Economic Analysis
Greece

Greece

Population 10.8 million
GDP per capita 18,049 US$
B
Country risk assessment
A3
Business Climate
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Synthesis

major macro economic indicators

  2016 2017 2018 (e) 2019 (f)
GDP growth (%) -0.2 1.5 2.0 2.1
Inflation (yearly average, %) -1.1 0.0 1.1 0.5
Budget balance (% GDP) -5.7 0.5 0.8 0.4
Current account balance (% GDP) -0.2 -1.1 -0.9 -0.4
Public debt (% GDP) 176.8 180.8 178.6 177.8

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

STRENGTHS

  • Support from the international financial community; possible debt relief
  • World leader in maritime transport
  • Tourist destination

WEAKNESSES

  • Very high public debt
  • Very poor quality bank portfolio; high level of non-performing loans (48% in the first quarter of 2018)
  • 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

Continued evidence of improvement

Following Greece’s exit from its third bailout plan, the economic upturn continues. Growth strengthened in 2018 driven by robust household consumption and a positive impact from net exports. Economic growth is expected to remain buoyant in 2019. The labour market is likely to stay on its positive trend, with an expected decline in the unemployment rate, which should support household consumption. In addition, wage increases and lower inflation are projected to contribute further to purchasing power. Investment, which grew at a sluggish pace in 2018, is set to strengthen, but will probably rebound by less than anticipated. The construction sector should, however, hold up positively, driven by the growth in tourism activities. Renewed confidence, an improving business environment, and tax incentives – including lower corporate and dividend taxes – should fuel growth in fixed capital. Nevertheless, the banking system’s weaknesses inherited from the crisis and more restrictive financing conditions than in the rest of the eurozone will likely continue to limit SME investments. Although access to bank credit has improved and deposits have stabilised, the level of non-performing loans remains high. To meet the targets set by the Bank of Greece and the European Central Bank’s single supervisory mechanism, the largest banks have promised to clean up their balance sheets by reducing their exposure to non-performing loans (NPEs). They are thus expected to lower their NPE ratio to 35% in 2019 by gradually offloading their portfolios of non-performing loans. Finally, exports, particularly of services, are likely to remain on track in 2019. Despite this, net exports are expected to make a smaller contribution to growth than in 2018 as a result of the rebound in imports, driven by higher consumption and investment.

 

Balanced public accounts and primary surpluses in line with commitments

Greece finally emerged from its third assistance programme in August 2018. Fiscal consolidation efforts undertaken since 2015 have enabled the country to gradually get the public accounts back into balance and rebuild the credibility of its fiscal policies. For the second year running, the government balance was in surplus and the primary surplus remained in line with the objectives set by the adjustment plan. Although Greece will no longer be subject to the plan, it agreed at the Eurogroup summit in June 2018 to continue and complete the reforms adopted under the European Stability Mechanism (ESM) programme in exchange for debt relief. The country will therefore be required to accept enhanced monitoring by the ESM and the European Commission. Although the medium-term fiscal objectives have not yet been defined, in October 2018 Greece sent the Commission its 2019 budget, which was accepted in its first draft. The 2019 budget plans to maintain the fiscal surplus while implementing a number of measures other than those of the adjustment plan. On the expenditure side, the pension cuts that were supposed to take effect in January 2019are to be replaced by a freeze on pensions until 2022. The contribution to social security for self-employed workers will be reduced, and measures to facilitate home ownership for low-income households will be implemented. Revenues are expected to benefit from the favourable economic situation and better tax collection, which will allow the authorities to reduce taxes on labour, business, and real estate. The primary surplus is projected to remain in line with the Commission’s target of 3.5%, but the slight increase in debt service will weigh on the government’s surplus. Despite the large primary surplus, public debt increased in 2018 due to the disbursement of €15 billion under the Emergency Safeguard Mechanism in August 2018. Largely concessional (73% held by international donors), the debt is expected to decrease in 2019. In order to ensure debt sustainability, European lenders and the government have agreed on a package of measures including deferral of interest and depreciation as well as a ten-year extension on European Financial Stability Fund loans.

 

A difficult election year for Syriza

As the second government led by Alexis Tsipras, a coalition between radical left-wing party Syriza and the right-wing ANEL party, enters its last year before the October 2019 election, the Prime Minister carried out a final cabinet reshuffle in August 2018 to prepare for the upcoming election. Despite a budget pledging social measures and the country’s exit from the third European aid plan, Syriza is losing ground in the polls and now sits second behind the right-wing New Democracy Party. It is therefore very likely that the radical left-wing coalition will not be re-elected once its term ends. The European elections in May 2019 should provide a good insight into electoral trends ahead of the autumn elections.

 

Last update : February 2019

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 €20,000. Above that amount, a court of first instance presided by a single judge (Monomeles Protodikeio) hears claims from €20,000to €250,000. Claims over €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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