YOU are the Next Generation: Greek and Bulgarian Recovery and Resilience Plans

Article written by:Andrea Graziano and Johann Maack

European countries have been among the most hit by the health, economic and social crisis brought about by the COVID-19 pandemic. The European Union, through the Multiannual Financial Framework (MFF), the Recovery and Resilience Facility (RRF), and other complementary initiatives, commits a total of €1.8 trillion to sustain the post-pandemic recovery and to improve the long-term prospects of Europe and its citizens. NextGenerationEU (also branded Recovery Fund), which adds €750 billion to the MFF, was agreed upon on 21 July 2020, becoming the largest stimulus package ever financed through the EU budget. By submitting a comprehensive national plan, every Member State is eligible to obtain funds to enhance resilience, mitigate impacts of the crisis, as well as support the green and digital transitions.

European Generation believes in the historical significance of this project, and realizes how big of an opportunity this is. Hence, we believe it is crucial, for all European citizens, to understand what national and European leaders are doing to seize such an opportunity. This is the final aim of this series of articles, which we have entitled “YOU are the Next Generation” as to underline the direct impact the decisions taken in the Recovery and Resilience Plans will have especially on younger generations, as well as the responsibility each and every one of us has in shaping the present and the future of Europe.

Greece 2.0

Source: Pixabay

The role of Greece within the NextGenerationEU is central both in terms of absolute value of the amounts received, and in relative terms to gross national income. Indeed, Greece will receive approximately €31 billion through the Recovery and Resilience Facility, of which €18.2 billion in grants and €12.7 billion in loans.

In April 2021, Greece published ‘Greece 2.0’, a detailed plan on how the country will use the funds related to the RRF, following the four dimensions outlined by the European Commission: environmental sustainability, productivity, fairness, macroeconomic stability. Greece, like other southern-European countries, suffers from fundamental structural problems in its public and private sector. Thus, the Greek government intends to leverage on the opportunity given by the NextGenerationEU to revitalize the country after a period of economic and social crisis.

The first part of the plan presents the general reforms referring to the main pillars, illustrating their correlation with both the dimensions and the flagship areas of intervention highlighted by the European Commission. Moreover, here is described the coherence with other reforms already adopted by the country, with the country-specific recommendations issued by the European Council, and with the economic policy priorities identified in the European Semester, a multi-annual discussion between the European Commission and Member States to achieve key EU targets.

The second part of the plan explains the reforms and investments in detail, also by specifying the corresponding amount of funds to be dedicated to them. Each pillar of the plan consists of different axes, or components, where each of them is in turn composed of detailed investments. Here follows a qualitative description of the components, grouped into the three broad dimensions of the NGEU.

Sustainability and green transition

The first pillar includes investments aimed at upgrading to a sustainable and green model of growth. For this purpose, the country will deploy approximately 33% of the budget available, distributed across the following components:

• Transition to a new environmentally friendly energy model, with the purpose of promoting the green transition, by increasing the share of renewable energy sources in gross final energy consumption and reducing greenhouse gas emissions. The proposed investments also include the promotion of electrical interconnection of the islands and upgrade of the transportation system, the upgrade of the electricity distribution network in forest areas, and the simplification of licensing procedures for investment in renewable energy.

• Energy upgrade of the country's building stock, which includes incentives mainly focused on the renovation and energy upgrade of buildings, with the aim of regenerating urban areas, attracting private investment and reducing energy poverty.

• Transition to a green and sustainable transport system, which has a double objective. On the one hand, the goal is to coordinate actions aimed at a green, smarter and safer urban mobility. On the other hand, the strengthening of new technologies in the fields of construction, project management, among others, will contribute to the recovery of the Greek economy, by creating new employment opportunities. The main investments include the creation of charging stations for electric vehicles, and the promotion of innovative products and services through financing of research and development departments.

• Use of sustainable resources, resilience to climate change and conservation of biodiversity, which includes reforms and investments aimed at a more efficient use of natural resources and the promotion of the circular economy through effective management of waste, the protection of biodiversity, and the adaptation and restoration of the natural environment.

Innovation and digitalization

To the pillar of innovation and digitalization, the plan assigns approximately 12% of the available budget, with the purpose of upgrading public and private infrastructures to a new digital dimension:

• Connectivity for citizens, businesses, state, which focuses on the implementation of investments for the installation of high-capacity, submarine fiber optic infrastructure cables and small satellites facilitating the provision of services to citizens and business in remote islands. Furthermore, the deployment of high-capacity networks will generate important spillover effects in the economy, including job creation, new and better opportunities for the industry sector, as well as higher efficiency and productivity both for individuals and corporations.

• Digitalize the State, which aims at modernizing the PA and to increase its efficiency and effectiveness, particularly by developing and deploying advanced digital technologies and secure connectivity, strengthening digital skills and reducing the digital divide. Other key interventions will include the digitization of archives of the PA, the development and implementation of an information technology system for managing interaction between the PA and citizens, and the improvement of cybersecurity technology.

