COMMISSION STAFF WORKING DOCUMENT In-Depth Review for Greece in accordance with Article 5 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances Accompanying the COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Economic policy coordination in 2021: overcoming COVID-19, supporting the recovery and modernising our economy
Date: 2021-06-02
Institutions: European Commission, Secretariat-General
Subjects: EU employment policy, European Semester, Greece, coronavirus disease, economic recovery, epidemic, fiscal policy, investment policy, macroeconomics, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 2.6.2021  SWD(2021) 403 final  COMMISSION STAFF WORKING DOCUMENT In-Depth Review for Greece                  in accordance with Article 5 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances  Accompanying the COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Economic policy coordination in 2021: overcoming COVID-19, supporting the recovery and modernising our economy {COM(2021) 500 final} - {SWD(2021) 401 final} - {SWD(2021) 402 final} - {SWD(2021) 404 final} - {SWD(2021) 405 final} - {SWD(2021) 406 final} - {SWD(2021) 407 final} - {SWD(2021) 408 final} - {SWD(2021) 409 final} - {SWD(2021) 410 final} - {SWD(2021) 411 final} - {SWD(2021) 412 final}  
 
 
CONTENTS 

Executive summary 

1.  Assessment of Macroeconomic Imbalances 

2.  Thematic Issue: Productivity, investments and potential growth 

3.  Thematic Issue: External Sector 

4.  Thematic Issue: Financial Sector 

5.  Thematic Issue: Labour Market 

LIST OF TABLES 

Table 1.1: 

Assessment of Macroeconomic Imbalances Matrix - Greece 

Table 1.2: 

Selected economic and financial indicators, Greece 

Table 3.1: 

Selected external indicators, Greece 

LIST OF GRAPHS 

Graph 2.1: 

Thematic Graphs: Productivity, investments and potential growth imbalances 

Graph 3.1: 

Thematic Graphs: External position 

Graph 3.2: 

NIIP projection 

Graph 4.1: 

Thematic Graphs: Financial sector 

Graph 5.1: 

Thematic Graphs: Labour Market 

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EXECUTIVE SUMMARY 

The  2021  Alert  Mechanism  Report  concluded  that  an  in-depth  review  should  be  undertaken  for 
Greece to examine further the persistence of imbalances or their unwinding. In February 2020, under 
the  previous  annual  cycle  of  surveillance  under  the  Macroeconomic  Imbalances  Procedure,  the 
Commission  identified  “excessive  macroeconomic  imbalances”  in  Greece.  These  imbalances  related  to 
high  government  indebtedness,  the  high  share  of  non-performing  loans  and  incomplete  external 
rebalancing, in a context of still high –although declining - unemployment and low potential growth. The 
analysis shows that these vulnerabilities remain. It should be noted that the context of the assessment of 
vulnerabilities in this year’s in-depth review (IDR) for Greece is markedly different from last year. Also, 
the  evolution  of  the  COVID-19  pandemic,  the  strength  of  the  recovery,  and  possible  structural 
implications of the crisis are all still surrounded by high uncertainty, requiring caution in the assessment. 
In general, policy action over the past year focused on cushioning the impact of the COVID-19 shock and 
facilitating the  recovery. This has added to indebtedness but should support adjustment  in the  medium-
term. Looking forward, the Recovery and Resilience Plan provides an opportunity to address imbalances, 
investment and reforms needs.   

Main observations and findings of this IDR analysis are: 

  This IDR is informed by the 2021 spring forecast, which expects a recovery in economic activity 
in Greece with the easing of the COVID-19 crisis. After the steep drop of 8.2% in 2020, real GDP is 
projected to increase by 4.1% this year and 6% next year, allowing the economy to recover to its pre-
pandemic level by the end of 2022.  

  Greece has a high public debt to GDP ratio. Its level increased by more than 25 percentage points 
in 2020, due to the decline in GDP and the fiscal response to the COVID-19 pandemic. Even though 
public  debt  is  high,  a  large  share  of  it  has  been  extended  by  official  creditors  at  concessional  rates, 
which,  together  with  the  large  cash  buffer,  insulates  Greece  from  short-term  fluctuations.  The  debt 
ratio is expected to resume a downward path from 2021.  

  The banking sector is burdened by a high stock of non-performing loans and provisions impact 
weigh  on  the  banks’  profitability.  The  still  high  NPL  ratio  in  the  banking  sector  has  been  on  a 
marked  declining  trend,  mostly  due  to  sales  of  loans  supported  by  the  ‘Hercules’  asset  protection 
scheme.  However,  there  is  a  risk  that  NPLs  will  increase  again,  once  policies  to  protect  borrowers 
from  the  COVID-19  shock  are  phased  out.  In  addition,  the  debt  repayment  capacity  of  both 
households and non-financial corporations remain particularly low, while the underdeveloped capital 
market  limits  firms’  access  to  non-debt  financing.  The  new  insolvency  code,  which  will  come  into 
effect from June 2021, is a key step to resolve and prevent unviable debt. 

  The  external  position  remains  weak  and  the  current  account  balance  deficit  appears  high 
compared to prudent benchmarks. Greece’s external liabilities increased as a result of the COVID-
19  pandemic,  reflecting  the  impact  of  the  travel  restrictions  and  the  cycle.  The  current  account  is 
forecast  to  remain  below  what  is  required  to  reach  a  more  prudent  net  international  investment 
position.  However,  external  liabilities  consist  to  a  large  extent  of  debt  instruments  held  by  official 
creditors, which mitigate Greece’s exposure to external shocks or to shifts in market sentiment. 

  Potential  growth  in  Greece  has  been  negative  since  2010. Potential  growth  fell  to  -0.8%  in  2020 
and is forecast to turn slightly positive in 2022. Efforts to strengthen growth prospects face headwinds 
from  the  depleted  capital  stock,  population  ageing  and  outward  migration  of  skilled  labour.  The 
reforms  included  in  the  Greek  Recovery  and  Resilience  Plan  build  on  the  very  large  reform  effort 
undertaken under the economic adjustment programmes and are complementary to reforms monitored 
under enhanced surveillance. 

  The  labour  market  remains  a  serious  concern.  The  weak  labour  market  performance  reduces 
Greece’s  social  and  economic  resilience  and  increases  risks  of  poverty  and  social  exclusion.  The 
unemployment rate has been steadily declining since 2013, reflecting improvements in the functioning 

1 

 
of  the  labour  market  and  reached  16.3%  in  2020,  with  youth  unemployment  at  35%  in  2020.  Yet, 
unemployment, both total and youth, still remains the highest in the EU, while the activity rate stood 
almost  5  percentage  points  below  the  EU  average  in  2020.  The  timely  response  of  the  Greek 
authorities to the COVID-19 crisis has limited dismissals, thanks to the effective implementation of a 
set of employment retention measures supported by European instruments. 

Executive summary 

2 

 
1.  ASSESSMENT OF MACROECONOMIC IMBALANCES 

Introduction 

In  February  2020,  over  the  previous  annual  cycle  of  surveillance  under  the  Macroeconomic 
Imbalances  Procedure,  the  Commission  identified  “excessive  macroeconomic  imbalances”  in 
Greece.  These  excessive  imbalances  related  to  high  government  indebtedness,  incomplete  external 
rebalancing and the high share of non-performing loans, in a context of still high unemployment and low 
potential growth. The 2021 Alert Mechanism Report published in November 2020 concluded that a new 
in-depth  review  (IDR)  should  be  undertaken  for  Greece  with  a  view  to  assess  the  persistence  or 
unwinding of imbalances.  

The  context  of  the  assessment  of  vulnerabilities  this  year  is  markedly  different  from  last  year's 
IDRs, which took place before the COVID-19 pandemic. The evolution of the pandemic, the strength 
of the recovery, and possible structural implications of the crisis are still surrounded by high uncertainty 
requiring caution in the assessment. Policy action over the past year focused on cushioning the impact of 
the COVID-19 shock and on facilitating the recovery. While this supports adjustment in the medium-term 
through  stronger  fundamentals,  it  also  has  added  to  indebtedness.  Follow-up  to  country-specific 
recommendations  from  2019  and  2020,  including  those  that  are  MIP-relevant,  is  taking  place  in  the 
context of the assessment of the Recovery and Resilience Plans (RRPs). The analysis of policies in the 
present  report  was  finalised  before  the  formal  submission  of  RRPs  and  does  not  draw  on  information 
included  in  RRPs.  It  is  therefore  without  prejudice  to  the  Commission’s  assessment  of  RRPs,  which  is 
ongoing at the time of publication of this report. 

The assessment follows a similar structure as the IDRs that were included in Country Reports in 
recent  annual  cycles.  This  chapter  presents  the  main  findings  for  the  assessment  of  imbalances,  also 
summarised in the MIP assessment matrix. The assessment is backed by selected thematic chapters that 
look more at length at productivity (section 2), external sector (section 3), financial sector (section 4) and 
labour market (section 5). Spillovers and systemic cross-border implications of imbalances are also taken 
into account. In addition, also assessments of structural issues made in previous IDRs and in the context 
of fiscal assessments are considered if relevant.  

