Greece’s Loan Facility: Facilitating Corporate Investment through NextGenerationEU

The Greek economy has experienced low levels of corporate investment for many years. The Loan Facility is a component of Greece’s Recovery and Resilience Plan (RRP), in the context of the EU-wide NextGenerationEU initiative. Worth about EUR 18 billion, it is the largest measure funded by the EU across all RRPs in terms of percentage of national GDP. The instrument was designed to tackle this critical issue of low investment by facilitating lending to the corporate sector. This paper presents the main features of the Loan Facility from its launch in mid-2022 to the first quarter of 2024. During this period, the loans issued in this context accounted for more than one fifth of new corporate lending in Greece. We find that the terms of the Loan Facility are more favourable than market terms, which has contributed to mitigate the impact of rising interest rates and to support corporate credit demand. We estimate the price (interest rate) advantage at an average of 4.1 percentage points, which is higher for small and medium-sized enterprises (SMEs). The paper also gives a first assessment of the instrument’s economic impact based on data available and simulations, by using the European Commission’s QUEST model. Simulations suggest a sizable positive impact in Greece: private investment may increase significantly and the cumulative impact on GDP between 2022 and 2030 is estimated to reach 5.3% compared to a no-Loan-Facility scenario. The overall impact remains dependent on the pursuit of favourable framework conditions, such as sustained demand. Further structural improvements in investment conditions would be important to prolong the legacy of the Loan Facility beyond its lifetime.