Eurobank CEO Fokion Karavias, speaking at the Athens Investment Forum, said that the Recovery Fund will have some kind of continuity beyond 2026-2027.
He even took a stand on the debate surrounding the reduction of Value Added Tax (VAT), noting that such a measure would not even have an impact on consumers and would possibly stimulate the consumption model even more, but would mainly deprive fiscal space, which—as much as there is and as much as is created—should be directed towards investment incentives.
In detail, Mr. Karavias noted:
"After thanking Mr. Carrer for the invitation, I would like to begin by saying that, after listening to the Minister's speech, beyond the individual issues to which I will refer later, we agree on the fundamental point: that investment is a national priority at the present juncture. And it is a particularly positive development that the state shares this priority and is promoting it in its policy making. In a country where for decades growth has consistently been identified with consumption, the very recognition of the importance of investment is an important step in the right direction.
The Greek economy is currently on an upward trajectory. The growth rate remains significantly higher than the European average. In 2023, it closed at 2.3%, having the 6th-best performance among the 20 eurozone countries. We expect strong economic growth rates above 2% this year and an acceleration to 2.4% in 2025 and 2026, driven by the maturation of the TAA projects and the improvement in the external environment.
Fiscal discipline is now understood as the foundation of economic policy. The primary surplus is projected to be maintained at satisfactory levels this year and in the coming years. Public debt remains high but is falling as a share of GDP at a rate higher than in any other country. The recent IMF (Fiscal Monitor) forecast is that it will fall by almost 30 points to 132.8% in 2029, probably less than that of Italy. We may, looking at things from the inside, focus on the problems, but from the outside, from a macro perspective, the progress is impressive and acknowledged. The markets are speaking in practice, with Greek government bond yields being lower (over the 5 years) than not only those of Italian but now also French bonds. Just think how many analysts would have dared to make such a prediction even 2 or 3 years ago—not to mention what was happening and where we were just a decade ago. The consequence of this is that the country's image abroad has been upgraded, not only economically but also geopolitically, at a time of multiple challenges in our neighbourhood.
We have good news in other areas as well. Greek tourism has been setting successive records in recent years, although this year's period, although excellent, shows that we may be close to the peak of its dynamism. Maintaining and further increasing tourism's contribution to the economy will require a strategic orientation towards improving average expenditure per visitor and not just the number of arrivals. Tax revenues are increasing and support sound policies to reduce the tax burden, especially on businesses and employees, and to reduce non-wage costs.
Compared to yesterday, therefore, there have been leaps and bounds. The picture today is positive, as is the immediate outlook. But, looking ahead, the danger is that we are in danger of resting on our laurels. We are not where we want and where the country needs to be—we are a long way off. It is important to recognise the challenges now, when we are in the upward cycle, and to move proactively.
THE BIGGEST CHALLENGE
The biggest challenge is the one I mentioned at the beginning. Our economy has not moved away from the consumer model. Consumption is still today the main component of GDP with a very high share, at 68.7%, and about 15 percentage points higher than the average in the euro area. At the same time, a consequence of the consumption model is the current account deficit. It reached 6.3% in 2023, a very high figure, and this year it is trending further upwards. Exports, which had been on the rise, are on the decline. Let us not forget that (together with the fiscal deficit, which has now been cured), the current account balance was a major cause of the deep crisis experienced by the country and society.
And this brings us to the central issue of the economy and the conference that the Athens Investment Forum is successfully organizing this year again. We have believed and stated this for many years and I think it is now a common property: to put the economy on a sound, healthy footing, to support employment and keep young people in the country, to tackle the demographic challenge, to finance the social security system in the future, to cover increased defence expenditure and, overall, to rebuild the economy in terms of long-term sustainability, there is only one way. Investment (energy, infrastructure, tourism, industry, industrial agriculture, logistics, data centres, education, etc.)
THE EUROPEAN LANDSCAPE
It is not only for Greece. All of Europe is lagging behind and needs an investment leap. The two major interventions of the Letta and Draghi reports describe it. The Letta report notes the need to increase competitiveness and complete the single market. Above all, however, the Draghi report highlights the scale of the challenge: Europe lags behind the US and China in terms of competitiveness, innovation and new technologies. To close the gap, it needs investments of around 800 billion per year, i.e. around 5 percentage points of European GDP every year.
For Greece, the new European awareness offers a great opportunity. Fixed capital formation increased to 15% of GDP from 11% in 2019. Significant progress. But the corresponding European average is 22%. According to the target of the Draghi report, it should reach 27%. In our country, if this target is adopted, a steady increase in fixed investment of 9% per year in real (deflated) terms and every year for a full decade is required. In other words, it will require a sustained investment spring, the likes of which has not been seen since the 1950s. It's not easy, it's not impossible, it's necessary.
But it has conditions. First and foremost, a consensus and commitment to the goal. For example, there is talk of a VAT cut, which we do not believe will even have an impact on consumers, possibly stimulating the consumption pattern even more, but mainly taking away fiscal space, which, as much as there is and as much as is created, must be directed towards investment incentives. Recently, the President of SEV cited as an example—and it is a good example—the over-absorption of business investment.
Today, there is momentum; there are the conditions for accelerating investment. Firstly, the banking system is strong again; it is already financing all the major projects in the country and has the capacity to support even more investment. Secondly, most medium and large enterprises have healthy balance sheets and good profitability, part of which they can and should direct to new investments. Thirdly, there is the large Recovery and Resilience Fund instrument and other European resources reaching 97 billion by 2027. My own assessment is that the Fund, whether in its current form or in some other form, will continue. It will continue as Europe realises how far behind it is. Also, the country's image abroad is the best in decades. And finally, there is political stability, essential for any economic growth.
THE DRAGHI REPORT
I come back to the Draghi report, which, apart from the issue of investment, states that Europe is lagging behind on the issue of innovation. Europe is lagging behind in innovation, but our country is lagging behind in 25th place out of the 27 Member States. Here the lag is structural. It is linked to the level of investment but also to more difficult variables, such as the quality of education. Our universities, despite the steps taken, are not yet sufficiently outward-looking. They do not attract students from abroad, especially from our geographical region, and research seems to take a back seat to academic teaching. Greece, an attractive country with an advantage in terms of lifestyle, cultural heritage and natural environment, has no reason, other than idealism, to lag behind countries such as the Netherlands in creating an ecosystem of education, research and innovation. The way Cyprus has moved in recent years gives us a simple and close example.
Recently, the Nobel Prize in Economics was awarded to scientists who demonstrated the importance of institutions for the well-being of a society. In a global index of the complexity of running a business, Greece gets an unenviable gold medal. First among 79 countries (TMF Global Business Complexity Index 2024) for taxation, bureaucracy, labour law enforcement, and excessive administrative and regulatory costs. No arguments are needed for something glaringly obvious, as much as the need to go even faster on reforms in the state, administration of justice, legal certainty, land use, and ensuring a clear horizon for doing business. We all know that these reforms are needed. They only remain to be done.
Greece has shown that it has learned from the painful experience of the crisis. I am confident that the country can make the right decisions without having to go through another test."
