EKONOMİ YAYINLARI
Greece

Greece

Population 10.7 million
GDP 19,570 US$
B
Country risk assessment
A2
Business Climate
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Synthesis

major macro economic indicators

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) 1.9 1.9 -9.3 5.5
Inflation (yearly average, %) 0.8 0.5 -0.6 0.7
Budget balance (% GDP) 0.9 0.6 -9.0 -3.0
Current account balance (% GDP) -3.5 -2.1 -7.7 -4.5
Public debt (% GDP) 184.8 180.9 205.2 200.5

(e): Estimate (f): Forecast

STRENGTHS

  • Abundant European financial support, both fiscal and monetary
  • World leader in maritime transport
  • Competent pandemic management
  • Rapidly-improving business climate

WEAKNESSES

  • Very high public debt
  • Very poor quality bank portfolio; high level of non-performing loans
  • Cumbersome bureaucracy and judicial system
  • Poorly diversified industry, overwhelming tourism dependence
  • Increasing security concerns vis-à-vis Turkey

Risk assessment

Tourism-induced bust, investment-led rebound

As one of the most tourism-dependent economies in Europe (20% of GDP), Greece’s road to recovery will be particularly challenging. Tourism revenues are estimated to have contracted by 75% in 2020. In the event of a speedy vaccine rollout across Europe, the sector could be approaching normality in H2 2021. However, the first half of the year will remain tumultuous even in an optimistic scenario, due to ongoing waves of lockdown and reopening in Greece and its neighbours. Exports of goods (refined oil, pharmaceuticals, metals, food products) will lead the recovery of external demand in 2021 with the rebound of maritime trade, but total net exports will continue to have a negative contribution. Private consumption (69% of GDP) has benefited from emergency measures, restraining the 2020 contraction to 6%. While the furlough scheme has kept unemployment at bay, it is nonetheless expected to peak at slightly under 20% (vs a pre-pandemic level of 17%) as corporate insolvencies start materializing. Investment (11% of GDP), bolstered both by business-friendly reforms and by an outpour of European funds, will spearhead the recovery. Greece will be one of the main beneficiaries of the Next Generation EU recovery fund and set to receive EUR 33 billion (18% of GDP) over the next 7 years, spurring 19% investment growth in 2021. If carefully executed, these funds will be used to strengthen the electricity grid (particularly in the islands), build 5G and electric car infrastructure, digitalization ventures including the EUR 870 billion Ultrafast Broadband project, education and worker retraining programs, among other projects set to boost potential output.

 

European support mitigates the sovereign risk, but banks remain an Achilles’ heel

The pandemic led to 5% of GDP in additional spending and 2.5% in foregone revenues in 2020. Support has come overwhelmingly through on-budget spending (as opposed to off-budget measures like loan guarantees). Notable measures include a refundable advance payment to firms (2% of GDP, refunding starts in 2022), wage allowances and coverage of social security contributions (1.5% of GDP), reduction of advance income tax payment (0.7% of GDP), the furlough scheme, extension of unemployment benefits, and increased healthcare spending. Tax cuts, employment subsidies and the refundable advance payment will continue into 2021. The relatively small scale of public guarantees (1.5% of GDP) is consistent with the state’s already oversized exposure to the banking sector, which is set to increase further with the nationalization of Piraeus Bank. Existing EU grants (2.5% of GDP) have been frontloaded in order to cover part of the financing gap, thus cushioning the impact on the 2020 deficit. Nevertheless, expenditure is set to grow by 11% in 2020 and moderate by 6% in 2021, while revenues will drop by 6% before rebounding by 5%. Public debt will surpass the 200% of GDP threshold, but sovereign risk is mitigated by creditor structure (80% official) and by EU/ECB stimuli. Notably, the ECB has included Greek bonds in its QE program, bringing borrowing costs to all-time lows. Furthermore, Greece will be the Eurozone country that benefits the most from the EU Next Generation recovery fund (18% of GDP over 2021-2027). The banking sector still bears the scars of the previous crisis (36% non-performing loan ratio). The Hercules bad bank scheme will reduce this stock by half, but the pandemic is expected to increase it by 8%. The possible creation of a European bad bank is an upside risk. The external deficit, driven by the structural goods trade deficit (12% of GDP), is predominantly financed by Eurosystem liquidity flows (TARGET 2 balances) and FDI.

 

A competent executive keeps the reform agenda on track, tensions escalate with Turkey

Commanding an outright majority in Parliament (158 out of 300 seats), the centre-right New Democracy administration headed by Prime Minister Kyriakos Mitsotakis has had a positive year in power, keeping a comfortable lead over opposition leader Syriza (45% of voting intention vs. 27%). The pandemic response was reactive and the impetus for business-friendly reforms has not been stymied. The overhaul of the insolvency legislation has strengthened bankruptcy prevention, streamlined restructuring and softened conditions on defaulting debtors. Other reforms have strengthened independence and transparency in public sector recruiting, simplified investment licensing, and moved forward the energy sector privatization and bureaucratic digitalization. Future structural reform projects involve abolishing outdated labour market practices, a pension reform, speeding up judicial processes and streamlining urban planning. The main geopolitical challenge will be avoiding an outright conflict with Turkey while asserting energy interests. A long-standing dispute over the maritime claims awarded by the Greek archipelago has intensified after the discovery of hydrocarbon reserves. The risk of military engagement became dangerously high over the summer of 2020 after a naval collision. Despite an EU-mediated de-escalation, both parties seem fundamentally unwilling to back down in the long run.

 

Last updated: February 2021

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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