Economic studies
Greece

Greece

Population 10.8 million
GDP per capita 18,049 US$
B
Country risk assessment
A4
Business Climate
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Synthesis

major macro economic indicators

 

  2015 2016 2017(f) 2018(f)
GDP growth (%) -0.3 -0.2 1.4 1.9
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

(f): forecast

STRENGTHS

  • Support from the international financial community and possibility of debt relief
  • World leader in maritime transport
  • Tourist destination

WEAKNESSES

  • Very high level of public debt
  • Very poor quality of bank portfolio, high non-performing loans level (48% in Q1 2018)
  • Weak public institutions, strong tax evasion
  • Limited industrial base, low-technology exports (food, chemicals, metals, refined oil)
  • Social tensions fuelled by fiscal austerity and mass unemployment

Risk assessment

Tentative recovery in growth and gradual consolidation of the banking system

Growth figures for the first quarter confirm Greek economic recovery in 2018. GDP grew by 0.8% compared to the previous quarter and by 2.3% year-on-year. Greek households and businesses remain optimistic and still expect an improvement of the economic situation. The purchasing managers' confidence index reached 54 points on average over the first six months of 2018, whereas it had just crossed the threshold of 50 points, synonym of economic expansion, in 2017. The same is also true for the confidence indicator produced by the European Commission, which rose from an average of 99 in 2017 to 102 in 2018. Investment, which remained the main driver of growth in 2017, is beginning to decelerate. However, its slowdown should be temporary. The rise in the capacity utilisation rate added to an increase in the public investment budget during the second half of the year suggest a short-term rebound in gross fixed capital formation. The upturn in investment could, however, be constrained by the risk still hanging over the banking system. Access to bank loans has improved, but the high level of non-performing loans still limits bank lending to business. Despite, their recapitalisation in December 2015, the quality of the banks' assets is uncertain. Also, under the pressure of the central bank, the major banking institutions will be forced to speed up the clean-up of their balance sheets. This gradual consolidation should encourage a more sustained recovery in bank deposits, which have continued to grow slowly. The normalisation of the financial situation should also encourage the gradual lifting of capital controls, the measures of which have been eased for companies but remain binding for households. Household consumption, which grew for the first time since 2016, is expected to strengthen, supported by improved labour market conditions. The unemployment rate will gradually fall to 20%, but wage growth will remain subdued. Although demand from Greece's trading partners is slowing, exports continue to trend up, but the expected increase in imports should limit the contribution of net exports to growth.

 

A primary surplus in line with the objectives, but a very heavy debt

The fiscal consolidation started in 2015, as part of the third financial assistance programme for Greece, should continue under the supervision of the European Stability Mechanism (ESM). The programme, which ends on 20 August 2018, has made €86 billion available in exchange for significant tax and economic reforms, avoiding the country's payment default and the bankruptcy of the banking system. Since 2015, parliament has approved a number of reforms, the application of which will run until 2019, the most important being the controversial pension reform, the direct and indirect taxation overhaul (reform of VAT, anti-tax evasion rules, broadening of the tax base). The objective is to reach a primary surplus of 3.5% as of 2018 against 1.75% set for 2017. The meagre recovery and significant reduction in public spending resulted in a primary surplus of 2.1%, above the ESM target.
Despite these efforts, and without any significant reduction in the public debt burden (178.6% of gross domestic product at the end of 2017), the risk associated with excessive indebtedness remains substantial. The European Commission's debt sustainability analysis of June 2018 shows that, without any further measures, Greece's financing requirement will exceed 20% of GDP, i.e. the sustainability threshold according to European criteria. In order to strengthen the medium-term sustainability of debt, the Eurogroup approved a set of additional measures at its 22 June 2018 meeting, among which an extension of maturities and a 10 years moratorium on interest and amortisation. Coupled with a disbursement of €15 billion in order to build up a cash reserve and secure financing needs for around 22 months after the end of the bailout programme, these measures will, according to the Commission, cover the financing requirement until 2060. The IMF, whose analysis diverges from the European Commission's, especially on the Greek State's ability to achieve sufficient primary deficits, is still raising doubts about the long-term sustainability of Greek debt. From 2027 onwards, the Fund expects a primary surplus equivalent to 1.5% of GDP with annual growth of around 1%, while the EU forecasts a surplus of 2.2% of GDP while maintaining an annual growth forecast of 3%
The current account is expected to remain slightly in surplus in 2018. Tourism revenue and the export positive trend will more than offset the increase in the energy bill.

 

Alexis Tsipras: Between austerity and waning popularity

Since the parliamentary elections of September 2015, the Syriza radical left coalition government led by Alexis Tsipras has been leading the country. Founded on a weak coalition with nationalists, the government, revamped in 2016,, had under pressure from international donors to implement an austerity policy that is gradually reducing its popularity among voters. But, while the bet of recovery seems successful, that the country has just emerged from the third European financial assistance programme and that some redistributive measures were made possible by the primary surpluses released in 2016 and 2017, Syriza comes in second position in the polls since early 2016, behind the New Democracy, the main opposition party. While the reconfiguration of the political scene is taking shape with a view to the 2019 legislative elections, early elections are not excluded.

 

Last update : August 2018

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. 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 fifteen 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 European Union 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 reorganization 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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