The Greek economy has proven resilient in recent years as it continues to rebound from the 2007 economic crisis – including the rigid fiscal constraints demanded by creditors — and the global COVID-19 pandemic. In early 2020, COVID-19 held the potential to permanently scar an economy that still suffered from legacy issues, including high debt and non-performing loans, limited credit growth, near zero capacity for fiscal expansion, and a hollowed-out healthcare system. While continuing its aggressive reform agenda, the Mitsotakis government rose to meet the pandemic challenge, as European institutions effectively welcomed Greek debt back into the eurosystem, the IMF and EU evaluated the country’s public debt as sustainable, Moody’s upgraded Greek sovereign debt, the country began borrowing at historically low cost, and strategic investors returned, favorably considering Greece’s current and long-term value proposition. Meanwhile, over the past several years, our bilateral relationship has deepened significantly via our defense and strategic partnerships, and Greece ambitiously seeks now to bring our economic ties to similar, historic heights. Far from being the problem child of Europe or the international financial system, Greece is increasingly a source of solutions – not just in the fields of energy diplomacy and defense, but in high-tech innovation, healthcare, and green energy, improving prospects for solid economic growth and stability here and in the wider region.
The Mitsotakis government was elected in July 2019 on an aggressive investment and economic reform agenda which has plowed forward despite the pandemic. During its first nine months in power, Mitostakis’s team pushed market-friendly reforms and Parliament voted through dozens of economic-related bills, including a key investment law in October 2019, designed to cut red tape, help achieve full employment, and adopt best international practices – including by digitizing government services. GDP growth reached 8.3 percent in 2021, a major leap forward following the detrimental effects of the COVID-19 pandemic.
Greece maintains a liquidity buffer, estimated at €30 billion, but is intent on boosting its coffers as the economic fallout from the COVID-19 pandemic is larger than expected. So far untouched, the buffer should be sufficient to cover the country’s financing needs until at least the end of 2022, and the country’s leadership maintains its intention to reserve the European Stability Mechanism (ESM) tranche solely for sovereign debt interest payments. While capital controls were completely lifted in September 2019, Greece remains subject to enhanced supervision by Eurozone creditors. However, the European Commission’s (EC) latest positive assessment on the Greek economy, will – most likely – pave the way for the end of the country’s enhanced surveillance status in Q3 2022.
Greece’s banking system, despite three recapitalizations as part of the August 2015 European Stability Mechanism (ESM) agreement, remains saddled with the largest ratio of non-performing loans in the EU, which constrains the domestic financial sector’s ability to finance the national economy. As a result, businesses, particularly small and medium enterprises, still struggle to obtain domestic financing to support operations due to inflated risk premiums in the sector. To tackle the issue, and as a requirement of the agreement with the ESM, Greece has established a secondary market for its non-performing loans (NPLs). According to the Bank of Greece, non-performing loans (NPLs) came, on a solo basis, to €58.7 billion at end-September 2020, down by €9.8 billion from December 2019 and by €48.5 billion from their March 2016 peak. The NPL-to-total loan ratio remained high in September 2020 at 35.8 percent. The high percentage of performing loans benefited from moratoria until December 31, 2020, and contained the inflow of new NPLs. Non-performing private debt remains high, irrespective of the reduction in NPLs on bank balance sheets via transfer to non-bank entities. 2020 saw substantial reforms aimed at resolving the issue of NPLs. These involved the securitization of NPLs through the activation of the “Hercules” scheme and the enactment of Law No. 4738/2020 which improves several aspects of insolvency law. Nevertheless, NPLs will remain high, and considering that there will be a new inflow of NPLs due to the pandemic, other solutions complementary to the “Hercules” scheme should be implemented. In addition to sales of securitized loan packages, banks have exploited other ways to manage bad loans. For example, nearly all of Greece’s systemic banks employ loan servicing firms to manage non-performing exposure. Greece’s secondary market for NPL servicers now includes 24 companies including: Sepal (an Alpha Bank-Aktua joint venture), FPS (a Eurobank subsidiary), Pillarstone, Independent Portfolio Management, B2Kapital, UCI Hellas, Resolute Asset Management, Thea Artemis, PQH, Qquant Master Servicer, and DV01 Asset Management.