• For what concerns the private sector, the plan strives for the digitalization of businesses and to increase job creation and participation in the labor market, highlighting the goal of increasing the adoption of digital technologies by businesses, mainly through tax incentives and subsidies. Moreover, labor market policy interventions are foreseen, to enhance growth and job creation, improve job quality, strengthen economic and social resilience, promote labor market inclusion and reduce inequalities, poverty and social and economic exclusion.

Cohesion, resilience and values

The Greek government plans to deploy approximately 29% of the budget for employment, skills, and social cohesion distributed across the following interventions:

• Investments in education, vocational education and training, and skill will be important to improve long-term employment and productivity through the enhancement of human capital.

• To improve resilience, efficiency, accessibility and financial sustainability of the national healthcare system, the plan foresees upgrades of infrastructure and medical equipment of health centers, the digital transformation of the health system, a complete modernization of hospitals’ infrastructure all over, and other interventions.

• In order to improve social inclusion, the plan proposes reforms and investments targeted towards some of the most vulnerable population groups of the country, with the aim of providing equal opportunities for all, irrespective of gender, ethnicity, sexual orientation, age, disability, and other characteristics.

Finally, approximately 26% of the available budget will be spent for private investment and institutional transformation. The latter will be accomplished through a fiscal reform to make taxes more efficient and to strengthen tax compliance, the simplification and modernization of the PA, and the improvement in the efficiency and speed of the justice system through digitalization. On the other hand, among the reforms and investments for the private sector there are interventions aimed at strengthening the financial sector and capital markets, through the creation of a private debt monitoring database, of a public credit bureau, and of a credit expansion observatory. Moreover, the plan emphasizes the intention of promoting public and private investment in research and development, of improving the competitiveness, productivity and resilience of key economic sectors (tourism, culture, agriculture, manufacturing and aquaculture, and reforming the legal framework to promote private investments.

Conclusion

The total amount of grants and loans provided by the RRF will sum up to 30.9 billion euros. Together with this amount, further investments focused on the same pillars will contribute to reach a total amount of 57.6 billion euros allocated.

The qualitative and quantitative evaluation of the effects of the Recovery and Resilience Facility on the Greek economy made by the Bank of Greece has outlined how the full implementation of the investments proposed in the ‘Greece 2.0’ plan could increase the level of real GDP by 6.9% by 2026. This implies an acceleration of the annual growth rate of real GDP on average by 1.15 percentage points above the baseline scenario. Furthermore, Private investment is expected to grow by around 20% by 2026 and employment by 4%.

Due to the amount of funds allocated, which include a large portion of loans, this might result into an extraordinary opportunity for the Greek economy, or a quite dangerous increase in public debt. However, if the country will be able to overcome its structural problems and properly implement the proposed reforms, the enormous monetary stimulus would be enough to help Greece on the path of long-term economic prosperity.

National Recovery and Resilience Plan of the Republic of Bulgaria

Source: Pixabay

In October 2020, the Bulgarian government announced its ‘National Recovery and Resilience Plan’, based on the funds made available through the RRF. Like other plans, it aims at supporting the post-COVID-19 recovery by introducing reforms and measures in the areas identified by the European Commission. Based on the official plan, this article will provide an overview on these measures, their goals, and which issues they are trying to address. However, it should be noted that this document is a work-in-progress and thus subject to change.

In general, the plan differentiates between the time horizon of measures. Short-term measures will be implemented with the goal of increasing resilience of the national health system and the mitigation of socio-economic consequences. In the medium term, measures and reforms will be based on the strategic goals defined in the national development program ‘BULGARIA 2030’, that has already been launched before the outbreak of the pandemic. The three main objectives are accelerated economic development, demographic recovery and the reduction in inequality.

Overall, through the bundling of a variety of investments and reforms, the Bulgarian administration aims to both promote the economic and social recovery from COVID-19, but also to improve the country in the long run. Next to the green and digital transformation of the economy, convergence in incomes and industrial capabilities towards EU averages is the target.

Sustainability and green transition

Roughly 2.5 billion Euros, or 37% of the plan’s budget, are dedicated to promoting the environmental sustainability of Bulgaria. This is a response to the current state of the country, which has one of the most resource-intensive economies of the EU. Energy consumption that is three times higher and carbon emission that are four times higher per capita than the EU average.

As part of the circular and low carbon economy goal, energy efficiency programs will be funded. These will be used to modernize government buildings, as well as to incentivize investments by households and firms.

Further, the National Decarbonization fund will be created. For the initial setup and the launch, the Bulgarian government plans to involve the European Commission's Structural Reform Support Service, with its technical and administrative expertise. Grants, financial and technical assistance as well as possible credit lines will be made available, to promote investments in low-carbon technologies and developments. Technical infrastructure in the low-carbon energy sector will be supported as well, to directly support the growth of renewable energies.

Lastly, the Sustainable Agriculture reforms aim to modernize the outdated machinery and infrastructure, such as old irrigation systems which leak tremendous amounts of water and are highly inefficient. Further, as part of a digitization initiative, a platform will be created that is planned to be the universal hub for all technology-related activities. It will allow a more efficient data exchange between producers and consumers and promote concepts such as ‘farm to table’, to reduce food and waste losses.

