Russian soldiers’ mothersJennifer Mathers and Natasha Danilova
IGU,documents,International Gas Union,lobby,lobbying,sustainable finance taxonomy,green gas,EU,COP ‘Gaslighting’ Europe on fossil fuelsFaye Holder
Schengen,Fortress Europe,Romania,Bulgaria Romania and Bulgaria stuck in EU’s second tierMagdalena Ulceluse

Most Recent Posts

HMPs,CMR,hazardous medicinal products,carcinogenic, mutagenic and reprotoxic,health workers Protecting health workers from hazardous productsIan Lindsley, Tony Musu and Adam Rogalewski
geopolitical,Europe Options for Europe’s ‘geopolitical’ futureJon Bloomfield
democracy,democratic Reviving democracy in a fragmented EuropeSusanne Wixforth and Kaoutar Haddouti
EU social agenda,social investment,social protection EU social agenda beyond 2024—no time to wasteFrank Vandenbroucke
pension reform,Germany,Lindner Pension reform in Germany—a market solution?Fabian Mushövel and Nicholas Barr

Other Social Europe Publications

front cover scaled Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship
Women Corona e1631700896969 500 Women and the coronavirus crisis
sere12 1 RE No. 12: Why No Economic Democracy in Sweden?

Eurofound advertisement

Eurofound webinar: Making telework work for everyone

Since 2020 more European workers and managers have enjoyed greater flexibility and autonomy in work and are reporting their preference for hybrid working. Also driven by technological developments and structural changes in employment, organisations are now integrating telework more permanently into their workplace.

To reflect on these shifts, on 6 December Eurofound researchers Oscar Vargas and John Hurley explored the challenges and opportunities of the surge in telework, as well as the overall growth of telework and teleworkable jobs in the EU and what this means for workers, managers, companies and policymakers.


WATCH THE WEBINAR HERE

Foundation for European Progressive Studies Advertisement

Discover the new FEPS Progressive Yearbook and what 2023 has in store for us!

The Progressive Yearbook focuses on transversal European issues that have left a mark on 2022, delivering insightful future-oriented analysis for the new year. It counts on renowned authors' contributions, including academics, politicians and analysts. This fourth edition is published in a time of war and, therefore, it mostly looks at the conflict itself, the actors involved and the implications for Europe.


DOWNLOAD HERE

Hans Böckler Stiftung Advertisement

The macroeconomic effects of re-applying the EU fiscal rules

Against the background of the European Commission's reform plans for the Stability and Growth Pact (SGP), this policy brief uses the macroeconometric multi-country model NiGEM to simulate the macroeconomic implications of the most relevant reform options from 2024 onwards. Next to a return to the existing and unreformed rules, the most prominent options include an expenditure rule linked to a debt anchor.

Our results for the euro area and its four biggest economies—France, Italy, Germany and Spain—indicate that returning to the rules of the SGP would lead to severe cuts in public spending, particularly if the SGP rules were interpreted as in the past. A more flexible interpretation would only somewhat ease the fiscal-adjustment burden. An expenditure rule along the lines of the European Fiscal Board would, however, not necessarily alleviate that burden in and of itself.

Our simulations show great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way. Raising the debt ceiling to 90 per cent of gross domestic product and applying less demanding fiscal adjustments, as proposed by the IMK, would go a long way.


DOWNLOAD HERE

ILO advertisement

Global Wage Report 2022-23: The impact of inflation and COVID-19 on wages and purchasing power

The International Labour Organization's Global Wage Report is a key reference on wages and wage inequality for the academic community and policy-makers around the world.

This eighth edition of the report, The Impact of inflation and COVID-19 on wages and purchasing power, examines the evolution of real wages, giving a unique picture of wage trends globally and by region. The report includes evidence on how wages have evolved through the COVID-19 crisis as well as how the current inflationary context is biting into real wage growth in most regions of the world. The report shows that for the first time in the 21st century real wage growth has fallen to negative values while, at the same time, the gap between real productivity growth and real wage growth continues to widen.

The report analysis the evolution of the real total wage bill from 2019 to 2022 to show how its different components—employment, nominal wages and inflation—have changed during the COVID-19 crisis and, more recently, during the cost-of-living crisis. The decomposition of the total wage bill, and its evolution, is shown for all wage employees and distinguishes between women and men. The report also looks at changes in wage inequality and the gender pay gap to reveal how COVID-19 may have contributed to increasing income inequality in different regions of the world. Together, the empirical evidence in the report becomes the backbone of a policy discussion that could play a key role in a human-centred recovery from the different ongoing crises.


DOWNLOAD HERE

ETUI advertisement

Social policy in the European Union: state of play 2022

Since 2000, the annual Bilan social volume has been analysing the state of play of social policy in the European Union during the preceding year, the better to forecast developments in the new one. Co-produced by the European Social Observatory (OSE) and the European Trade Union Institute (ETUI), the new edition is no exception. In the context of multiple crises, the authors find that social policies gained in ambition in 2022. At the same time, the new EU economic framework, expected for 2023, should be made compatible with achieving the EU’s social and ‘green’ objectives. Finally, they raise the question whether the EU Social Imbalances Procedure and Open Strategic Autonomy paradigm could provide windows of opportunity to sustain the EU’s social ambition in the long run.


DOWNLOAD HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube