Ekonomisk riskbedömning
Greece

Greece

Population 10.85 million
GDP 17988 US$
C
Country risk assessment
A3
Business Climate
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Synthesis

Major macro economic indicatorS

  2014 2015  2016 (f) 2017 (f)
GDP growth (%) 0.4 -0.3 0.3 1.4
Inflation (yearly average) (%) -1.4 -1.1 0.1 1.1
Budget balance* (% GDP) -3.6 -7.5 -2.0 -0.2
Current account balance (% GDP) -1.6 0.1 -1.0 -0.6
Public debt (% GDP) 179.8 177.7 179.7 176.6

*(f): Forecast

STRENGTHS

  • Support from the international financial community, possibility of debt relief at the end of 2018
  • World leader in maritime transport
  • Tourist destination

WEAKNESSES

  • Very high level of public debt
  • Very poor quality of bank portfolio
  • 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

Growth expected to gain momentum in 2017

Growth resumed in the second half of 2016 thanks to renewed confidence generated by the easing of tensions with the international financial community (conclusion of the 1st review of the 3rd bailout plan granted to Greece in the summer of 2015 by The European Stability Mechanism (ESM). European disbursements have resumed but confidence remains low. The low level of bank deposits (which are not rebuilt yet and are half as high as they were in 2009) didn’t enable to lift the capital controls introduced in late June 2015. Even if the restrictions have been eased over recent months, transactions with foreign companies, in particular, are still capped and subject to approval. Business was driven by investment, the latter however remaining at a low level (70% less than its peak level in 2007). Moreover, export revenues from the maritime shipping industry have worsened as a result of being affected by capital controls and the performance of the tourism sector, which must cope with the refugee crisis.

The activity should improve in 2017 if the situation in the banking sector is normalised and relations with creditors remain confident. This could lead to the lifting of capital controls. Moreover, exports are expected to recover due to improved competitiveness and increased investment in this sector. However, the high level of nonperforming loans (more than one third of loans) weighs on the recovery of credit. Furthermore, although seeing a marginal decline, the unemployment rate remains at a very high level (23%). The austerity policy hinders the growth of private demand but some of the measures of the bailout plan enable the State to pay its arrears and to thereby re-inject liquidity in the economy.

 

Reforms carried out at a steady pace

The 3rd bailout plan provides for the provision of €86 billion (almost half of the GDP) in exchange for major reforms. The Greek Parliament approved a number of these reforms between summer and the end of 2015, including the regulation of foreclosures. In May 2016, the controversial pension and taxation reforms as well as new austerity measures were adopted. Additional measures were also implemented in June 2016 (including the privatisation of an energy operator and the lifting of restrictions on the sale of non-performing loans secured by the State). In October 2016, the Eurogroup discussed the effective implementation of certain measures, including privatisation. These reforms enabled the release, in instalments, of the first two tranches of the plan. A new review is ongoing (December 2016), to monitor the implementation of new measures (budget targets, reforms to the labour and energy markets).

 

A major fiscal adjustment but a still unsustainable debt

Achieving a new primary surplus (excluding interest expense), thanks to the VAT reform, better tax collection and improved market conditions, helped to reduce the budget deficit in 2016 . This surplus is expected to increase in 2017 and 2018 due to the measures put in place, including broadening the tax base and spending cuts.

If it continues to meet its commitments, Greece could benefit in late 2018 from a major debt relief taking the form of a restructuring of European loans. The Eurogroup has already agreed, in December 2016, on implementation of the first steps of lengthening credit terms and limiting the interest burden. However, these measures have been temporarily suspended in response to announcements by the Greek Prime Minister on pensions and the VAT.

The IMF, however, in its belief that the budgetary targets set by the European creditors in the medium term are not achievable and that the proposed debt management is insufficient, is still holding back its participation in the 3rd bailout plan.

 

A political life marked by the financial crisis

In recent years the country has experienced a strong government instability (five elections and a referendum in seven years). All governments were torn between the demands of donors and the need to prevent a social explosion in a country where the poverty rate nearly tripled between 2007 and 2013. Early elections held in September 2015 gave a majority to the radical left Syriza party, allied with the nationalist right. However, the coalition government holds only a three seats majority. With only small leeway with the country's creditors, the Prime Minister redirected his cabinet in November 2016 in a direction that is more favourable to the reform policy. It remains fragile and the risk of early elections cannot be discounted. Since early 2016, the main opposition party, New Democracy, almost always surpasses Syriza in the polls.

 

Last update : January 2017

Payment

Bills of exchange are used by Greek companies in domestic and international transactions and, along with promissory notes, have no longer been subject to stamp duty since 1st January 2002.

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 than as a credit instrument, making it possible to create successive payment due dates. Post-dated cheques endorsed by several creditors therefore represent common and widespread practice.
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.

Debt collection

The recovery process commences with the debtor being sent a final demand for payment by recorded delivery mail 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.

Under a presidential decree passed on 5 June 2003, 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.

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. Such objection will generally not have suspensive effect.
To obtain suspension of execution, the debtor must petition the court accordingly.

Based on new competence thresholds, in effect since April 2012, a “justice of the peace” (Eirinodikeio) hears claims up to 20,000 EUR. Above that amount, a court of first instance presided by a single judge (Monomeles Protodikeio) hears claims from 20,000 EUR to 250,000 EUR and comprising a panel of three judges (Polymeles Protodikeio) to hear claims above this last amount.

As to the latter court, any attempt of an amicable transaction between the parties and prior to legal action is no longer required since July 2011, as this condition was not as effective as it was expected.

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.

Such litigation can take over a year, even two or three years, depending on how crowded the courts are and how complex the case is, with the procedure requiring submission to the court of conclusive evidence, from which each party expects to derive advantage – such as all documents related to the underlying commercial transaction – and the hearing of witness testimony essential to proper development of the lawsuit.

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