Greece

Robust growth driven by investment and resilient household consumption

2024 has so far seen Greece continue to outperform the rest of the eurozone (Coface forecasts 1%) and its economy is set to maintain its momentum in 2025. Business activity should be underpinned by resilient domestic demand. First, household consumption will continue to be driven by growth in real wages and pensions (up to 2.5%), supported by the easing of inflationary pressures. In September 2024, the Prime Minister announced an increase in public sector wages and the minimum wage (with a target of EUR 950 in 2027) of up to 5% in 2025. In addition, labour market trends remain positive, with employment rising and the unemployment rate falling below 10% in Q2 2024 for the first time since 2009 (although it still remains high). Second, investment is expected to accelerate, mainly associated with the implementation of European funds, as the opportunities remain attractive despite an uncertain global economic outlook. The EU's Recovery and Resilience Facility, which allocated EUR 36 billion to Greece (19% of its 2019 GDP, making it the largest beneficiary in relative terms) and was split evenly between grants and loans, will ensure sustained demand for sectors such as construction, telecoms and renewables, while generating positive externalities that will boost potential output. The fourth installment of EUR 2.3 billion and EUR 1 billion in loans and grants, respectively, was disbursed in July and October 2024. As such, Greece has received 50% of these funds since 2020, with the other half to be disbursed over the next two years. Similarly, the significant progress made in structural reforms focusing on taxation, market flexibility, cutting red tape and bureaucracy, and consolidating corporate balance sheets has helped to stabilise investor confidence.

In addition, exports of goods (oil, agricultural, pharmaceutical products), mainly to European partners (nearly 60%), should regain strength thanks to the gradual recovery in foreign demand. On the services side, the economy will continue to benefit from the robustness of the tourism sector, which broke all-time records in 2024 (international arrivals were 19% above the pre-pandemic level between January and July) and should maintain positive growth in 2025. Greece has negligible direct exposure to Russian energy, even to natural gas in general, which accounts for just 21% of its primary energy mix. Nevertheless, it is highly dependent on oil imports (54% of the energy mix) and foreign manufactured goods due to the limited diversification of its industry. An escalation of the conflicts in the Middle East and Ukraine could lead to a rise in energy prices, which would have repercussions on the wallets of Greek households.

Last, Greece is a world leader in transshipment and as supply chains regionalise, the role of the Eastern Mediterranean as a hub for regional trade is set to intensify. However, continuing tensions in the Red Sea, which are diverting ships via the Cape of Good Hope, could weigh on Greek shipping, which is already seeing a reduction in container traffic (-10% year-on-year in the first nine months of 2024 in Piraeus, its largest port).

Public finances continue to recover, but external imbalances remain high

Although Greece's debt ratio remains the highest in the European Union, it remains on a downward trajectory with limited financing risks over the medium term. The favourable structure of the debt (the majority held by public creditors, with low fixed rates and long maturities) has made it possible to mitigate the impact of the monetary tightening of recent years and to reduce yield spreads with other sovereign bonds. At the end of 2023, three of the four main rating agencies upgraded Greece's credit rating to “investment grade”, thereby removing from the “speculative” category for the first time since 2010. In addition, the country has a primary surplus (i.e., excluding interest) that is set to increase to over 2% of GDP from 2024, despite easing inflation, due to a moderation in current spending (notably following the withdrawal of energy support measures) and growth in tax revenues sustained by the boom in activity. At the same time, the government's cash reserve is estimated at 16% of GDP. As a result, the government plans to make an early loan repayment of EUR 8 billion to the European Stability Mechanism at the end of 2024. The reduction in its financing needs (below 10% of GDP in 2024, compared with 19% in 2022) and the low refinancing risk mitigate the liquidity risk. Furthermore, the banking system is nearing the end of a long process of healing the scars left by the euro crisis. The ratio of non-performing loans (NPLs), which reached 30% at the end of 2020, should approach 5% in 2024, gradually moving towards the European average of 2%.

The current account deficit should continue to narrow gradually but will remain high because of more sustained investment (official flows and FDI), which will lead to a surge in imports. The dynamism of domestic demand, in terms of both consumption and investment, will maintain the trade deficit (15% of GDP in 2023) because of the country's dependence on imports of manufactured goods. However, the well-advanced reduction in the raw materials import bill, the gradual recovery of the European economies, and the gains in competitiveness accumulated over the last decade should help to improve the trade balance. On the other hand, the country benefits from a surplus in the balance of services (nearly 10% of GDP in 2023) driven by the increase in tourism receipts (6% more than in 2023 during the first 7 months of 2024), but reduced by the impact of the disruption of traffic in maritime transport activities in the Red Sea.

Political stability and easing of relations with Turkey

Prime Minister Kyriakos Mitsotakis secured a second term in office and a comfortable majority in the June 2023 elections. His centre-right, liberal New Democracy (ND) party won 40.6% of the vote and 158 of the 300 seats in Parliament thanks to the additional 50 seats granted to the majority. Opposition parties were left weakened and fragmented, with the left-wing Syriza achieving the lowest result for a main opposition party in modern Greek democracy (17.8% of the vote). Although the ND did not achieve the expected results, its dominance of the Greek political scene was confirmed in the European elections in June 2024, when it took a lead of over 13% over its main opponent Syriza. With this weak opposition, the government will be able to continue implementing the reform and modernisation programme supported by the EU (electrification of the car fleet, digitisation of public services, improving the skills of the workforce, energy efficiency in housing). The Tempi rail accident in 2023 and successive mega-fires have made infrastructure improvement and civil protection management two of its priorities. In addition, the government should focus on improving the population's standard of living in order to respond to its citizens’ concerns.

On the geopolitical front, new diplomatic initiatives are under way to ease tensions with Turkey. The negotiations concern long-standing territorial disputes in the Aegean and Eastern Mediterranean, which are rich in untapped energy resources. The second phase of these negotiations is due to continue with the meeting of the Greek-Turkish High Cooperation Council, which should take place in early 2025. Following Greece's rapid humanitarian response to the earthquake in Turkey in February 2023, which helped to restore relations between the two countries, Turkey has also offered to help Greece fight the devastating fires in the summer of 2024. This willingness to cooperate had already been affirmed in December 2023 with the Turkish President's visit to Athens, which concluded with the signing of bilateral agreements in a number of areas, including tourism (extension of Turkish tourist visas), the economy (resolve to double their trade to USD 10 billion) and migration. Joint membership of NATO and warmer relations with the US on both sides limit the risk of conflict. Although dialogue is improving, tensions remain over Turkey's repeated demand that the Turkish Republic of Northern Cyprus be separated from the Republic of Cyprus, which is the only nation recognised by the international community. In addition, the conflict in the Middle East could jeopardise the rapprochement given the diverging positions.

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.

0

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.

0

Last updated: October 2024