Greece Has Its Eye on an Upgrade

After almost a decade of crisis, Greece is showing signs of stability and recovery. In the June 25 elections, the center-right party New Democracy was re-elected after four years in power that put the country on a path of institutional restructuring, market-led economic growth, and expanded social support.

Rating agencies will be studying the new government’s first steps. If it demonstrates sufficient economic reform and fiscal sustainability, Greece is expected to return to investment-grade status in 2023, after 13 years of junk rating.

Re-elected Prime Minister Kyriakos Mitsotakis has a once-in-a-generation opportunity to address Greece’s structural and institutional challenges, accelerating the country’s modernization. With 40.6% of votes, 158 of 300 parliamentary seats, and the opposition diminished, the prime minister has a mandate to reform. He should focus on building strong foundations for the economy and society by revamping education, supporting entrepreneurship, fostering high-potential economic sectors, and addressing demographic challenges.

Stagnant university education has hamstrung Greece in recent decades. The best university in Greece ranks 250th globally, and unemployment rates among graduates are among the highest in the Organization for Economic Cooperation and Development. To address these challenges, New Democracy passed a law in 2022 to improve public universities by introducing merit-based faculty hiring, establishing English-speaking departments, and promoting entrepreneurship.

Implementing these reforms requires dismantling the entrenched political alliances that dominate university administration—an intervention that should be enacted despite its political cost. This will allow high-achieving talent to flourish locally, rather than migrating abroad, and will harness high-quality research for use in business.

Unlike much of the rest of Europe, Greece still bans private universities, and Mr. Mitsotakis should spend some of his political capital across party lines to secure the 180 votes in Parliament needed to end the ban. Such a change would help reverse the brain drain of professors and researchers, create competition in higher education, and attract students from around the world. As universities are reshaped, curricula should be expanded to develop management and administration skills, which will support swift economic growth.

Post-Covid, Greece emerged as one of the fastest-growing economies in the European Union, with 5.9% growth in gross domestic product. Between 2019 and 2022, New Democracy’s pro-business approach helped increase foreign direct investment to 3.1% from 2.4% of GDP and exports to 49% from 41%. These policies are expected to continue, but if the justice system doesn’t become more efficient, investor confidence and economic efficiency will remain constrained. Here, Greece should use technology to expand judicial training and link judges’ promotions to annual evaluations.

Labor productivity remains a problem, with Greece ranking near the bottom in the European Union. Part of the solution is to increase digitization, supported with €2.2 billion from the EU’s Recovery and Resilience Fund. Developing Greece’s rekindled relations with entrepreneurs is another opportunity. Greece should become an innovation hub by promoting private research and development, supporting startup exports, and creating links among academia, industry and government.

Greece’s economy still largely depends on tourism, which contributes 19% of GDP and 17% of employment. To diversify economically—and avoid the curse of overtourism—Greece can build on its strategic advantage, namely its location at the intersection of three continents. Leveraging its manufacturing capabilities and logistics infrastructure, the country should attract more companies to ramp up production within its borders. Beyond being a logistics hub, Greece can emerge as a clean energy hub, by increasing renewable energy production, expanding electricity connections with the Middle East and Europe, and creating a climate innovation center.

Demographic challenges also loom large. With birth rates below 1.5 per woman, Greece’s population is expected to decline to 8.8 million from 10.6 million by 2050. The newly established Ministry of Family and Social Cohesion needs to look beyond financial incentives for families and increased access to child care to address social structures. This will be difficult, given the emergence of two far-right parties in Parliament.

In addition to promoting equality between men and women, the administration should expand adoption rights and enable the integration of immigrants into society. The Hellenic diaspora of at least three million people can also be part of the solution. Simplifying citizenship processes, repatriating talent, and attracting students with Greek ancestors would kickstart population expansion.

Mr. Mitsotakis says he is a reformer, and his record shows he is effective. With the world watching as Greece tries to reclaim investment-grade status, Mr. Mitsotakis should embark on sweeping reform to reposition the country for the 21st century.

Ms. Xydi and Mr. Laskaris are co-founders of the Desmos Policy Institute.