Macroeconomic context 

Real GDP growth is forecast to rebound in 2021, with GDP expected to reach its pre-crisis level by 
the  end  of  the  forecast  horizon.  Growth  in  Greece  rebounded  during  the  last  two  quarters  of  2020, 
following an unprecedented contraction in the first half of the year. Overall GDP fell by  -8.2% in 2020 
and is forecast to grow by 4.1% in 2021 and 6.0% in 2022, levelling the real GDP volume in 2022 with 
the pre-pandemic figure in 2019. Potential growth is forecast to recover from the sharp drop in 2020 and 
reach 0.1% in 2022. The output gap is set to improve but will likely remain negative, at -2.1% in 2022. 
The current account balance is forecast to only gradually recover, remaining in deficit (-4.3%) in 2022, 
still below the levels registered in 2019 (-1.5%). The negative gross saving rate of households increased 
markedly  to  positive  territory  as  a  result  of  the  COVID-19  crisis.  It  is  forecast  to  reduce  in  2022,  but 
remain positive, even though well below EU average rates. The unemployment rate is expected to remain 
high, at 16.3% in 2021, and slowly decline to 16.1% in 2022, as the slack in the labour market gradually 
diminishes. HICP inflation would gradually increase to 0.6% in 2022, as the economic activity returns to 
its pre-pandemic levels and tourism activity gradually recovers.  

The economic recovery in 2021 and 2022 is expected to be driven by domestic demand. The ongoing 
rollout of the vaccination campaign should allow Greece to gradually start reducing the stringency of its 
lowering  uncertainty.  Private 
improving  economic  sentiment  and 
containment  measures, 
consumption will benefit from the realisation of consumption deferred from the previous year, while the 
launch  of  the  Recovery  and  Resilience  Plan  is  likely  to  boost  investments  going  forward.  The  gradual 
reopening  of  the  tourism  sector  is  also  likely  to  contribute  modestly  to  the  recovery  in  2021  and  more 

thus 

3 

 
1. Assessment of Macroeconomic Imbalances 

significantly in the following years. Fiscal policy will remain accommodative, while support measures to 
protect  jobs  and  provide  liquidity  to  firms  are  expected  to  remain  in  place.  Despite  the  progressing 
vaccination campaign, the evolution of the COVID-19 pandemic at both domestic and international level 
remains subject to substantial uncertainty. This has repercussions for the upcoming tourism season, which 
could be weaker than expected if the vaccination process is delayed or the healthcare repercussions of the 
COVID-19  pandemic  deteriorates.  An  additional  uncertainty  concerns  the  speed  of  recovery  of  the 
corporate  and  the  banking  after  the  phasing  out  of  support  measures,  which  could  create  pressure  for 
firms’ liquidity and possibly solvency. The cliff effects are expected to be mitigated by a recent subsidy 
scheme supporting business loans. Impediments to access to finance in particular for small and medium-
sized  enterprises  persist  but  are  expected  to  be  eased  through  measures  presented  in  the  Recovery  and 
Resilience Plan. Similarly, the developments on the labour market in the short run will crucially depend 
on the phasing out of the labour market support measures, which will need to be carefully managed. The 
external  geopolitical  factors  and  the  potential  resurgence  of  the  migration  crisis  once  the  pandemic 
subsides also remain a source of uncertainty. On the upside, the savings accumulated during the pandemic 
could boost spending going forward. 

Imbalances and their gravity 

Greece  faces  a  high  public  debt  to  GDP  ratio,  amounting  to  205.6%  of  GDP  in  2020. The  debt  is 
largely  external  and  extended  by  official  creditors  at  long  maturities  and  low  interest  rates,  effectively 
insulating  Greece  from  short-term  fluctuations.  Moreover,  financing  conditions  remain  favourable  at 
present  and  the  government  continues  holding  a  large  cash  buffer,  which  reduces  the  rollover  risks. 
However,  the  high  stock  of  debt  represents  a  constraint  to  fiscal  policy  as  it  implies  a  relatively  high 
interest rate burden in the long run. It also increases Greece’s vulnerability to higher refinancing rates in 
the long run.  

The  ratio  of  non-performing  loans  is  still  the  highest  in  the  euro  area.  According  to  the  European 
Central  Bank  data,  the  ratio  of  non-performing  loans  came  down  from  35.5%  at  end-2019  to 29.4%  in 
September  2020 (1).  High  non-performing  loans  require  banks  to  increase  provisioning,  mitigating 
financial  stability  risks  but  limiting  their  ability  to  provide  credit  to  companies  and  consumers.  Since 
capital markets are not well developed and offer few alternative sources of finance, they may not be able 
to  compensate  for  the  constraints  in  bank  finance  (see  section  4).  The  strong  sovereign-bank  nexus 
coupled with the high stock of non-performing loans creates non-negligible contingent liability risks for 
the public sector. 

The stock of external liabilities is among the highest in the euro area and while it primarily consists 
of public debt held by official creditors, the current account balance falls short of the level needed 
to  stabilize  the  net  international  investment  position  to  sustainable  levels.  In  2020,  the  net 
international  investment  position  stood  at  -176.4%  of  GDP.  This  stock  is  mainly  composed  of  debt 
instruments issued by the public sector, and held by official creditors, which mitigates Greece’s exposure 
to  external  shocks  and  market  sentiment  shifts.  Reducing  Greece´s  external  liabilities  would  require 
maintaining  current  account  surpluses  for  a  sustained  period  of  time.  However,  the  current  account 
balance was -6.7% of GDP in 2020 and -11.8% of GDP in cyclically adjusted terms (2), which points to a 
structural  imbalance.  The  current  account  surplus  that  is  necessary  to  stabilise  the  net  international 
investment position below  the macroeconomic imbalance procedure threshold of  -35% of GDP in 2030 
was estimated at around 1.5% of GDP in the medium term (see also section 3). 

The labour market suffers from high unemployment, including among the youth, and low activity 
and employment rates. At 16.3% in 2020, unemployment was still the highest in the EU as was youth 
unemployment  (35%  compared  to  16.8%  in  the  EU).  The  activity  rate  was  almost  5  percentage  points 
lower than the EU average (73.1% compared to 77.8%) and the employment rate stood at 61.1% in 2020, 
11 percentage points below the EU average and 5 percentage  points below its level of  2008. The  weak 

(1)  Non-performing  loans  as  a  share  of  total  gross  loans  and  advances  on  a  consolidated  basis  (i.e.  including  cash  balances  at 
central  banks  and  other  demand  deposits  in  the  denominator).  This  figure  is  different  than  the  one  reported  under  enhanced 
surveillance, which follows non-performing loans as a share of total gross customer loans on a solo basis, as reported by the 
Bank of Greece. 

(2)  The cyclically adjusted or underlying current account balance is the current account balance that would prevail if all economies 
were at potential output. The difference between this indicator and the current account norm establishes the current account gap. 

4 

                                                           
1. Assessment of Macroeconomic Imbalances 

labour  market  performance  reduces  Greece’s  social  and  economic  resilience  and  increases  risks  of 
poverty and social exclusion (see section 5). 

Greece’s  low  growth  potential  weighs  on  the  adjustment  of  the  accumulated  stock  imbalances. 
Potential growth is held back by the ageing population, migration outflows of high-skilled workers and a 
depleted capital stock, in the context of low productivity growth,  which signals a need to complete and 
deepen the structural reforms agenda initiated in the previous decade.  

Evolution, prospects and policy responses 

Greece’s  public  debt-to-GDP  ratio  increased  markedly  in  2020  on  account  of  the  COVID-19 
pandemic but is expected to revert to its downward trend in the short run. The pandemic has had a 
sizeable  impact  on  the  Greek  government  debt,  which  is  estimated  to  have  increased  from  180.5%  of 
GDP in 2019 to over 205.6% of GDP in 2020. The updated debt sustainability analysis presented in the 
10th  enhanced  surveillance  report  confirms  that  the  pandemic  increased  fiscal  sustainability  risks  in  the 
medium  term.  However,  according  to  the  baseline  projection,  the  general  government  debt  ratio  would 
decline  over  the  forecast  period,  although  remaining  at  a  high  level,  with  increased  sustainability  risks 
under the alternative scenarios.  (3). 

The  stock  of  non-performing  loans  has  continued  to  decrease  through  December  2020  but  this 
trend could be  interrupted  by the economic effects of the COVID-19 pandemic. The stock of  non-
performing loans has steadily decreased since its peak in 2016. At the end of December 2020, it amounted 
to €47.5 billion, down by €21.1 billion from December 2019 (4). However, the economic impact of the 
pandemic, the expiry of the moratoria and the gradual phase-out of state support measures may result in a 
further increase in non-performing loans (section 4). The authorities continue to take measures to address 
deficiencies  in  the  financial  sector,  including  by  putting  in  place  and  subsequently  extending  the 
‘Hercules’  asset  protection  scheme,  adopting  a  new  Insolvency  Code,  and  introducing  two  temporary 
instalment  subsidy  schemes  for  coronavirus-affected  debtors,  one  for  with  primary  residence  loans  and 
one for business loans of small and medium-sized firms and professionals (the ‘Gefyra’ schemes). 