Innovation and digitalization

The Recovery and Resilience Plan will dedicate approximately 1.25 Billion Euros to its Innovative Bulgaria reforms. The educational sector is currently facing many challenges. While the transition to distance learning was successful, acquiring the necessary equipment has been costly for schools. In addition, more than 10% of students were effectively excluded from the teaching activities, as they did not have the devices necessary to participate. Next to these imminent problems, structural challenges exist as well: educational levels in the population are significantly below the EU averages, with an early school leavers fraction of 13%. Results of standardized tests such as PISA provide evidence for the comparatively low educational quality, and labor market applicability and inclusiveness have remained a problem over the years. Direct investments in schools will be made to equip them with digital resources, to improve the teaching abilities in the STEM area. Funds will also be made available to modernize outdated facilities, such as schools, kindergartens or youth centers.

Measures in the Research and Innovation and Smart Industry field are aimed at increasing the competitiveness of the Bulgarian economy. Investments in R&D activities will be increased, and a network that is aimed at improving the coordination between science, industry and government will be established. This includes the creation of a research university network and digital innovation hubs, with the goal of connecting companies and researchers.

Long existing structural deficits of the industry regarding digital capabilities have now been amplified through the pandemic. Whereas the EU average for SMEs selling products online is 17%, it is only 6% in Bulgaria. The creation of industrial parks is in the center of the strategic plan, that will be created through infrastructure construction. Companies who invest into these parks can receive additional financing, to incentivize the reindustrialization of areas with lower levels of industrial activities.

Furthermore, the Bulgarian government wants to promote the transition to a circular economy. This includes the introduction of new recycling technologies, standardization in the environmental protection field and promotion of eco-innovation, e.g., through new financing instruments for startups in this sector.

The third pillar Connected Bulgaria has a budget of more than 1.3 billion Euros. Currently, Bulgaria ranks 26th in the Digital Economy and Society index; only 58% of households have broadband internet access. As part of the Digital Connectivity initiative, funds will be used to develop the mobile network, with a focus on guaranteeing coverage on so called key transport corridors such as highways or railroad lines. In addition, the extensive but outdated railway network will be modernized to improve its competitiveness, as it is more environmentally friendly than the traditional road cargo transport.

Further funds will be used to construct and rehabilitate sewerage and water supply systems. These investments are highly important, as these essential services are currently not fully available in certain areas of Bulgaria, specifically smaller towns in remote regions.

Cohesion, resilience and values

The fourth and last pillar is Fair Bulgaria, with a budget of circa 1.3 million Euros. The quality of the business environment declined since the country’s EU accession in 2007. The judiciary system and administrative services are slow and fail to meet the demands that citizens and companies have nowadays, especially regarding the current digital innovations and trends. The COVID-19 pandemic has made this more apparent than ever, as government services need to be online for citizens to avoid physical contact, and as the administrative load has risen with a large number of insolvencies. In the next five years, IT systems of courts and the administration will be upgraded, and processes digitized, to provide citizens and firms access to e-services and e-justice. Additional funds will be used to improve the current system for prevention and countering of corruption.

Additional reforms are planned in the area of Social Inclusion. The state of Bulgaria has played an active role in the pandemic, e.g., by covering 60% of labor costs in affected sectors. Despite these interventions, the need for a better protection of certain societal groups became apparent. Equally, there is a deficiency in skills regarding the qualifications of the workforce. For example, only 2% of workers engage in qualification and requalification training, a number significantly below the EU average of 13%.

Measures include significant investments into the social service system, to support the elderly and people with disabilities. Also, agents and startups in the social economy field will be supported through promotion, consulting and funding, to stimulate the growth of this sector. New adult training programs will be instituted to offer members of the workforce ways to improve their skill set, mainly in the area of digital technologies.

The last area is the healthcare sector, where a range of reforms aim to improve resilience and quality, as a response to the lessons learned from the pandemic. First, medical institutions such as hospitals will be equipped with the latest devices for diagnostics and treatment, and facilities will be renovated and modernized. Second, due to the current lack of specialists, a training center for radiology will be created. Finally, the psychiatric aid system will receive more financial support.

Conclusion

Overall, the Bulgarian ‘National Recovery and Resilience Plan’ follows a holistic approach, as measures and reforms cover a wide array of topics. While these can be categorized in the aforementioned categories, one can see the many thematic overlaps. This is partly due to the nature of the issues that Bulgaria is currently facing. First, the pandemic requires very demanding responses that can be overwhelming for the majority of states, and in particular for Bulgaria with its comparatively low economic power. Second, in terms of the living standard, access to and the quality of education, and economic opportunity, large differences still exist compared to other European countries. The plan’s potential is therefore quite promising, as it has the opportunity to improve the lives of many Bulgarian citizens. It will be interesting to see how the final implementation will look and how effective the measures and reforms will be.