More than €30 billion are expected to enter the Greek economy from EU sources by 2027, out of total entitlements of €70 billion for the 2021–2027 period. Roughly half of these resources derive from the EU Recovery Plan (NGEU), while the remainder consists of structural funds under the EU budget. According to Bank of Greece estimates, full implementation of the recovery plan could raise real GDP by approximately 7% by 2026 (Bank of Greece, 2025). The medium-term challenge, however, lies in recalibrating the mix of public and private investment to secure sustainable growth.
The endogenous recovery of investment in Greece began from an exceptionally low base after the crisis (2019: 11% of GDP). Yet, invested capital appears highly productive and profitable: real GDP per unit of capital is approaching 2010 levels, and non-financial corporations report strong profitability. Capacity utilization is historically high in services, and industry is nearing pre-crisis levels, supported by abundant subsidized financing through the Public Investment Budget and the Recovery and Resilience Facility. Nevertheless, the private sector remains defensive in capital investment planning—a classic case of investment hysteresis, where prolonged inertia has weakened investment dynamics (Lekkos, 2025).
Empirical evidence attributes more than half of Greece’s post-crisis investment gap relative to Southern European peers to three persistent factors: the large share of non-tradable services, weak regulatory quality, and historically limited capital account openness (Hua et al., 2022). Administrative inefficiencies, high energy costs, and legal delays raise transaction costs and deter both domestic and foreign investors. Misallocation of resources across firms and sectors further compounds the problem. Firm-level analysis (IMF, 2022) shows that total factor productivity stagnated largely because high-productivity firms failed to scale relative to less efficient ones, particularly in non-tradable sectors.
After EU funding ends, Greece will have limited public investment options and must seek other ways to support investment. Timely evaluation of interactions—positive or negative—between different categories of public investment during implementation is essential (Bartzokas, 2024).
The impact of public spending on productivity and growth rests on two assumptions:
- Certain categories of public expenditure can raise growth by enhancing aggregate productivity.
- The state apparatus can effectively select, adopt, and implement such policies.
The first assumption is defensible: infrastructure, R&D, and education spending can boost productivity by investing in human and physical capital. The second is more problematic, hinging on political willingness and bureaucratic capacity. Simply calling for a more active economic role for the state is insufficient (Aidt & Dutta, 2007). Policies will fail unless accompanied by deep reforms of bureaucratic structures. Hirschman’s (1992) critique from the 1950s remains relevant: the public sector cannot be viewed as detached from its socio-economic context. In societies where the private sector fails to drive growth, there is no guarantee the state can or will do so. In systems prone to stagnation, parts of the state may be equally incapable or unwilling to promote development-oriented policies, favouring “easier” options aligned with a non-dynamic environment. Hirschman (1992) also faulted economists and policymakers for advocating state-led interventions without asking whether the implementing apparatus is competent and committed.
Stefan Dercon’s Gambling on Development (2022) revisits this issue, arguing that development hinges not on a fixed policy set or aid but on a critical “developmental pact” among elites. In most poor countries, elites (politicians, senior officials, power brokers) maintain a status quo focused on resource capture and patronage. Growth accelerates only when elites “bet on a development-based future,” shifting toward a developmental pact—a high-risk choice that may challenge their power structure.
For Greece, a credible developmental pact must exhibit three features:
- Reliable political commitment: Development pledges must be genuine and politically credible, not vague declarations.
- Effective state capacity: The state should leverage existing capabilities without overextending.
- Learning capacity: Ability to recognize mistakes, adapt, and learn continuously.
Meanwhile, the global economy is shifting from a paradigm of “technology diffusion” toward “economic security,” reshaping public policy and corporate strategy. Reducing strategic dependencies, strengthening industrial bases, and controlling innovation pathways are now central goals, especially amid great-power competition in deep technologies (AI, semiconductors, quantum computing). Governments deploy non-military tools (export controls, investment screening, subsidies), while firms reconfigure value chains for resilience (derisking, friend-shoring) and local production.
This turn toward economic security revolves around two dimensions:
(a) Control of innovation trajectories—which technologies advance, under what standards, and for which uses;
(b) Control of industrial base—capacity to produce critical technologies/products domestically, reliably, and at scale. These dimensions form the new foundation for development policy decisions in a transformed geopolitical landscape (Chatterji & Murray, 2025).
The economic security paradigm is not transient; it redefines how and where innovation occurs and how industrial production is organized. Policymakers must enrich the Greek developmental pact with coherent strategies combining:
(i) clear prioritization of critical technologies and security requirements;
(ii) flexible instruments (export controls, investment screening, subsidies) with embedded competition safeguards;
(iii) institutional frameworks for collaboration with firms and allies to exploit scale economies.
References
Aidt, T.S. and Dutta, J. (2007) Policy myopia and economic growth, European Journal of Political Economy, 23 (3), 734–753.
Aaron K. Chatterji and Fiona Murray (2025) How Geopolitics is Changing the Economics of Innovation. NBER Chapters, in: Entrepreneurship and Innovation Policy and the Economy, volume 5, National Bureau of Economic Research.
Bank of Greece (2025) Note on the Greek Economy. November 14, 2025: Economic Analysis and Research Department.
Dercon, Stefan (2022) Gambling on Development: Why Some Countries Win and Others Lose. Oxford University Press.
Hirschman, A.O. (1992) A dissenter’s confession: The strategy of economic development revisited, in Rival Views of Market Societies, Harvard: Harvard University Press, pp.3–34.
Hua, J., Klyuev, V. and Paret, M. (2022) Why Is Investment Weak in Southern Europe?, IMF Working Paper 22/165.
IMF (2022) Article IV Consultation – Greece: Staff Report. Washington, DC: International Monetary Fund.
Elias Lekkos (2025) Greek Economy: An Incomplete Transition from the Private to the Public Space. Presentation at a Round Table at the LSE on Looking for Levers of Economic Growth: Discussion with the Chief Economists of Systemic Greek Banks. London, 29 April 2025.
Anthony Bartzokas (2024) Availability of Investment Resources and Economic Development. Article in the collective volume of the Economic Chamber of Greece entitled State Budget 2025 (in Greek)