The size of Greece’s external liabilities increased as a result of the COVID-19 pandemic, while the 
current  account  deficit  is  forecast  to  remain  considerable  in  2021.  The  pandemic  has  further 
weakened  the  country’s  net  international  investment  position  by  around  18  percentage  points  in  2020, 
while causing a marked deterioration in the current account balance. While part of the deterioration is due 
to the travel restrictions and the  contraction  in external demand, it also shows that part of the previous 
improvements  were due to favourable cyclical  factors (section 3). The balance is expected to gradually 
improve  along  with  the  economic  recovery.  More  precisely,  the  current  account  deficit  is  forecast  to 
shrink only marginally in 2021 (-7.6%) but more markedly in 2022 (-5.3%). The authorities have taken a 
number of measures to ease doing business and facilitate productivity enhancing investments, including 
foreign (5),  but  the  public  sector  processes  still  remain  relatively  cumbersome,  inter  alia  as 
interoperability  of  public  sector  systems  and  registries  is  still  limited.  Additional  challenges  include 
stringent and complex regulation in certain sectors, including high entry barriers. Further, the framework 
for  fast-tracking  strategic  investments  has  not  yielded  the  expected  results,  whilst  the  new  strategy  to 
facilitate  trade  and  foreign  direct  investment  has  not  been  adopted  yet  and  its  draft  lacks  a  concrete 
strategic vision to develop high productivity sectors and provide incentives  for firms to grow, innovate 
and export.  

Wage  growth  had  been  moderate  during  the  three  years  before  the  COVID-19  pandemic, 
remaining  broadly  aligned  with  developments  in  productivity,  inflation  and  unemployment.  Unit 
labour costs grew slower than the euro area average, improving cost competitiveness for Greek exports. 
This resulted in strong export market share gains during 2017-2019. Wages stagnated in 2020, as labour 

(3)  European Commission (2021), 10th Enhanced Surveillance Report, June 2021. 
(4)  Source: Bank of Greece, data on a solo basis. 
(5)  Advances in e-governance and the digitalisation of public services are recorded, especially since the outbreak of the COVID-19 
pandemic.  Other  key  steps  include  the  recent  introduction  of  a  new  impact  assessment  framework,  the  simplification  of 
licensing legislation in a number of sectors, and the easing of doing business, mainly through interoperability initiatives and the 
streamlining of documentation requirements. Further, Greece adopted primary  legislation to overhaul the public procurement 
framework  and  also  made  tangible  progress  in  establishing  a  pipeline  of  major  investment  projects,  including  public-private 
partnerships. 

5 

                                                           
1. Assessment of Macroeconomic Imbalances 

demand was curtailed by the COVID-19 pandemic and the revision of the minimum wage was postponed 
to 2021. Moreover, the employment retention measures allowed companies to reduce labour costs while 
preserving  existing  contracts.  Going  ahead,  labour  costs  will  be  adjusted  to  the  annual  revision  of  the 
statutory minimum wage expected to be completed by July 2021. 

While the pandemic has had a relatively limited impact on the labour market thanks to the effective 
policy  response,  unemployment  remains  high  but  is  expected  to  decrease  in  the  next  years.  Since 
2013  and  until  the  outbreak  of  the  health  crisis  in  the  first  quarter  of  2020,  unemployment  had  been 
steadily falling reflecting improvements in the functioning of the labour market and the gradual economic 
upturn (section 5). So far, this positive trend has not been reversed by the COVID-19 pandemic thanks to 
a  range  of public support  measures,  which have  also been instrumental in  maintaining the employment 
rate at 61.1% in 2020, the same level as the year before. Unemployment is expected to decrease further in 
the  next  years  along  with  the  economic  recovery.  The  pandemic  has  nevertheless  caused  a  ‘freeze’  in 
economic activities, leading to a large decline in job vacancies (-61% year-on-year in the second quarter 
of 2020). The authorities have adopted an ambitious Labour Code reform to modernise key aspects of the 
labour  market  and  have  advanced  on  completing  the  General  Minimum  Income  scheme  with  a  labour-
market integration pillar. 

The impact of the temporary economic shock due to the COVID-19 pandemic on potential output 
in the longer run is subject to uncertainty. While private investments have halted as a consequence of 
the lockdown measures, they are expected to recover relatively quickly along with the reopening of the 
economy thanks to the effective support measures. Similarly, job separations have been largely contained. 
Productivity  growth  in  recent  years  benefitted  from  a  series  of  structural  reforms  implemented  in  the 
context of the economic adjustment programme and the current enhance surveillance framework (section 
2). While the pace of reforms has been slowed down by the COVID-19 pandemic, it has also helped to 
bring forward some reforms, most notably those linked to the ambitious digital agenda of the government. 

The  authorities  have  adopted  a  number  of  key  measures  to  strengthen  growth  prospects  going 
forward  but  the  outlook  faces  headwinds  from  the  depleted  capital  stock,  population  ageing  and 
outward migration of skilled labour. In addition to the above-mentioned reforms of the financial sector 
and the  labour  market, the  government  has,  notably, adopted ambitious reforms  for both the vocational 
education and training and university education, maintained consistent progress on investment licensing 
reforms and public administration reforms, strengthened the capacity of the tax administration, reformed 
the  electricity  market  by  the  introduction  of  the  ‘Target  Model’  and  advanced  on  a  number  of  flagship 
privatisation  projects  and  corporate  governance  reforms  of  state-owned  enterprises.  These  reforms, 
monitored under enhanced surveillance are relevant steps towards improving Greece’s growth potential, 
which can then give a major contribution to the reduction of the high debt burdens. Nevertheless, there 
remains  substantial  scope  to  advance  on  further  institutional  and  structural  reforms (6)  to  support 
productivity  growth  and  offset  the  burden  of  years  of  limited  investment,  outward  migration  of  skilled 
labour and the prospects of falling labour supply due to population ageing (7). 

Overall assessment 

The COVID-19 pandemic has interrupted – and partly erased – the gains of the adjustment process 
initiated in the previous years. It has lead to a large increase in public debt and a deterioration of the net 
international investment position. The impact on unemployment and on the stock of non-performing loans 
has been limited so far, through the timely policy response by the authorities, but the withdrawal of the 
emergency measures will need to be carefully managed. The COVID-19 pandemic has also brought to the 
fore the importance of bolstering the country’s growth prospects in correcting the legacy imbalances and 
strengthening its economic and social resilience.  

The Greek authorities have continued their reform agenda despite the difficult circumstances posed 
by  the  COVID-19  pandemic  but  the  accumulated  imbalances  will  require  further  efforts  in  the 
coming  years.  During  the  previous  years,  the  authorities  adopted  a  range  of  measures  to  improve  the 
business environment and the growth prospects of the country, strengthen the  financial sector, facilitate 

(6)  Commission (2020), Country Report – Greece, February 2020. 
(7)  Commission (2020), The 2021 Ageing Report, “Underlying assumptions & projections methodologies”, November 2020. 

6 

                                                           
1. Assessment of Macroeconomic Imbalances 

the  functioning  of  the  labour  and  product  markets,  and  promote  exports,  building  on  reforms  initiated 
under  the  programme.  Given  the  high,  and  partly  increased  ‘stock’  imbalances  on  account  of  the 
recession, restoring and sustaining positive ‘flow’ developments in the following years will be necessary 
in  order  for  the  country  to  resume  the  correction  of  stock  imbalances.  Completing  the  initiated  reform 
agenda  will take many years of sustained implementation, while the country faces headwinds to growth 
from the depleted capital stock, population ageing and outward migration of skilled labour, but can also 
further  contribute  to  the  reduction  of  the  high  debt  burdens.  The  reforms  and  investments  to  be 
implemented under the Recovery and Resilience Facility, along with other EU support, represent a major 
opportunity to boost growth and modernise the Greek economy. 

