Non-technical summary of ESM Working Paper 65: Saving for stability: Greece’s Recovery and Resilience Plan and its impact on the external position

Greece has long struggled with external imbalances, running large current account deficits and accumulating a significant negative net international investment position. Recent forecasts suggest these challenges will persist, with Greece expected to maintain the weakest external position in the euro area. However, the country is now implementing an ambitious investment and reform programme under the EU's Recovery and Resilience Facility (RRF), which could transform its economic prospects.

This paper examines whether a successful implementation of Greece's Recovery and Resilience Plan (RRP) could help overcome its history of persistent external imbalances. Using an economic simulation, the authors analyse how the investments and reforms under the RRP could affect savings, investment, and external balances over the long term.
The findings suggest that a successful RRP implementation could substantially improve Greece's external position. The model predicts that the current account could improve by up to 2% of GDP over ten years compared to a scenario without the RRP, leading to a 30% of GDP improvement in the net international investment position. This improvement primarily stems from higher public savings, as the economic benefits of the RRP generate a significant fiscal dividend.

However, the authors also find that the RRP alone cannot guarantee an improvement in external balances. If the economic benefits from the RRP are accompanied by overly stimulative macroeconomic policies—think broad and untargeted tax cuts or looser financial-sector policies—even a successful implementation might fail to significantly improve Greece's external position.

The results emphasise that domestic policy choices remain crucial. To maximise the RRP's positive impact on external sustainability, Greece needs to maintain prudent fiscal policies, implement appropriate macroprudential measures to prevent excessive borrowing, and pursue structural reforms to boost export competitiveness. The paper highlights that while the RRP provides a unique opportunity to address Greece's external imbalances, complementary domestic policies are essential for success.