Greece’s return to economic growth has generated new investor interest in the country. Pfizer, Cisco, Deloitte, and Microsoft, to name a few, have all announced major investments in the past few years, due in part to improved protection of intellectual property rights and Greece’s delisting from the U.S. Trade Representatives Special 301 Watch List in 2020. In March 2021, Greece successfully raised €2.5 billion from its first 30-year bond sale in more than a decade, with the issue more than 10 times oversubscribed. The bond, which has so far received investor demand of more than €26.1 billion, will price at 150 basis points over the mid-swap level, resulting in a yield of 1.93 percent.
In January 2022, Fitch Ratings Agency maintained Greece’s credit rating at BB and noted the country’s outlook as ‘stable’ due to the financial impact of COVID-19. On April 1, 2021, Moody’s improved its outlook of the Greek banking system from “stable” to “positive.”Standard & Poor’s affirmed its credit rating for Greece at BB-in October 2020 and also kept its outlook to “stable.” The European Central Bank (ECB) included Greek government bonds in its quantitative easing program, with €12 billion worth of Greek government debt earmarked for purchase under the ECB’s €750 billion Pandemic Emergency Purchase Program in 2020. In February 2022, Greece has received the Eurogroup’s approval to repay the final tranches of bailout loans from the International Monetary Fund (IMF) early, along with a small part of bilateral loans from its eurozone partners. Greece plans to repay loans worth €1.9 billion to the IMF by March, two years ahead of schedule.
The Greek government was given strong marks for its initial response in limiting the spread of the pandemic and has implemented several innovative digital reforms to its economy during COVID-19. The Greek economy contracted by 10 percent in 2020 with a gross domestic product (GDP) of €189 billion but its GDP rose to €211 billion in 2021. This was largely attributed to the successful 2021tourism season, which brought in €10 billion to the Greek economy. The unemployment rate was 15.8 percent in 2021, a slight increase from 15.5 percent in 2020.
In response to the pandemic, Greece’s recovery and resilience plan was among the first plans that were formally approved by the European Council, in July 2021. Greece received €4 billion of the disbursement in August. The plan will disburse €17.8 billion in grants and €12.7 billion in loans over the course of five years. Greece has earmarked funding for many climate-relevant investments and digitalization efforts. Greece was also the first Member State to finalize its Partnership Agreement for the 2021-2027 programming period. The Partnership Agreement outlines the plan for deploying of more than €21 billion worth of investments to support Greece’s economic, social and territorial cohesion.
The Greek government also took measures to support businesses throughout the pandemic in 2021. In February 2021, the government approved a €500 million scheme to support small and medium-sized businesses affected by the pandemic. The state aid Temporary Framework was open to small and medium-sized enterprises active in all sectors except financial, primary agriculture, tobacco, and fisheries sectors. This public support, in the form of direct grants, sought to provide sufficient working capital for businesses affected by the pandemic. In May 2021, the European Commission approved a €793 million support measure for micro, small and medium-sized enterprises affected by the coronavirus outbreak in the form of direct grants, which is open to companies active in all sectors except the financial one. The aid aims to provide liquidity support to qualifying beneficiaries, to safeguard businesses against the risk of default, allowing them to preserve their economic activity and helping them recover after the pandemic.
Rounding out 2021, the Greek government enacted a €665 million scheme in November 2021 to support households affected by the pandemic. The scheme was adopted to assist households at risk of losing their primary residence by defaulting on their mortgage loans. On 3 November 2021, the European Commission approved modifications to ensure the extension of the loan period and a reduction of the maximum aid amount per beneficiary.
|TI Corruption Perceptions Index||2021||58 of 180||https://www.transparency.org/country/GRC|
|Global Innovation Index||2021||47 of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||$74 million||https://apps.bea.gov/international/factsheet/factsheet.cfm?Area=310|
|World Bank GNI per capita||2020||$17,930||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|