Greece

Sharp slowdown in sight, but economy generally resilient

After the inflation-induced slowdown of 2023, growth in 2024 will stabilise at a more moderate pace, while retaining a relatively strong performance compared to the European average, supported by resilient growth in tourism and investment. 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 poorly diversified domestic industry. As a result, the country has borne the brunt of a cost-of-living crisis. Despite recent improvement, unemployment is expected to remain at 11-12%, meaning that even with a durably tight labour market Greek workers remain in a comparatively precarious condition. Moreover, despite minimum wage increases, aggregate nominal wage growth and public support measures are set to expire or, at least, are unlikely to fully compensate inflation. 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. Alongside these headwinds, investment and service exports will constitute the pillars of resilience. The tourism sector continued to break historical records in 2023 and is expected to maintain positive albeit slower growth in 2024. Despite a global economic outlook marred by uncertainty, Greece is expected to retain attractive 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 suggested in relation to debt levels, 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. Concretely, the probability of default is very 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 state’s liquid asset buffer is estimated at 17% of GDP. Furthermore, it is worth noting the return to a strong primary surplus of 2% of GDP in 2023 (expected to strengthen in 2024 to around 3%), reflecting the windfall tax revenue effect of booming activity, as well as reforms including the perennation of temporary reduction to fiscal transfer programs. 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. Declining financing needs (expected at around 9% of GDP in 2024, vs 19% in 2021) and low rollover risk further mitigate liquidity risk. Barring a significant fiscal shock, Greek sovereign bonds should soon recover their investment-grade status. 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 set to reach 5% in 2024, progressively inching closer to the European average of 2%. The large current account deficit is covered by a large share of stable funding (official flows and FDI) but is symptomatic of a diversification deficit in the country’s industry. High dependence on manufactured imports and a handful of service exports (tourism and shipping) leaves the country exposed to deglobalisation shocks.

Mandate of reformist government renewed, détente with turkey

Incumbent centre-right and liberal party New Democracy (ND) swept to victory in the June 2023 elections, securing 40.6% of the vote and obtaining 158 out of 300 seats in Parliament thanks to the 50 bonus seats awarded to the majority. Prime Minister Kyriakos Mitsotakis has therefore secured a second mandate to continue implementing an EU-backed reform and modernisation agenda (electrification of auto fleet, digitization of public services, labor force upskilling, energy efficiency of homes). Opposition parties were weakened across the board, with left-wing Syriza achieving the lowest result for a main opposition party in modern Greek democracy (17% of the vote). Following the Tempi train crash tragedy and the successive mega fires, stronger emphasis is expected to be place on strengthening physical infrastructures, and closer monitoring of public utility privatisation projects (Attica Tollway, Athens Airport). On the geopolitical front, the big challenge will be managing tensions with Turkey. Both countries are at loggerheads over long-standing maritime claim disputes in the Aegean and Eastern Mediterranean seas, as well as the management of refugees. With both Mitsotakis and Turkish president Recep Tayyip Erdo?an reelected in 2023, and following Greece’s swift humanitarian response to the February 2023 earthquake in Turkey, relations are improving between the two countries. Common membership to NATO and warmer relations with the US on both sides are keeping a lid on the risk of conflict.

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

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.

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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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Last updated: October 2023