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EU Recovery Fund: Now for the hard part

Particularly in the case of Greece, the European Semester is, in turn, is linked to the enhanced surveillance regime, which involve quarterly audits by European Institutions.

Celebrations for the 32 billion euros secured by the country from the European Union Recovery Fund are coming to an end in an abrupt landing of reality. Conditions atached to the money are now becoming clear to Greek government officials, and are not far from the conditionality tied to bailout programs of the past: "the money will be released, as long as you implement the agreed changes."

Greece may have been one of the first countries to submit to the Commission the national plan for the utilization of the funds of the Recovery Fund. A plan that has been positively commented on by Brussels officials, as described by Commission's Deputy Director of Finance, Declan Costello, in an online discussion held by IOBE as a plan that moves in the main European directions for investment in the "green" economy, the digital transition and structural reforms.

However, while the Greek plan is expected to be approved by the Commission in the first months of 2021, this does not mean that the tap on the funds opens and remains permanently open until the Recovery Fund programs are completed, five years later.

This is not only because the ambitious investment programs have a high degree of difficulty and will rely on a struggling state mechanism that for years has been unable to fully and effectively implement the Public Investment Program and ESPA programs - in the event of delays, it is clear that the disbursements will also be pushed back.

From the Recovery Fund to enhanced supervision

The most difficult puzzle in the structure and operation of the Recovery Fund is that, based on the decision of the European Council, the plan for the utilization of funds by each government is inextricably linked to the mechanism of economic monitoring by the Commission, the so-called European Semester. A mechanism designed to enable the Commission in the first half of each year to monitor the economic policy pursued by member states and to make recommendations for policy measures. The plan for the utilization of the Recovery Fund will incorporate the recommendations of the Commission, formulated in May 2020.

Particularly in the case of Greece, the European Semester is, in turn, is linked to the enhanced surveillance regime, which involve quarterly audits by European Institutions and examine whether Greece implements the program which it committed to in 2018, when the country’s bail out era ended.

First warning shot

At present it is not entirely clear how this set of rules will apply. Most likely, in the first phase, the development plan will be approved in a relatively easy way, due to the special conditions created by the pandemic, and Greece will receive, like other countries, an approval for an advance of 13% of the total resources provided by the Fund.

However, the first messages are already arriving from Brussels, which make it clear that the difficulties for Greece are starting now. In the online discussion, Costello, on the one hand, held a cautious stance on the possibility of the Greek administrative mechanisms effectively implementing Recovery Fund investments.

On the other hand, he proceeded to link two seemingly unrelated issues in a way that worries government officials. Speaking about the delays in the implementation of the new bankruptcy law, which is supposed to have been activated on January 1, 2021, but it is now long overdue, the senior official of the Commission hinted that a delay of a few months will be tolerated, but stressed that the delay should not exceed the first half of 2021, ie the time when the first disbursement from the Recovery Fund should be made.

This position highlights a serious problem that could arise if delays in implementing agreed reforms begin to embarrass the Commission, leaving it open to criticism if it ignores them and yet recommends that disbursements proceed smoothly to Greece. The case of the bankruptcy law is perhaps the most typical case, making Brussels feel uncomfortable. After much pressure, Athens approved the new bankruptcy law in November with a long delay. In fact, this approval became the key element in the progress of reforms, which were invoked by the Commission and the Eurogroup, in order to recently approve the activation of measures for Greek debt relief, amounting to 767 million euros.

However, the continuation did not live up to Brussels' expectations, as Costello pointed out, a total of 53 ministerial decisions are required to implement the new law. These have delayed, weighing on how banks prepare for the new bankruptcy proceedings, prompting talk among those who closely monitor the process of a possible delay until autumn, while in the meantime there will be a legal gap, at a time when the crisis will have increased the number of companies in finacial strife.

The Commission's message to the Greek Government is now quite clear: it is asked to at least ensure that emblematic, agreed reforms, such as the new bankruptcy law, are not left behind, in a way that would put Brussels in the awkward position of having to consider whether they make disbursements from the Recovery Fund, or not.

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