7 

Table 1.1: 

Assessment of Macroeconomic Imbalances Matrix - Greece 

1. Assessment of Macroeconomic Imbalances 

(Continued on the next page) 

8 

   Gravity of the challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risks) Public debt Greece has a high level of public debt, amounting to 205.6% of GDP in 2020. A large stock of public debt constrains fiscal policy and increases Greece’s vulnerability to higher refinancing rates in future. However, the debt is largely extended by official creditors at long maturities and concessional rates, which – together with the large cash buffer – insulates Greece from short-term fluctuations. The public debt ratio increased by 25 percentage points in 2020, on account of the measures to limit the economic and social cost of the pandemic as well as of the sharp decline in GDP. The debt ratio is expected to reach 208.8% in 2021 before declining to 201.5% in 2022.  Greece reached high primary surpluses in the years before the outbreak of the pandemic and the 2021 Stability Programme presented by the authorities in April 2021 envisages that primary surpluses will be restored as of 2023.  Investments financed through the RRF will be instrumental to improve growth potential. It would be equally important to preserve nationally-financed investment.  Financial sector The banking sector is burdened by a high stock of non-performing loans 29.4% in September 2020 (on a consolidated basis, source: European Central Bank) and provisions impact the banks’ profitability. The capital position of the banking system is broadly adequate (total capital ratio at 16.3% as of September 2020) but the quality of capital remains weak. This is due to the high share of deferred tax credits, which are the most prominent element in a persistently strong link to the Greek sovereign. The debt repayment capacity of both households and non-financial corporations remains particularly low, while the underdeveloped capital market limits firms’ access to non-bank financing. The non-performing loan ratios continued to decline despite the economic impact of the pandemic but the expiry of loan moratoria and the gradual phase-out of state support may create new non-performing loans. Favourably, the secondary market for non-performing loans is growing rapidly. The profit outlook will remain challenging, and thus limiting the internal capital generation capacity. The phasing out of transitional prudential arrangements may pose additional challenges for the banks’ capital position. Reliance on state-related assets is set to increase.  Despite recent improvement in liquidity, the cost of long-term unsecured funding remains high (see Section 4). The Hercules asset protection scheme to securitise banks’ non-performing loans is expected to have a positive impact on the banks’ cost-of-risk and free up space in banks’ balance sheets for new lending, but it also entails an initial one-off capital loss. State support measures and the banks’ loan payment moratoria have slowed the inflow of new non-performing loans, while bolstering credit growth to firms. The authorities adopted the new Insolvency Code at the end of 2020. It is expected to enter into force on 1 June 2021.  The authorities adopted provisions to accelerate the processing of the backlog of household insolvency cases and enhanced the functionality of the e-auctions platform. External sustainability and competiveness Greece has a high stock of net external liabilities (its net international investment position was -176.4% of GDP in 2020), mainly composed of debt instruments held by official creditors, which mitigates Greece’s exposure to external shocks or shifts in market sentiment. The current account balance was -10.7% of GDP in 2020 in cyclically adjusted terms, well below what would be needed to ensure a lasting improvement in the net international investment position (section 3). The size of Greece’s external liabilities increased as a result of the pandemic, while the current account deficit widened as a result of the travel restrictions and subsequent losses in incoming cross-border tourism flows. The current account balance is forecast to reduce only marginally in 2021 (-6.6%) until it subsides in 2022 (-4.3%). Despite a temporary loss due to the pandemic, Greece is expected to continue strengthening its export market share, also building on the recent policy measures taken to ease doing business and facilitate investments. However its trade openness is still among the lowest in the EU (see Section 3.2.2). The authorities have embarked on simplification of processes, expediting licensing procedures, in particular environmental and construction permits, reducing entry barriers in certain sectors, and fast-tracking strategic investments.  A new strategy to facilitate trade and foreign direct investment is under preparation but faces delays.  Relatively limited focus on high productivity sectors and incentives for firms to grow, innovate and export.  
 
  
 
Table (continued) 

1. Assessment of Macroeconomic Imbalances 

Source: European Commission Services 

9 

  Potential growth and productivity Potential GDP growth in Greece has been negative since 2010, on account of weak total factor productivity growth and a large drop of investments during the global financial crisis, which has led to an erosion of the capital stock (section 2).  The large share of micro and small businesses is an aggravating factor as most small and medium-sized enterprises struggle with access to finance and regulatory barriers. Those potential growth weaknesses slow down the deleveraging from the high debts and hamper adjustment and resilience in general. The impact of the temporary economic shock due to the pandemic on potential output in the longer run is subject to uncertainty. In 2020, investment contracted by 0.6% but is expected to recover along with the reopening of the economy. Similarly, job separations have been largely contained. Efforts to strengthen growth prospects faces headwinds from the depleted capital stock, population ageing and outward migration of skilled labour (see Section 5).  The authorities adopted ambitious education reforms, made progress on simplifying investment licensing and public administration reforms including the tax administration, reformed the electricity market and advanced on a number of flagship privatisation projects and corporate governance of state-owned enterprises.  In addition, the authorities adopted the ‘Development Plan for the Greek Economy’ and the ‘Digital Bible’, which outlines ambitious growth and digitalisation agendas. Adjustment issues Labour market and unemployment At 16.3% in 2020, unemployment remains the highest in the EU as does youth unemployment (at 35% compared to 16.8% in the EU). The employment rate stood at 61.1% in 2020, 11 percentage points below the EU average and 5 percentage points below 2008. The weak labour market performance reduces Greece’s social and economic resilience and increases risks of poverty and social inclusion.  Following the steady downward trend in the past six years prior to the pandemic, unemployment has remained broadly stable since the outbreak of the pandemic, as net job losses have been largely contained trough  employment support measures. The pandemic has nevertheless led to a large decline in job vacancies (section 5). Unemployment is expected to subside to 16.1% and employment to expand by 0.7% in 2022.  Since the outbreak of the pandemic, the authorities have put forward a wide range of measures to maintain jobs and prevent a sharp increase in unemployment. These have helped contain net job losses and have supported household incomes.  The authorities have adopted an ambitious Labour Code reform to modernise key aspects of the labour market and advanced on completing the General Minimum Income scheme with a labour-market integration pillar. Main takeaways  Greece entered the pandemic with vulnerabilities linked to high public debt, a high stock of non-performing loans and incomplete external rebalancing, in a context of low potential growth and high unemployment. Despite that short-run risks remain limited, these intertwined challenges impose a constraint on fiscal policy, reduce the amount of credit that can be channelled to the economy and weaken Greece’s social and economic resilience.   The pandemic has interrupted the adjustment process initiated in the previous years and has led to a large increase in public debt and deterioration of the net international investment position. The impact on unemployment and on non-performing loans has been limited so far through the timely policy response by the authorities, but the withdrawal of the emergency measures will need to be carefully managed. Unwinding of the identified vulnerabilities is expected to restart along with economic recovery.   While the policy priorities have necessarily shifted to tackling the social and economic impacts of the pandemic, the authorities continued to take relevant measures to facilitate economic adjustment, building on wide-ranging measures introduced in the past decade. The growth and digital agendas outlined in the ‘Development Plan of the Greek Economy’ and the ‘Digital Bible’ represent ambitious steps. Their timely implementation, along with completing the reforms monitored under enhanced surveillance, will be key. The revamped Multi-annual Financial Framework and the Next-Generation EU represents a major opportunity to boost growth and modernise the Greek economy.   
 
  
 
Table 1.2: 

Selected economic and financial indicators, Greece 

1. Assessment of Macroeconomic Imbalances 

(1) NIIP excluding direct investment and portfolio equity shares 
(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the 
section on taxation 
(4) Defined as the income tax on gross wage earnings plus the employee's social security contributions less universal cash 
benefits, expressed as a percentage of gross wage earnings 
Source: Eurostat and ECB as of 2021-05-05, where available; European Commission for forecast figures (Spring forecast 2021). 

10 

2004-072008-122013-182019202020212022Real GDP (y-o-y)3.6-5.50.11.9-8.24.16.0Potential growth (y-o-y)2.8-1.1-1.1-0.4-0.8-0.20.1Private consumption (y-o-y)3.4-4.30.01.9-5.22.53.3Public consumption (y-o-y)5.1-3.4-2.01.22.72.2-2.3Gross fixed capital formation (y-o-y)5.8-17.7-1.1-4.6-0.612.915.1Exports of goods and services (y-o-y)9.3-1.95.34.8-21.79.114.8Imports of goods and services (y-o-y) 8.3-7.84.73.0-6.86.36.8Contribution to GDP growth:Domestic demand (y-o-y)4.6-7.0-0.51.0-3.13.73.7Inventories (y-o-y)-0.3-0.70.20.10.70.00.0Net exports (y-o-y)-0.82.10.40.7-5.80.42.3Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.50.0-0.2-0.4-0.4-0.20.0Capital accumulation (y-o-y)1.00.1-0.3-0.3-0.6-0.4-0.3Total factor productivity (y-o-y)1.3-1.2-0.60.30.20.30.4Output gap3.8-5.8-10.8-3.7-10.8-6.9-2.1Unemployment rate9.514.523.717.316.316.316.1GDP deflator (y-o-y)3.11.5-0.80.2-1.5-0.30.7Harmonised index of consumer prices (HICP, y-o-y)3.22.9-0.10.5-1.3-0.20.6Nominal compensation per employee (y-o-y)5.1-0.9-1.71.00.01.32.0Labour productivity (real, person employed, y-o-y)2.0-3.6-0.50.6-7.0..Unit labour costs (ULC, whole economy, y-o-y)3.12.8-1.70.47.6-2.3-3.0Real unit labour costs (y-o-y)0.01.3-0.90.29.2-2.0-3.8Real effective exchange rate (ULC, y-o-y)1.60.3-2.0-3.1...Real effective exchange rate (HICP, y-o-y)0.2-0.2-0.3-2.00.4-0.8-1.7Net savings rate of households (net saving as percentage of net disposable income)-0.7-6.8-14.6-11.6...Private credit flow, consolidated (% of GDP)14.41.8-2.30.8...Private sector debt, consolidated (% of GDP)88.3125.2125.8109.9...of which household debt, consolidated (% of GDP)37.858.961.455.5...of which non-financial corporate debt, consolidated (% of GDP)50.566.364.454.5...Gross non-performing debt (% of total debt instruments and total loans and advances) (2).9.134.231.3...Corporations, net lending (+) or net borrowing (-) (% of GDP)5.17.28.01.81.63.31.0Corporations, gross operating surplus (% of GDP)19.018.017.115.714.415.214.5Households, net lending (+) or net borrowing (-) (% of GDP)-7.9-4.7-4.7-4.21.90.8-1.3Deflated house price index (y-o-y)4.6-6.5-4.47.05.6..Residential investment (% of GDP)9.95.61.20.70.9..Current account balance (% of GDP), balance of payments-10.8-10.0-1.8-1.5-6.7-6.5-4.3Trade balance (% of GDP), balance of payments-9.1-7.2-1.6-0.9-6.8..Terms of trade of goods and services (y-o-y)-0.1-0.30.1-0.60.2-1.1-0.4Capital account balance (% of GDP)1.41.21.00.41.6..Net international investment position (% of GDP)-79.7-94.2-138.9-155.8-176.4..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1).-96.2-131.0-135.3-155.4..IIP liabilities excluding non-defaultable instruments (% of GDP) (1).189.9234.9246.2300.7..Export performance vs. advanced countries (% change over 5 years)13.6-5.2-9.31.8-5.6..Export market share, goods and services (y-o-y)0.9-5.92.70.7-19.11.19.0Net FDI flows (% of GDP)0.1-0.1-1.2-2.1-1.5..General government balance (% of GDP)-6.9-11.2-3.91.1-9.7-10.0-3.2Structural budget balance (% of GDP)..4.02.0-4.7-6.6-2.2General government gross debt (% of GDP)104.2144.2181.0180.5205.6208.8201.5Tax-to-GDP ratio (%) (3)32.935.540.841.940.740.139.9Tax rate for a single person earning the average wage (%) (4)25.225.225.426.225.4..Tax rate for a single person earning 50% of the average wage (%) (4)16.017.816.316.815.8..forecast 
    
