Economic Analysis
Greece

Greece

Population 10.7 million
GDP per capita 20,317 US$
B
Country risk assessment
A3
Business Climate
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 1.5 1.9 2.0 2.2
Inflation (yearly average, %) 1.1 0.8 0.6 0.9
Budget balance (% GDP) 1.0 1.0 -0.3 -1.0
Current account balance (% GDP) -2.4 -3.5 -3.0 -3.3
Public debt (% GDP) 179.3 184.8 176.6 171.4

(e): Estimate. (f): Forecast.

STRENGTHS

  • Support from the international financial community; possible debt relief
  • World leader in maritime transport
  • Tourist destination
  • Business climate set to improve under new government

WEAKNESSES

  • Very high public debt
  • Very poor quality bank portfolio; high level of non-performing loans
  • Weak public institutions; high levels of tax evasion
  • Small industrial base; low-tech exports (food, chemicals, metals, refined oil)
  • Social tensions fuelled by fiscal restraint and massive unemployment

Risk assessment

The recovery’s momentum continues

In 2020, growth will continue to accelerate, but is unlikely to reach the levels projected by the new government (close to 3%). The tourism boom has been instrumental for resurrecting the Greek economy: the number of yearly visitors has now surpassed 30 million, and revenue from travel receipts increased by 13.6% in the first half of 2019 relative to the same period last year, reflecting higher individual expenditures. The country is now shifting to domestically driven growth. In 2019 and 2020, virtually the entire growth contribution will come from consumption and investment, as the contribution of net exports becomes neutral. Notably, private investment is projected to yet again grow near the 10% mark. Household consumption will grow at 0.8%, supported by rising wages and declining unemployment, which will nonetheless remain in excess of 17%. Absent productivity growth, rising wages will harm competitiveness. FDI (1.5% of GDP) will be the main source of financing for capital investment, as banks remain too encumbered by bad assets to finance the economy. At around 35%, the level of non-performing loans (NPLs) remains the largest in the Eurozone by an order of magnitude, and so private credit growth remains negative (-10% year/year in September 2019). Intricate links persist between the financial health of banks and the State: exposure to the sovereign represents 180% of tier 1 capital, contingent guarantees amount to 5% of GDP, the State holds significant stakes in the three largest banks. Therefore, the threat of the sovereign-bank doom loop is still latent. Nonetheless, thanks to the Hercules bad bank scheme, banks will be able to offload €30 billion of the €75 billion NPL stock.

 

The new government doubles down on fiscal consolidation

Athens aims to repeat the outstanding fiscal performances of recent years by encouraging investment and private spending through tax cuts, hoping that the growth of the tax base will more than compensate the decrease in marginal rates. The planned tax cuts concern the corporate tax rate (29% to 24%), the income tax for poor earners (22% to 9% for annual incomes under €10,000) and the dividend withholding tax (10% to 5%). In addition, the solidarity contribution (a 10% add-on to the tax rate for high earners) and the business activity duty (a licensing fee for self-entrepreneurs) are to be scraped altogether. These measures will amount to about €1 billion in stimulus, €600 million for corporations and €400 million for households. Judicial initiatives to overturn public salaries and pension reforms constitute a low-probability, high-stakes fiscal risk. If the courts rule against the state, one-off retroactive payments could amount to nearly 4.5% of GDP. Tax collection will remain a significant challenge: thanks to a weak repayment culture, the VAT gap (the difference between expected and collected revenue) is of 33%. In order to enlarge the tax base, the 2020 budget will raise the minimum share of electronic payments required for tax credits and introduce real-estate taxation based on market prices. The gradual stabilization of the economy permitted the lifting of the last remaining crisis-era capital controls in September. After receding slightly in 2019 due to the record tourism performance and shipping services, the current account deficit will rebound slightly as imports rise with domestic demand. The structural trade deficit is explained by a weakly diversified and low value added manufacturing sector. The government is projected to meet its demanding fiscal targets (3.5% primary surplus) and thus reduce public debt, most of which is official in nature.

 

An ambitious pro-growth agenda following snap elections

On July 7, 2019, center-right New Democracy won a landslide victory (39.8% of the vote) over incumbent Alexis Tsipras’ leftist Syriza Party (31.5%). Its leader, Kyriakos Mitsotakis, holds an outright majority with 158 out of 300 seats in Parliament, as the winner receives 50 extra seats. Mitsotakis aims to resuscitate private investment through a decidedly pro-business reform agenda. A major milestone will be the launch of the Hellinikon urban regeneration project. Valued at €8 billion, the project aims to develop an area three times the size of Monaco around the former Athens international airport. Other planned projects include the Skouries and Olympias mines in the north (€1 billion), the development of the Piraeus port area (€800 million), and smaller scale pharmaceutical investments totaling €460 million. After 28 years, an agreement was reached over the Macedonia naming dispute, and so Greece will stop blocking North Macedonia’s initiatives in multilateral instances (EU and NATO).

