Greece

major macro economic indicators

(e): Estimate (f): Forecast

Risk assessment

Despite inflationary headwinds, growth will remain strong

Prior to the Russia-Ukraine war, the Greek economy was expected to continue its outstanding post-pandemic recovery in 2022. The outbreak of the war and its associated effects on commodity markets will, however, result in significant headwinds and a noticeable downward revision to GDP growth in 2022. Although Greece’s direct dependence on Russian natural gas is relatively low (7% of the primary energy mix), its overall reliance on hydrocarbons is substantial (51% on oil, 21% natural gas). Therefore, the Greek economy will feel the effect of higher energy prices. Companies will face increased cost pressures, lower margins, and higher uncertainty, all of which will take a toll on private investment. Nonetheless, thanks to the favourable growth momentum inherited from the 2021 boom and still significant public investment, GDP will still grow at a healthy pace. 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 remain a main pillar of economic growth. These funds will be used, for instance, to strengthen the electricity grid (particularly in the islands) and launch digitalization ventures including the EUR 870 billion ultrafast broadband project. Private investment should therefore remain relatively strong despite the blow to confidence. However, Greek banks will remain cautious in their financing as still 20% of their total loans are non-performing, despite some recent improvements. The labour market continues to improve, with unemployment below the 12% mark. However, wage growth remains lacklustre. With inflation eating into purchasing power, the prospects for private consumption (70% of GDP) growth are modest, despite fiscal measures to soften the blow. A return of growth momentum in 2023 is conditioned by the outcome of the war, as uncertainty remains high. The performance of the tourism sector  is expected to keep improving as the pandemic fades, and the trans-shipping industry will continue to benefit from excess global demand in the transport and logistics market. The contribution of net exports is therefore expected to remain positive.

Delayed fiscal consolidation, ECB normalization will worsen the debt burden

The energy crisis will cause a setback in the government’s fiscal consolidation schedule. This will mainly come from subsidies designed to shield consumers and firms from the effects of energy inflation. Between September 2021 and the onset of the Ukraine crisis, subsidies for households have been increased from 9€/megawatt-hour to 42, and 180 for vulnerable households (the corresponding subsidy is 65€ for businesses, regardless of sector). This is combined with expanded discounts from the Public Power Corporation. In addition, the government announced further tax relief measures and a frontloading of the defence spending program. Trends in tax revenue are expected to remain favourable given the still strong GDP growth and reforms to reduce the size of the informal sector. Public finances still bear the scars of the Eurozone crisis, Greece remains by far the most indebted state in Europe. Most of this debt is owned by official creditors, which have manifested their confidence in the reformist Mitsotakis administration. However, as inflation intensifies and the ECB is forced to normalize policy, debt service pressures will be increasingly felt. Still, the ECB’s moves towards a tighter stance will be cautious, and vigilant of any bond market stress. Despite a worsening energy balance, the improving services surplus (boosted by tourism) and booming net official transfers from the EU will limit the widening of the current account deficit.

Racing against the clock to reform, tensions 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 enjoys strong popular support and is headed for re-election in 2023. The ordered pandemic response and the impetus for business-friendly reforms have not been stymied. The reforms have, for instance, strengthened independence and transparency in public sector recruiting and moved forward with key privatization projects. However, implementing their ambitious reform agenda could be more difficult in a second mandate. Indeed, it is usual for Greek governments to enjoy majority, as the largest party receives a 50-seat bonus. However, this bonus was cancelled by the former administration and, despite being reinstated by the present one, will not apply in the next elections. Therefore, necessary coalition-building will require compromises. 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.

Last updated: March 2022

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.