 
2.  THEMATIC ISSUE: PRODUCTIVITY, INVESTMENTS AND 

POTENTIAL GROWTH 

Greece’s  weak  potential  growth  and  the  high  investment  gap  slow  down  its  rebalancing  and 
correction of accumulated imbalances. Potential growth remains burdened by a persistent capital stock 
depletion  and  a  steady  contraction  in  the  labour  input  (Graph  2.1(e)).  These  factors  emerged  after  the 
global financial crisis and are having a strong impact on potential growth in Greece. While between 2000 
and 2008, potential output growth was hovering around 3.2% per year, much higher compared to the euro 
area  (1.9%),  it  has  turned  negative  since  2010,  with  some  signs  of  recovery  after  2016.  The  positive 
trends in productivity and competitiveness gains that had started to materialise as a result of the reforms 
implemented under the macroeconomic adjustment programmes were largely interrupted by the outbreak 
of the pandemic. Persistency of low growth represents a risk for the sustainability of public debt. 

Total factor productivity improved during the years prior to the pandemic but remains well below 
the levels reached prior to the global financial crisis. Total factor productivity in Greece in 2019 was at 
81% of the 2007 level, and the gap against the euro area average remains large. Starting from 2017, total 
factor  productivity  was  slowly  gaining  momentum,  with  growth  rates  above  the  euro  area  averages, 
however the pandemic is expected to slow the adjustment. Total factor productivity in 2020 fell by 7.1%. 

Total  factor  productivity  growth  remains  curtailed  by  ongoing  erosion  of  human  capital  and  a 
complex  regulatory  framework.  Persistent  emigration  of  high-skilled  labour  (see  section  4)  that  was 
exacerbated with the financial crisis has for long held back total factor productivity. Restoring the human 
capital stock and addressing skills mismatches will be key for improving labour productivity, in particular 
in  an  increasingly  digitalised  economy.  There  remain  substantial  weaknesses  and  inefficiencies  in  the 
regulatory,  administrative  and  judicial  framework  that  work  as  barriers  to  the  much-needed  productive 
investment, including from abroad. The recent digital leap through improved digital services of the public 
administration as a response to the pandemic, in addition to a number of ongoing initiatives to ease the 
administrative burden and facilitate investment projects, provide a good starting point to further improve 
framework conditions for private investments. Progress in modernising the public administration is being 
made (8),  while  the  recently  launched  national  simplification  programme  should  result  in  reduced 
administrative  burden  in  parallel  to  the  roll  out  of  new  digital  services.  Nonetheless,  the  public 
administration  is  still  facing  challenges  in  policy  planning  and  coordination  resulting  in  administrative 
complexity,  while  the  civil  servants  have  comparatively  low  digital  skills  and  access  to  modern  digital 
tools.  

Additional  challenges  include  low  technological  adoption  and  relatively  high  contribution  to  the 
economy  of  low-productivity  sectors  and  small  firms.  Ongoing  challenges  to  accessing  credit, 
including seed, start-up and growth venture capital, make it difficult for firms to break the size ceiling and 
finance  innovation  activities.  The  productivity  of  small  and  medium-sized  enterprises,  which  are 
predominant in Greece, was less than a third of the EU average in 2020. Further, the share of high-growth 
enterprises (9) in Greece remains well-below EU average in almost all economic sectors, with the biggest 
split observed amongst high-tech to medium high-tech, and knowledge intensive sectors.  

The  share  of  workers  aged  55+  in  the  labour  force  is  expected  to  increase  substantially  over  the 
next decades, which is projected to reduce labour supply and weigh on potential growth (10). Apart 
from the direct impact on the number of workers in productive age, an ageing workforce (reflecting the 
shift  in  the  composition  of  the  workforce  from  relatively  young  to  relatively  old  workers)  also  reduces 

(8)  For example the law-making process has become more predictable through the more systematic use of public consultation and a 

reduced number of unrelated or last-minute amendments. 

(9)  Defined as the proportion of high-growth enterprises in the total number of active enterprises with at least 10 employees. High 
growth firms are firms with at least 10 employees in the beginning of their growth and average annualised growth in number of 
employees greater than 10% per annum over a 3-year period. 

(10)  Commission (2020), The 2021 Ageing Report, “Underlying assumptions & projections methodologies”, November 2020. 

11 

 
                                                           
2. Thematic Issue: Productivity, investments and potential growth 

productivity, through its negative effect on total factor productivity and may lead to low potential growth 
in the absence of structural reforms. 

Several  years  of  underinvestment  during  the  protracted  economic  crisis  have  generated  a 
significant investment gap (Graph 2.1(a)). Investments in Greece exceeded the euro area average for a 
long  period  before  the  global  financial  crisis  (averaging  to  24.2%  of  GDP  in  2000-2007  compared  to 
22.2% in the euro area). However, the majority of investments in Greece during this period were public 
and largely  financed by external debt.  Credit-financed construction investment (mainly  residential) also 
boomed prior to the crisis as in several other euro area economies. Once domestic and external funding 
sources  dried  up  in  the  aftermath  of  the  global  financial  crisis,  both  public  and  private  investment 
collapsed and the much-needed deleveraging process of the whole economy has affected their recovery. 
Despite having somewhat narrowed since, the investment gap against the euro area average corresponded 
to €21.7 billion in nominal terms in 2019. As corporate credit still comes at a high cost, in particular for 
small  and  medium-sized  firms,  addressing  the  investment  gap  through  domestic  savings  remains 
challenging  (see  also  section  5).  The  recurrent  under-execution  of  the  public  investment  budget  has 
slightly diminished in 2019 (Graph  2.1(b)) and the authorities have taken several actions (11) to remedy 
the issue. Public investment is likely to increase going forward on the back of the implementation of the 
EU-finance investment as the 2014-2020 programming period reaches maturity. 

A  number  of  factors  hamper  greater  investment  activity,  both  domestic  and  foreign  direct 
investments.  As analysed in  the 2020 Country Report,  Greece still performs relatively  unfavourably  in 
terms  of  its  business  environment  and  the  efficiency  of  public  administration.  Moreover,  swift 
implementation of  investments, including  from the private  sector, is conditional on  the effectiveness of 
the justice system, which remains relatively low in Greece (12). However, the pandemic has encouraged 
the  use  of  ICT  in  justice,  including  greater  electronic  filing  of  documents  and  issuance  and  delivery  of 
court  documents  and  certificates.  A  series  of  bottlenecks  affecting  firm  creation,  expansion  and  exit 
hinder business dynamics in the economy. The share of capital accounted for by insolvent companies in 
Greece  was  28% (13)  in  2013,  which  may  suggest  limited  efficiency  of  insolvency  proceedings,  soft 
enforcement  of  overdue  taxes,  high  tax  and  labour  burdens  and  financing  costs,  and  regulatory 
constraints.  The  ongoing  insolvency  reform,  as  well  as  the  revamped  out-of-court  workout  framework, 
are  expected  to  facilitate  the  resolution  of  key  challenges  in  the  financial  sector.  Reforms  to  facilitate 
market  entry  and  remove  barriers  to  investments  have  started  but  are  yet  to  be  fully  completed  (see 
section 5). 

