Coface Group
Greece

Greece

Population 11.0 million
GDP per capita 21,648 US$
C
Country risk assessment
A3
Business Climate
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Synthesis

Major macro economic indicatorS

  2013 2014 2015  2016 (f)
GDP growth (%) -3.2 0.7 -0.2 -0.2
Inflation (yearly average) (%) -0.9 -1.4 -1.1 0.0
Budget balance* (% GDP) -13.0 -3.6 -7.2 -3.6
Current account balance (% GDP) -2.0 -2.1 0.0 -0.2
Public debt (% GDP) 177.7 180.1 176.9 183.0

*(f): Forecast

STRENGTHS

  • Support from the international financial community, possibility of a debt relief at the end of 2018
  • World’s leading shipowner
  • Tourist attractiveness

WEAKNESSES

  • Very high public debt
  • Quality of banks' portfolios very degraded
  • Weak public institutions. high tax evasion
  • Limited industrial base, low technological content of exports (foodstuffs. chemical products. metals. refined oil)
  • Social tensions fostered by fiscal austerity and massive unemployment

Risk assessment

Economic activity is expected to recover in the second half of 2016

After having been hit again by the recession in 2015, due to uncertainties generated by Syriza's rise to power and the introduction of capital controls, in the middle of the year, the country should gradually return to growth in the second half of 2016 thanks to increased confidence generated by the easing of tensions with the international financial community. The expected completion of the first review of the European Stability Mechanism program following the agreement reached in May 25, 2016 by the euro area and the implementation, in early June, of additional measures, should lead to the resumption of European disbursements and pave the way for debt relief at the end of 2018. Renewed confidence linked to these latest developments should help lift capital controls and encourage investment recovery. Drawings on European loans should, inter alia, allow the government to pay its arrears and thereby re-inject money into the economy.

The unemployment rate should continue to decline slightly in 2016 due to the reforms of recent years and the recovery in economic activity. However, it remains very high (24.4% of the workforce in Q4 2015).

 
Major reforms have been passed in May 2016

The third bailout package, following those in 2010 and 2012, approved by the Eurogroup in August 2015, involves the provision of 86 billion euros in exchange for the implementation of significant reforms. The Greek parliament has approved a number of these reforms between the summer and the end of 2015, including regulations governing property seizure. In May 2016, it adopted the controversial pension and tax reforms, as well as new austerity measures (indirect tax increases and the creation of a new state privatisation fund, an independent public revenue authority and a contingency mechanism designed to cut spending if the country fails to meet fiscal targets). This was also the case, at the beginning of June 2016, after much procrastination, for the additional measures (phasing out of a benefit for pensioners, privatisation of an electric operator, lifting of restrictions on selling nonperforming loans guaranteed by the state).

 

Progress have been achieved on budget but public debt can be brought down to a sustainable path only if it benefit from a substantial relief

The more limited than expected decline in activity, the fiscal adjustment effort made in the second half of 2015 and one-off factors have enabled the country to achieve a slight primary surplus (excluding interest payments and the support to the banking sector) last year, exceeding what had been agreed. However Bank recapitalisation, completed by year's end, temporarily increased the total public deficit to over 7% of GDP. Reforms and measures taken in 2016 should generate new savings and ensure that the deficit will remain limited to around 3.6% of GDP this year. With the resumption of financial assistance, payment default by the government should once again be avoided. Moreover, if commitments under the rescue plan are met, Greece should benefit at the end of 2018 from a major debt relief thanks to a reprofiling of the European loans. However, even after restructuring, debt dynamics will remain highly sensitive to economic and fiscal shocks.

 

Banking sector is convalescing

Banks experienced a severe crisis marked by a lack of access to international capital markets, deposit flights, a long-lasting recession and losses caused by the forced restructuring of Greek sovereign debt in 2012. Banks have been recapitalised and consolidated in 2014 and recapitalised again late 2015. However, their profitability and the quality of their assets have strongly deteriorated (nonperforming loans account for nearly 35% of total loans). Moreover, if the introduction of capital controls helped stem deposit withdrawals, these have not replenished. The situation in the sector should remain weak in 2016 although efforts are undertaken to address the problem of bad loans.

 

Country's politics continue to be impacted by the financial and economic crisis

Greece has experienced in recent years a strong political instability (five elections and a referendum in seven years), all governments having been torn between donor requirements and the need to prevent a social explosion. The current government, led by the party of the radical left "Syriza", that emerged victorious from new early legislative elections (September 2015), now only has a two-seat majority in Parliament and thus remains fragile. Moreover, the country has found itself in the front line of the migrant crisis.

 

(Last update : January 2016 ) 

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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