by George Patoulis*
The global financial crisis, the pandemic crisis and its repercussions in the euro area have uncovered vulnerabilities of banks and enterprises. Of course, the response of the ECB and national authorities has been instrumental in mitigating the impact of the crises on the real economy and financial stability across the European Union.
According to the joint CoR-OECD survey on the impact of COVID-19 crisis on regional and local governments (19/11/2020), most subnational governments are still coping with the health emergency and have not yet reached the stage of implementing recovery measures. At the time of the survey, one-third of subnational governments declared that they were actively providing public investment stimulus measures, and another third stated that they were providing direct support to the economy. Only 9% were doing both. Almost all subnational government respondents –90%– report that coordination in the design and implementation of crisis-related measures among all levels of government is of the utmost importance to a successful exit strategy. The survey also shows that the COVID-19 crisis may reshape priorities in regional development policy. Regions and municipalities are calling for more focus on affordable and accessible quality basic services including health to all territories (76%), regional resilience (69%) and reducing digital divides across regions (68%). Moreover, more than two-thirds of regional and municipal respondents state that the transition to a sustainable and low-carbon economy should shape long-term regional development policy to a large extent.
However, risks are intensifying in the current environment. At present corporates are in a very challenging situation, as a potential downgrade would take a number of them into sub-investment grade with detrimental consequences for their cost of borrowing. A potential deterioration in corporate creditworthiness would negatively affect their efforts to refinance maturing debt, resulting in rising default rates. Moreover, a re-assessment of credit risk by investors is highly likely to spill over into banks’ loan portfolios, thus giving rise to a new wave of non-performing loans.
Therefore, the financial shock produced by the pandemic may have serious repercussions for the viability of corporates. While at present, the ECB initiatives support financial stability, they cannot substitute for the deterioration of the streams of income and the creditworthiness of corporates; for this purpose, the financial support by the Greek State has been crucial. The framework of five initiatives outlined by the Greek State recently is in the right direction. However, given that market participants are likely to be reluctant to lend to corporations characterized as ‘fallen angels’, risk re-pricing may occur if support measures are lifted before growth regains a strong footing.
Municipalities and Regions in Greece need to close the funding gap and address structural inefficiencies in the post COVID-19 recovery period, with inclusive measures, especially for local business support and employment, affordable housing construction and renovation, and support to vulnerable households. In particular, investments should combine economic recovery with environmental sustainability with an emphasis on clean forms of urban mobility and energy efficiency.
The Attica Region has included 9,600 small and very small enterprises into the 250 million euros support scheme for entrepreneurs, allocated 8 million euros to upgrade skills at least 6,000 employees in the private sector, through the Attica RDP 2014-2020 scheme. It has also granted 50 million of micro-credit and 18 million for enterprises involved in the tourism industry. Micro-finance is perceived as a business constraint by SMEs but most importantly by micro-corporations. Most of these micro-enterprises are self-employed people who do not have access to the necessary external financing.
In the longer term, the Attica Region will develop plans for a more efficient use of resources and more sustainable consumption and production patterns, notably by promoting circular economy to keep the value of goods and products at their highest, prevent waste generation, reuse and transform waste into resources. The planning also involves investing in green measures in Attica that does not only create jobs and sets local conditions for long-term economic growth, but also reduces emissions, increases awareness for climate related risks and improves urban environmental quality. One of the most emblematic projects is the regeneration of the “Falirikon” Bay. The Attica Region has embraced it as a priority, while giving instructions to all the competent services to speed up the relevant procedures. In this context, a special observatory was created in the Attica Region, through which the progress of the projects is monitored daily and step-by-step and problems that may arise are solved immediately.
The promotion of Attica Region is not only supported for recreational but also for financial purposes. Foreign investors should take into account that the Attica Region is situated in the South Eastern Europe with a proximity to Greek islands, while linked to a wider investment region with a qualified network of human resources.
A very important parameter is the promotion of young intellectual minds with a specialization in technological innovations (investments, patents). Funding (with financial support from the Attica Region and EU programmes) of entrepreneurial activity is a top priority, relating to the creation or expansion of their business and distribution of technologies in the Region. Such enterprises can then be acquired from foreign established groups, increasing immensely their valuation. Through these measures, the Attica Region supports regional economic cooperation, which increases production efficiency, economies of scale and contributes to job growth.
*Governor of the Attica Region
By: N. Peter Kramer