Labour productivity has been gaining traction in recent years and, going forward, it is expected to 
resume  its  upward  trend  following  the  temporary  adverse  shock  it  suffered  in  2020.  Labour 
productivity growth has been negative for most of 2008-2016 and has subsequently entered into positive 
territory. In 2020, labour productivity  was severely  hit by  the suspension of economic activity in  many 
economic sectors and the underlying adjustment in remuneration and/or  working hours. It decreased by 
7% in real terms in 2020 but is projected to gradually recover in 2021 and 2022 along with the economic 
upturn. In addition to the cyclical factors, ongoing and past labour market reforms are expected to support 
productivity growth going forward (see also section 5). 

Improved  productivity  and  reforms  undertaken  in  the  past  decade  have  been  reflected  also  in 
improving exports of goods and services. Since 2016, Greece has been showing a marked increase in its 
export market shares. This trend was interrupted by the pandemic. Mainly as a result of the steep fall in 
tourism  receipts,  export  market  shares  dropped  by  19.1%  in  2020,  fully  offsetting  the  previous  gains 
(Graph 2.1(g)). The low openness of the economy is linked also to the small average firm size, as small 
firms find it more difficult to overcome administrative impediments to trade, enter international markets 
and  integrate  into  global  value  chains.  The  authorities  are  preparing  a  revamped  economic  diplomacy 
strategy  to  reduce  reliance  on  tourism  and  reallocate  resources  towards  higher-productivity  sectors, 

(11)  These  actions  include  the  implementation  of  a  detailed  action  plan  to  enhance  the  monitoring  and  forecasting  of  the  public 
investment budget, the creation of a Project Preparation Facility and the development of a Strategic Project Pipeline which will 
make the best possible use of available resources, accelerate the drawing of EU funds and support the sustainable recovery from 
the pandemic 

(12)  According to the 2020 EU Justice Scoreboard, despite improvements, courts of all jurisdictions are slow in processing cases; the 
time needed to resolve civil and commercial disputes at first instance remains high or has even increased compared to pre-crisis 
levels. 

(13)  OECD (2017), “Insolvency regimes, zombie firms and capital reallocation”, June 2017. 

12 

                                                           
2. Thematic Issue: Productivity, investments and potential growth 

increase  physical  and  human  capital  intensity  and  diversification,  and  expedite  technological  adoption. 
Modernising the legislative framework for exports in line with EU best practices, simplifying/digitalising 
customs  procedures,  and  swiftly  operationalising  the  recently  re-established  government  structures  to 
promote trade would further help unlock Greece’s export potential.  

13 

Graph 2.1: 

Thematic Graphs: Productivity, investments and potential growth imbalances 

2. Thematic Issue: Productivity, investments and potential growth 

Source: AMECO, Eurostat, ECFIN calculations 

14 

051015202530010203040506070809101112131415161718192021'% of GDP(a) Investments as a percentage of GDP GreeceEuro AreaSource: Eurostat-3.5-3.0-2.5-2.0-1.5-1.0-0.50.00.51.01.5080910111213141516171819202122232425Rate of change y-o-y (%)(d) Contributions to potential growthTotal Labour (Hours) ContributionTFP ContributionCapital Accumulation ContributionPF Potential GrowthSource: European Commission Services-0.6-0.1-0.2-0.8-1.1-0.8-1.5-0.80.00.81.52.33.0201420152016201720182019% of GDP(b) Public investment budget under-executionPlanOutcomeDifference608010012006Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q4('06 Q4 = 100)(f) Labour productivity, whole economyGreeceItalyFrancePortugalEuro AreaSource: Eurostat-505101520253005060708091011121314151617181920*21*22*% of GDP(c) Gross fixed capital formation by type ConstructionEquipmentOther investmentInventories and ValuablesSource: Ameco758595105115040506070809101112131415161718192021*22*23*(2003 = 100)(e) Total factor productivity GreeceItalyFrancePortugalEuro AreaSource: Ameco6070809010011012003040506070809101112131415161718192021*22*2003=100(g) Export Market Shares GreeceItalyFrancePortugalSource: Eurostat4050607080901000204060810121416182022'% of GDP(h) Trade openess indicatorEA19GreeceSource: Eurostatand Ameco   
3.  THEMATIC ISSUE: EXTERNAL SECTOR 

The outbreak of the pandemic has worsened Greece’s net international investment position. Partly 
as a result of the economic downturn, the net international investment position reached  -176.4% of GDP 
at  the  end  of  2020,  having  widened  by  almost  20  percentage  points  compared  to  2019  (Table  3.1). 
Nevertheless, a gradual correction is expected in 2021 and 2022 as the economy starts growing again. The 
net  international  investment  position  is  largely  composed  of  external  government  debt  extended  by 
official  creditors  at  concessional  terms  and  with  long  maturities,  which  mitigates  Greece’s  exposure  to 
external shocks or shifts in market sentiment.  

Inflows  of  foreign  direct  investments  continued  despite  the  COVID-19  pandemic.  Since  2016,  net 
inflows  of  foreign  direct  investments  in  Greece  followed  an  increasing  trajectory  (Graph  3.1  (d))  until 
2019,  and  remained  broadly  stable  in  2020  at  1.5%  of  GDP (14).  However,  the  composition  of  foreign 
direct investments is tilted to sectors with limited productivity growth potential. Data for 2019 show that 
more than  half of  the  net inflows of  foreign direct investments  were directly into the real estate  sector, 
while manufacturing and information and communication activities attracted only 7.5% and 2.1% of the 
total inflows, respectively.  

Net  borrowing  increased  markedly  in  2020  which  deteriorated  the  net  international  investment 
position  (Graph  3.1(b)).  The  increased  financing  needs  due  to  the  fiscal  measures  addressing  the 
pandemic, have led to a considerable government deficit in 2020. At the same time, the corporate sector 
increased its savings by postponing investments, which cushioned the fall in aggregate net lending. The 
government’s  balance  is  forecast  to  hover  around  its  previous  year  levels  in  2021,  and  should  remain 
negative at least until 2022. Overall, net borrowing of the total economy is expected to slowly decrease, 
starting from 2021. However, the forecast improvement would not be sufficient to reverse the increase in 
net international investment position. 

Greece has significantly narrowed its current account deficit since 2012, but it remains large (Graph 
3.1(c)).  Greece’s  current  account  deficit  reached  -2.2%  of  GDP  in  2019  (national  accounts  definition), 
down from 10.4% of GDP between 2008 and 2021. While this is a considerable improvement compared 
to  the  past,  partly  reflecting  the  competitiveness  gains  during  the  economic  adjustment  process,  the 
current account balance falls short of the level (estimated at a surplus of around 1.5% of GDP over the 
medium  term)  needed  to  stabilise  the  net  international  investment  position  to  sustainable  levels 
(above -35% of GDP). Achieving this level is conditional on further efforts to improve competitiveness 
and  productivity  growth  and  attract  strong  investments  over  the  medium  term  (see  also  section  2).The 
current account deficit widened to -7.8% of GDP in 2020 (national accounts definition), mainly reflecting 
a  deterioration  in  the  trade  balance  due  to  the  pandemic  and  the  GDP  denominator  effect.  The  trade 
balance  in  energy  improved  during  2020,  reflecting  a  better  and  more  efficient  use  of  the  country’s 
domestic  sources.  The  deficit  is  forecast  to  narrow  along  with  the  recovery  in  international  travel.  In 
cyclically adjusted terms, the current account is projected to follow a similar pattern. 

Greece  records  persistent  trade  deficits,  mirroring  chronic  structural  weaknesses.  During  the  four 
years prior to the pandemic, the economy showed signs of improving export performance (see section 2). 
The recent pandemic has reversed the trend and after a substantial narrowing of the trade deficit (balance 
of payments definition) in 2019 (to 0.9% of GDP), the  economy recorded a deficit of  6.8% GDP in its 
trade  balance  in  2020,  as  shown  in  Table  1.2.  A  gradual  correction  of  the  trade  deficit  is  projected  in 
2021-2022,  following  the  gradual  lift  of  travel  restrictions.  Export  market  shares  contracted  sharply  by 
19.1% in 2020, fully offsetting the gains accumulated since 2017, primarily reflecting the impact of the 
steep fall in tourism receipts.  

(14)  Note  that  1.5%  of  GDP  refers  to  the  balance  between  1.9%  of  GDP  direct  investment  inflows  and  0.4%  of  GDP  direct 
investment  outflows.  Data  source:  Eurostat/International  Monetary  Fund,  International  Financial  Statistics  and  Balance  of 
Payments databases, World Bank, International Debt Statistics. 