 

Last update : February 2020

Payment

Bills of exchange, as well as promissory letters, are used by Greek companies in domestic and international transactions. In the event of payment default, a protest certifying the dishonoured bill must be drawn up by a public notary within two working days of the due date.

Similarly, cheques are still widely used in international transactions. In the domestic business environment, however, cheques are customarily used less as an instrument of payment, and more as a credit instrument, making it possible to create successive payment due dates. It is therefore a common and widespread practice for several creditors to endorse post-dated cheques. Furthermore, issuers of dishonoured cheques may be liable to prosecution provided a complaint is lodged.

Promissory letters (hyposhetiki epistoli) are another means of payment used by Greek companies in international transactions. They are a written acknowledgement of an obligation to pay, issued to the creditor by the customer’s bank, committing the originator to pay the creditor at a contractually fixed date. Although promissory letters are a sufficiently effective instrument in that they constitute a clear acknowledgement of debt on the part of the buyer, they are not deemed a bill of exchange and so fall outside the scope of the “exchange law”.

SWIFT bank transfers, well established in Greek banking circles, are used to settle a growing proportion of transactions and offer a quick and secure method of payment. SEPA bank transfers are also becoming more popular, as they are fast, secured and supported by a more developed banking network.

In 2015, Greece imposed restrictions on flows of capital outside the country. All payments directed abroad follow a specific procedure, and are monitored by the banks and the Ministry of Finance, with restrictions placed on the amount and nature of the transfer.

 

Debt collection

Amicable phase

Before initiating proceedings in front of the competent court, an alternative method to recover a debt is to try to agree with the debtor on a settlement plan. Reaching the most beneficial arrangement can usually be achieved by means of a negotiating process.

The recovery process commences with the debtor being sent a final demand for payment via a registered letter, reminding him of his payment obligations, including any interest penalties as may have been contractually agreed – or, failing this, those accruing at the legal rate of interest. Interest is due from the day following the date of payment stipulated in the invoice or commercial agreement at a rate, unless the parties agree otherwise, equal to the European Central Bank’s refinancing rate, plus seven percentage points.

 

Legal proceedings

Fast track proceedings

Creditors may seek an injunction to pay (diataghi pliromis) from the court via a lawyer under a fast-track procedure that generally takes one month from the date of lodging the petition. To engage such a procedure, the creditor must possess a written document substantiating the claim underlying his lawsuit, such as an accepted and protested bill, an unpaid promissory letter or promissory note, an acknowledgement of debt established by private deed, or an original invoice summarising the goods sold and bearing the buyer’s signature and stamp certifying receipt of delivery or the original delivery slip signed by the buyer.

The ruling issued by the judge allows immediate execution subject to the right granted to the defendant to lodge an objection within 15 days. To obtain suspension of execution, the debtor must petition the court accordingly.

Based on current competence thresholds, a “justice of the peace” (Eirinodikeio) hears claims up to EUR 20,000. Above that amount, a court of first instance presided by a single judge (Monomeles Protodikeio) hears claims from EUR 20,000 to EUR 250,000. Claims over EUR 250,000 are reviewed by a panel of three judges (Polymeles Protodikeio).

Ordinary proceedings

Where creditors do not have written and clear acknowledgement of non-payment from the debtor, or where the claim is disputed, the only remaining alternative is to obtain a summons under ordinary proceedings. The creditor files a claim with the court, who serves the debtor within 60 days. The hearing would be set at least eighteen months later. Greek law allows the court to render a default judgment if the respondent fails to file a defence. Since 2016, the lawsuit procedure has been changed, and is now based exclusively on documentation provided to support the claim.

 

Enforcement of a legal decision

Enforcement of a domestic decision may commence once it is final. If the debtor fails to satisfy the judgment, the latter is enforceable directly through the attachment of the debtor’s assets.

For foreign awards rendered in an EU member state, Greece has adopted advantageous enforcement conditions such as the EU Payment Orders or the European Enforcement Order. For decisions rendered by non EU countries, they will be automatically enforced according to reciprocal enforcement treaties. In the absence of an agreement, exequatur proceedings will take place.

 

Insolvency proceedings

Restructuring proceedings

This procedure aims to help the debtor restore its credibility and viability, and continue its operations beyond bankruptcy. The debtor negotiates an agreement with its creditors. During this procedure, claims and enforcement actions against the debtor may be stayed but the court will appoint an administrator to control the debtor’s assets and performances. The reorganisation process starts with the debtor’s submission of a plan to the court made by specialists, which conducts a judicial review of the proposed plan whilst a court-appointed mediator assesses the creditors’ expectations. The plan can only be validated upon approval by creditors representing 60% of the total debt. (60% is not always applicable, depending on the case and approval by the bank).

 

Liquidation

The procedure commences with an insolvency petition either by the debtor or the creditor. The court appoints an administrator as soon as the debts are verified. In addition a Pool of Creditors (three members representing each class of creditors) will be given the responsibility of overseeing the proceedings, which terminate once the proceeds of the sale of the business’ assets are distributed.

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