Greece

major macro economic indicators

(e): Estimate (f): Forecast

Risk assessment

Sharp slowdown after two boom years, but economy generally resilient

In 2023, persistent inflationary headwinds and the associated reduction in purchasing power (both for Greek and European consumers) will bite noticeably into Greece’s outstanding post-pandemic recovery. Greece has negligible direct exposure to Russian energy supply, and even to natural gas in general (which represents only 21 % of the primary energy mix), but it is highly dependent on imported oil (50% of the energy mix) and foreign manufactured goods given its ongoing poorly diversified domestic industry. As a result, the country has not been spared a cost of living crisis. Despite recent improvement, unemployment is expected to remain at 11-12%, meaning that despite overall tightness of the global labour market, Greek workers remain in a comparatively precarious condition. Moreover, despite minimum wage increases, aggregate nominal wage growth is expected to trail inflation. This erosion will be partially offset by fiscal spending measures, including VAT cuts on energy products, direct subsidies to vulnerable households and firms, and retail energy price caps. In essence, aid to households and firms is estimated at 5.7% of GDP. Likewise, exports of goods (refined fuel, food products, pharmaceuticals), which are overwhelmingly reliant on European partners (61% of destinations), are likely to suffer a slowdown or a mild contraction. Alongside these headwinds, investment and service exports will constitute the pillars of resilience. Public authorities and industry were remarkably agile in servicing pent-up demand for tourism. As a result, tourist activity returned to pre-pandemic levels in 2022 and will continue to grow in 2023. Despite a global economic outlook marred by uncertainty, Greece is expected to retain a wealth of investment opportunities. The EU’s Recovery and Resilience Facility, of which Greece will be the largest beneficiary in relative terms, with grants and loans amounting to roughly 18% of 2019 GDP over the 2021-2027 period, will ensure sustained demand for sectors such as construction, telecommunications and renewable energy, while generating positive externalities that strengthen potential output. Likewise, significant progress in structural reforms (fiscal, market flexibility, easing of red tape and bureaucracy, plus consolidation of corporate balance sheets) has provided grounds for stable investor confidence. Greece is a global leader in trans-shipping, and as supply chains regionalise, the eastern Mediterranean’s role as a trade hub is set to intensify. However, the non-negligible probability of a worse-than-expected global energy outlook constitutes an important downside risk.

Sovereign risk lower than debt and deficit indicators suggest, but external imbalances still a concern

Superficially, it would seem that Greece is still the fiscal problem child of the EU in that it has by far the highest debt ratio and a persistently high budget deficit. In reality, however, the probability of default is low in the short term. The maturity structure of Greek sovereign debt is heavily backloaded and is overwhelmingly concessional in nature, making its debt servicing costs very low. At the same time, the country’s liquid assets buffer is estimated at 17% of 2022 GDP. Furthermore, it is worth noting the return to a primary surplus, reflecting the windfall tax revenue effect of booming activity, as well as reforms including the perennation of temporary reduction to fiscal transfer programmes. Finally, the risk brought about by the ECB’s policy normalisation and the associated rise in sovereign premia is mitigated by the quality of the government’s relationship with European institutions. In absolute terms, Greek debt is much smaller than that of other highly indebted European states, such as Italy. Therefore, in the event of a liquidity crunch, the resources necessary to stabilise Greek debt would be modest. Given Greece’s success in following the European Commission’s reform agenda, such support can be expected. Public debt sustainability could become a problem again, but not in the near term. The banking system is nearing the end of a long process of healing the scars of the euro crisis. The non-performing loan (NPL) ratio, which was as high as 20% in 2021, was half that in 2022 and is expected to reach 5% by end-2023, and subsequently inch closer to the European average of 2%. Again, this progress can be reversed if downside risks to activity materialise, but not at symmetrical speed. The large current account deficit is covered by a large share of stable funding (official flows and FDI). However, high dependence on manufactured imports and a handful of service exports (tourism and shipping) leave the country exposed to deglobalisation shocks.

Minor and manageable government instability ahead, tensions with Turkey

Elections are scheduled for mid-2023. The reformist New Democracy (ND) party of incumbent Prime Minister Kyriakos Mitsotakis is expected to retain power, but not without some effort. As it is unlikely to obtain an outright majority, immediate snap elections are likely. In the second round, the winning party would get a bonus of up to 50 seats (out of a total of 300), which would restore ND’s hold on power. On the geopolitical front, the big challenge will be avoiding an outright conflict with Turkey while managing migrant flows and asserting energy interests. The dispute over the Greek maritime claims based on the entitlement of its numerous islands to the exclusive economic zone (EEZ) and continental shelf (CS) has intensified after the discovery of hydrocarbon reserves. After the elections in Turkey are settled, we can expect tensions to ease but remain latent and re-emerge in the longer run.

Last updated: April 2023

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.