15 

 
 
                                                           
Table 3.1: 

Selected external indicators, Greece 

3. Thematic Issue: External Sector 

Abbreviations: NIIP = Net International Investment Position 
(1) Flow data refer to national account concept, unless indicated otherwise. 
(2) Cyclically adjusted Current Account is the Current Account adjusted for the domestic and foreign output gaps, taking 
into account trade openness. 
(3) The average Current Account needed in order to stabilise the NIIP is based on T+10 ECFIN projections.  
(4) The Current Account explained by fundamentals refers to the expected Current Account given the level of its 
fundamentals with respect to world average.  
(5) The Current Account or Trade Balance needed either to halve the distance to fundamental NIIP benchmark, or to reach 
the prudential NIIP benchmark in 10Y, whichever is higher. Based on T+10 ECFIN projections. 
Source: (a) Eurostat, (b) AMECO,  (c) European Commission calculations, (d) WIOD database 

(d)WIOD database 

16 

2008-122013-172018201920202021f2022fFlows (1)Source:Current Account balance as % of GDP, national accounts(b)-10.4-1.8|-3.6-2.2-7.8-7.6-5.3Current Account balance as % of GDP, Balance of Payments(a)-10.0-1.3|-2.9-1.5-6.7-6.6-4.3Cyclically adjusted Current Account balance as % of GDP (2)(c)-12.9-7.5|-8.1-5.3-11.8-10.8-6.5Current Account required to stabilize NIIP above -35% (3)(c)3.63.1|3.02.62.71.61.7Current Account explained by fundamentals (norm) (4)(c)-1.8-1.4|-1.1-1.1-0.9-0.9-0.8Required Current Account for specific NIIP target (5)(c)5.06.8|7.57.47.98.38.4Trade bal. G&S, % of GDP, NA(b)-8.1-1.6|-2.1-1.7-7.6-7.7-5.3Required TB for specific NIIP target (5)(c)6.46.3|7.37.18.08.28.4Capital account bal. as % of GDP, NA(b)1.71.9|1.31.31.61.81.9StocksNIIP as % of GDP(a)-94-137|-148-156-176-176-169 
        
 
Graph 3.1: 

Thematic Graphs: External position 

3. Thematic Issue: External Sector 

(1) Forecast period uses the NA-based figures adjusted for statistical discrepancies (between NA and BoP data) observed in 
the last available year of data. Services balance includes travel for the forecast period. 
Source: Eurostat, AMECO, ECFIN calculations 

17 

0501001502002503003500608101214161820% of GDP(e) IIP gross assets (A) and liabilities (L)Other inv liabOther inv assetsPortfolio inv, debt liabPortfolio inv, debt assetsDirect inv, liabDirect inv, assetsFinanc deriv liabFinanc deriv assetsPortfolio inv, equity liabPortfolio inv, equity assetsReserve assetsSource: Eurostat-220-170-120-70-20308013Q113Q314Q114Q315Q115Q316Q116Q317Q117Q318Q118Q319Q119Q320Q120Q3% of GDP(f) Decomposition of NIIP by sectorGeneral GovernmentPrivate sectorMFI (excl central bank)Central Bank (incl reserves)Net int'l investment position (NIIP)Source: Eurostat-25-20-15-10-5051015202508091011121314151617181920*21*22*% of GDP(b) Net lending/borrowing by sectorCorporationsGeneral governmentHouseholds and NPISHTotal economySource: Eurostat and Ameco.-15-10-5051008091011121314151617181920% of GDP(d) Financial FlowsNet errors and omissionsReserve assetsNet debt flows (NENDI excl reserves)Net direct investmentNet portfolio investment, equityNet lending/borrowingSource: Eurostat-20-15-10-505101513141516171819202122% of GDP(c) Current account decompositionGoods, fcstServices, fcstGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc balanceSecondary inc balanceCurrent account balanceNet lending/borrowingSource: Eurostat andAmeco.1601701801902002102202302402502600809101112131415161718192021*22*Constant 2015 EUR mn(a) Demand, Output, Trade BalanceTrade balanceAgg. demandOutput (GDP)Source: Ameco.  
 
Graph 3.2:  NIIP projection 

3. Thematic Issue: External Sector 

Source: ECFIN staff calculations.  

18 

-180-170-160-150-140-130-12018192021*22*23*24*25*26*27*28*29*30*Net IIP, % of GDPNet IIP for EL, Baseline               
4.  THEMATIC ISSUE: FINANCIAL SECTOR 

The Greek banking sector suffers from low profitability, low quality of capital and a high level of 
non-performing loans. The economic effects of the pandemic are expected to continue to put pressure on 
banks’ already low profitability through lower net interest income and high loan loss provisions. Low or 
in  some  cases  even  negative  profitability,  coupled  with  the  cost  of  upcoming  non-performing  loan 
securitisations and the gradual phasing out of transitional prudential arrangements, may pose challenges 
for the banks’ capital position. At the same time, quality of capital remains weak and reliance on state-
related assets is set to increase. 

The  extension  of  the  Hercules  scheme  is  expected  to  facilitate  a  further  reduction  of  non-
performing  loans.  Non-performing  loans  stood  at  29.4%  of  total  loans  in  September  2020 (15).  The 
decrease was supported by the ‘Hercules’ asset protection scheme and more recently by bank moratoria 
on debt repayments. Loans under moratoria at solo level amounted to €20.8 billion as of November 2020, 
with 34% of them belonging to the category of loans of increased credit risk (‘Stage 2’). Most moratoria 
expired  at  the  end  of  2020,  with  some  limited  exceptions,  particularly  linked  to  the  hospitality  sector. 
Bank of Greece estimates an additional flow of €8-10 billion of non-performing loans resulting from the 
pandemic.  The  initial  results  from  the  first  two  months  of  2021  suggest  that  the  number  of  potential 
defaults may not exceed the original estimate incorporated in the banks’ business plans or the lower end 
of  Bank  of  Greece’s  current  projections..  In  order  to  mitigate  these  effects,  banks  are  offering  to  their 
clients intermediate products  to pave the  way towards a gradual return to  full payment.  The authorities 
adopted  two  temporary  instalment  subsidy  schemes  for  the  pandemic-stricken  debtors,  one  for  primary 
residence  loans  and  one  for  business  loans  of  small  and  medium-sized  firms  and  professionals.  In 
addition, the recent extension of the Hercules asset protection scheme is expected to allow Greek banks to 
further  reduce  their  non-performing  loans  and  support  their  effort  to  reach  single  digit  non-performing 
loan ratios in 2022. 

Corporate credit increased in 2020 but still comes at a higher cost than the euro area average, in 
particular  for  small  and  medium-sized  enterprises.  As  a  result  of  the  measures  adopted  by  the 
authorities during the pandemic, credit to companies increased at a pace last observed in mid-2009, led by 
a strong performance in the energy, tourism, storage and transport sectors. Although most of the increase 
in  bank  lending  was  directed  to  large  corporates,  the  flow  of  new  loans  to  small  and  medium-sized 
enterprises was also up by 84% in 2020. The nominal cost of lending for businesses at the end of 2020 
was  near  historical  lows  but  remained  twice  as  high  as  the  Euro  area  average,  reflecting  differences  in 
credit  risk.  For  small  and  medium-sized  firms  the  relative  cost  of  credit  increased,  as  reflected  in  the 
widening spread between the interest rate on  new  loans to these  firms compared to the  overall average 
lending rate for corporates. 

Banks  will  be  called  to  maintain  an  adequate  level  of  lending  to  support  the  recovery  despite  the 
gradual  phase-out  of  state  support  and  renewed  pressures  on  asset  quality.  Credit  expansion  is 
expected to come  mainly in the corporate  loans’ segment,  where  banks  will  need to counterbalance the 
gradual phase-out of state  support schemes. These support schemes accounted for close to 40% of new 
loans to corporates in 2020, particularly those to small and medium-sized enterprises. Liquidity is likely 
to  continue  benefiting  in  the  near  term  from  to  Eurosystem  funding  provided  at  favourable  terms. 
However, a potential increase in non-performing loan inflows may impose further capital constraints on 
new  lending.  The  recent  extension  of  the  Hercules  asset  protection  scheme  will  facilitate  banks  in  this 
respect. 

The  constraints  on  access  to  finance  for  small  and  medium  enterprises  are  exacerbated  by  the 
limited  alternative  sources  of  financing.  The  Greek  capital  markets  are  underdeveloped  and  still 

(15)  Non-performing  loans  as  a  share  of  total  gross  loans  and  advances  on  a  consolidated  basis  (i.e.  including  cash  balances  at 
central  banks  and  other  demand  deposits  in  the  denominator).  This  figure  is  different  than  the  one  reported  under  enhanced 
surveillance, which follows non-performing loans as a share of total gross customer loans on a solo basis, as reported by the 
Bank of Greece. 

19 

 
                                                           
4. Thematic Issue: Financial Sector 

affected by the prior deep and prolonged recession, with listed shares and debt securities of non-financial 
corporations  in  Greece  accounting  for  19.7%  of  GDP  compared  to  72.9%  of  GDP  in  the  euro  area  in 
December 2020. This is highlighted by poor initial public offering activity over the last decade. For an 
average Greek company, raising capital on the equity and bond markets remains difficult due to country 
risk, low profitability and a shallow domestic investor base. Recent efforts to improve transparency and 
foster company listings, while facilitating the set-up of investment funds domiciled in Greece, aim to act 
as a catalyst to reverse this trend. At the same time, the Hellenic Development Bank is trying to leverage 
private investments through venture capital and private equity funds, directed to small and medium-sized 
firms, including those that are active in environmentally friendly activities. 

Graph 4.1: 

Thematic Graphs: Financial sector 

Source: ECB, National central banks and banking groups, FINREP 

20 

0510152025303540GRCYBGHRLVPLPTITLTIESKHUROCZMTSIEEESFRDKNLATBELUFIDE% of gross loans and advances(a) NPLs and forebearance, horizontal overviewnon-foreborne NPLs (gross)non-performing foreborne NPLsperforming foreborneSource: ECB010203040506016Q316Q417Q117Q217Q317Q418Q118Q218Q318Q419Q119Q219Q319Q420Q120Q220Q3(b) Non-Performing Loans, share of total loans and advancesPerforming foreborne loansNon-performing foreborne loansNon-foreborne NPLs% of total loansand advancesSource: ECB0123456782007-062008-062009-062010-062011-062012-062013-062014-062015-062016-062017-062018-062019-062020-06Cost of borrowing -ECB index(d) Cost of borrowing for corporations and householdsCost of borr. for corporations - GRCost of borr. for corporations - Euro AreaCost of borr. for hhs for house purchase - GRCost of borr. for hhs for house purchase - Euro AreaSource: ECB-12-10-8-6-4-2024609Q110Q111Q112Q113Q114Q115Q116Q117Q118Q119Q120Q121Q1% of GDP (over last 4 quarters)(c) MFI lending (flows) to the domestic private sectordomestic corporate bondsdomestic NFC loansdomestic HH loanstotal lending & corporate bonds acquistionsSource: ECB      
5.  THEMATIC ISSUE: LABOUR MARKET 

The  outbreak  of  the  pandemic  has  interrupted  the  ongoing  recovery of  the  Greek  labour  market 
from  a  previous  decade-long  economic  crisis.  Employment  has  been  gradually  recovering  in  recent 
years,  on  the  back  of  rising  economic  growth  and  sustained  labour  demand.  Nevertheless,  the 
employment  rate  stood  at  61.1%  in  2020,  11  percentage  points  lower  than  the  EU  average  and  5 
percentage points below its level of 2008. Similarly, while the unemployment rate had been on a steadily 
downward trend since 2013, reflecting improvements in the functioning of the labour market, at 16.3% in 
2020,  it  was  still  the  highest  in  the  EU.  Youth  unemployment  was  also  the  highest  in  the  EU  (35% 
compared to 16.8% for the EU in 2020) while the activity rate was more than 5 percentage points below 
the EU average (73.1% compared to 77.8%).  

While  the  pandemic  had  a  sizable  impact  on  the  economy,  its  effects  on  the  labour  market  have 
been  mitigated  thanks  to  the  effective  implementation  of  a  set of  employment  retention  measures 
supported by the European instrument for temporary Support to mitigate Unemployment Risks in 
an Emergency (SURE). In March 2020, a first public support scheme was adopted, allowing companies 
affected  by  the  pandemic  to  suspend  the  labour  contract  of  their  employees,  and  granting  a  special 
compensation to the latter (of EUR 534 per month) for the days not worked. Companies benefiting from 
this measure were obliged not to dismiss any worker, and to maintain the same number of staff after the 
end of the suspension of activities, for the same number of days that the scheme had been used. More than 
800,000 workers were covered by the scheme in its first period of application (from mid-March to end-
April), i.e. about 21% of total employment. In June 2020, another short-time work scheme was introduced 
to help companies able to operate but at a reduced capacity. The scheme (named ‘Syn-ergasia’) allowed 
employers  to  reduce  the  weekly  working  hours  of  their  full-time  employees  by  up  to  50%,  under  the 
condition  that  the  employment  relationship  was  retained.  Eligible  companies  have  been  those  having 
recorded a drop in their turnover of at least 20% during the previous months, new companies that operate 
for the first time, as well as companies that operate on a seasonal basis. In early November 2020 with the 
resurge of the pandemic, the economy entered a  new lockdown phase and the government made use of 
both employment-supporting measures for a longer period of time. 

As  a  result  of  these  emergency  support  measures,  net  job  losses  have  been  largely  contained  and 
unemployment has not increased significantly. In the third quarter of 2020 the employment rate stood 
at 61.3%, broadly the same level as the year before. After a relatively small increase between the first and 
second quarter of the year (to 16.7%), the unemployment rate reverted to 16.2% at the end of 2020, below 
the level observed at the end of 2019.  

Aside  from  the  negative  impact  of  the  pandemic,  the  Greek  labour  market  faces  a  number  of 
structural challenges, including brain drain and  high youth unemployment.  At 20.7% in 2019, the 
share  of  young  people  aged  15-34  not  in  employment,  education  or  training  was  10  percentage  points 
lower than in 2013, but is still among the highest in the EU. This is coupled with significant ‘brain drain’. 
Although comprehensive data  on the skills profile of  migrants are  not available, several  sample  studies 
conducted  in  Greece  have  confirmed  that  the  emigration  wave  during  the  crisis  primarily  concerned 
young  people  with  a  high  level  of  education  (often  in  medicine  or  engineering)  and  previous  work 
experience (Lazaretou, 2016).  

Furthermore,  there  are  significant  differences  between  men  and  women  in  terms  of  their  labour 
market attachment. In 2020 the employment rate of men stood at 70.7%, almost 19 percentage points 
higher than the one of women (51.8%); while the unemployment rate of men stood at 13.6%, compared to 
19.8% for women. To support women’s employment Greece has expanded subsidised childcare, although 
there are still significant unmet needs, especially for children below the age of 2.5 years. There are also 
challenges concerning the provision of targeted activation support. About 70% of the unemployed have 
been  out  of  the  labour  market  for  more  than  one  year.  The  limited  counselling  capacity  of  the  Public 
Employment Service and the current model for delivering active labour market policies, which relies on 

21 

 
5. Thematic Issue: Labour Market 

ad-hoc open calls to potential participants, do not allow for timely, tailor-made and effective support to 
jobseekers on a broad basis. 

Skills  mismatch  represent  another  major  structural  problem  of  the  labour  market  in  Greece. 
Greece ranks at the bottom of the European Skills Index (CEDEFOP): it has one of the lowest score for 
skills  matching  and  skills  activation  among  EU  skills  systems (16).  Under  a  new  National  Strategy  for 
Lifelong  Learning  (to  be  developed  by  the  end  of  2021)  Greece  aims  to  overhaul  its  training  system, 
consolidating various funding streams, establishing Individual Learning Accounts, and putting in place a 
new framework to ensure the quality of trainings. This is expected to be a far-reaching reform that comes 
with new governance bodies. Adopting the Strategy by the end of the year would be critical to address the 
issues of skills mismatches and youth unemployment.  

Wages  stagnated  in  2020,  as  labour  demand  was  curtailed  by  the  pandemic,  employment  retention 
measures  allowed  companies  to  reduce  labour  costs,  and  the  revision  of  the  minimum  wage  was 
postponed  to  2021.  Wage  growth  had  been  moderate  during  the  three  years  before  the  pandemic, 
remaining  broadly  aligned  with  developments  in  productivity,  inflation  and  unemployment.  The 
pandemic  caused  a  ‘freeze’  in  economic  activities,  leading  to  a  drastic  decline  in  job  vacancies  (-61% 
year-on-year  in  the  second  quarter  of  2020).  The  emergency  support  measures  put  in  place  by  the 
government  have  allowed  companies  to  reduce  labour  costs  preserving  existing  contracts  at  the  same 
time.  The  annual  revision  of  the  statutory  minimum  wage,  originally  foreseen  for  June  2020,  was 
postponed repeatedly in agreement with the social partners, determining a freeze in its level. 

Graph 5.1: 

Thematic Graphs: Labour Market 

(1) Preliminary data for 2020 – average of first 3 quarters for employment and activity rate, average over Jan-Nov for the 
unemployment rate. 
(2) Data for the first month (April) corresponds to the share of workers benefiting from the measure during the 45-day period 
from mid-March to end-April. Data from Syn-ergasia for November 2020 not available 
Source: Eurostat, DG EMPL calculations 

(16)  https://www.cedefop.europa.eu/en/publications-and-resources/data-visualisations/european-skills-index 

22 

0.05.010.015.020.025.030.00.020.040.060.080.00002040608101214161820% of labour force% of population(a) Activity, employment and unemployment rates(1)Unemployment rate 15-74 (rhs)Activity rate 20-64Employment rate 20-64-10-5051015990001020304050607080910111213141516171819% growth(c) Nominal compensation growth: actual and predicted based on economic fundamentalsPrediction based on inflation, productivity and unemploymentActual nominal compensation growth0%5%10%15%20%25%% of total employment(b) Coverage of job retention schemes (2) Compensation for contract suspensionSyn-ergasia