COMMISSION STAFF WORKING DOCUMENT In-depth review for Greece Accompanying the document 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 2023 European Semester – Spring Package
Date: 2023-05-24
Institutions: European Commission, Secretariat-General
Subjects: European Semester, Greece, competitiveness, economic policy, energy policy, fiscal policy, indebtedness, labour market, macroeconomics, unemployment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.5.2023  SWD(2023) 631 final  COMMISSION STAFF WORKING DOCUMENT In-depth review for Greece Accompanying the document 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 2023 European Semester – Spring Package {COM(2023) 600 final} - {SWD(2023) 628 final} - {SWD(2023) 629 final} - {SWD(2023) 630 final} - {SWD(2023) 632 final} - {SWD(2023) 633 final} - {SWD(2023) 634 final} - {SWD(2023) 635 final} - {SWD(2023) 636 final} - {SWD(2023) 637 final} - {SWD(2023) 638 final} - {SWD(2023) 639 final} - {SWD(2023) 640 final} - {SWD(2023) 641 final} - {SWD(2023) 642 final} - {SWD(2023) 643 final} - {SWD(2023) 644 final}  
 
 
Greece 

In-Depth Review 2023 

 
 
 
 
 
 
 
 
 
 
On  the  basis  of  this  in-depth  review  for  Greece  undertaken  under 
Regulation  (EU)  No  1176/2011  on  the  prevention  and  correction  of 
macroeconomic  imbalances,  the  Commission  has  considered  in  its 
Communication “European Semester – 2023 Spring Package” (COM(2023) 
600 final) that: 

Greece  continues  to  experience  excessive  imbalances.  Vulnerabilities  relating  to 
high government debt and a high stock of non-performing loans in the context of 
high unemployment have been receding, but its external position has deteriorated. 
A  key  concern  is  that  the  current  account  deficit  markedly  widened  in  2022, 
despite  the  recovery  in  tourism  revenue.  Even  though  it  is  forecast  to  narrow 
somewhat  this  year  and  next,  the  external  deficit  is  set  to  stay  well  above  the 
level  that  is  required  to  ensure  a  lasting  improvement  in  the  net  international 
investment position. While the government debt-to-GDP ratio remains the highest 
in  the  EU,  it  improved  markedly  in  2022,  largely  thanks  to  strong  nominal  GDP 
growth,  and  it  is  expected  to  recede  further  in  2023  and  2024.  Non-performing 
loans recorded a sharp fall last year building on large reductions in earlier years, 
yet remain high and continue to weigh on banks’ profitability and lending capacity, 
which in turn impinges on the capital deepening and on the productivity growth of 
the economy. The policy response has contributed to the unwinding of imbalances 
and  the  implementation  of  the  RRP  represents  a  major  opportunity  to  tackle 
remaining  structural  weaknesses.  Yet  more  efforts  are  needed,  in  particular  to 
ensure that external  balances are put on a firmly improving path, and that non-
performing loans decline further including through increasing the effectiveness of 
debt enforcement and improving the secondary non-performing loans market. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONTENTS 

1.  Introduction 

2.  Assessment of macroeconomic vulnerabilities 

3.  Thematic chapter: External Sustainability 

LIST OF TABLES 

Table 2.1: 
Table 2.2: 

Selected economic and financial indicators (Part 1), Greece 
Selected economic and financial indicators (Part 2), Greece 

LIST OF GRAPHS 

Graph 2.1:  General government gross debt and budget balance, Greece 

Graph 2.2:  Current and financial account 

Graph 2.3:  Components of gross fixed capital formation deflator growth and consumer price inflation 

Graph 3.1:  Demand, output and gross capital formation 

Graph 3.2:  Trade balance and imports developments by broad economic category (EC) 

Graph 3.3:  Net lending/borrowing position and savings/investment developments 

Graph 3.4:  Net international investment position 

Graph 3.5:  Consumption and investment, export and import developments 

Graph 3.6: 

Investment and consumption growth by sector - Greece vs. Euro area 

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21 

 
 
 
 
 
 
 
1. 

INTRODUCTION 

In  2022,  over  the  previous  annual  cycle  of  surveillance  under  the  Macroeconomic 
Imbalances  Procedure  (MIP),  the  Commission  identified  “excessive  macroeconomic 
imbalances” in Greece. (1) These imbalances were related to high government debt, incomplete 
external rebalancing and a high share of non-performing loans in a context of low potential growth 
and high unemployment. The 2023 Alert Mechanism Report published in November 2022 concluded 
that an in-depth review (IDR) should be undertaken also this year for Greece with a view to assess 
the  persistence  or  unwinding  of  imbalances. (2)  The  Alert  Mechanism  Report  found  that  concerns 
related to government and external debt-to-GDP ratios remained, although they had resumed their 
declining path after the COVID-19 crisis. The current account deficit had continued to increase and 
was forecast to remain large. Concerns about the banking sector, which was burdened by a high, 
albeit  significantly  reduced,  stock  of  non-performing  loans,  remained. Labour  market  weaknesses 
persisted, despite notable improvements. 

Following strong growth in 2022 on the back of consumption and investment, growth is 
set to moderate in the coming years. (3) Despite headwinds, Greece’s economy grew by 5.9% in 
2022,  largely  on  the  back  of  solid  private  consumption  and  investment  growth  as  the  recovery 
from the pandemic continued and saw GDP surpass its 2019 level. Going forward, growth is set to 
slow  in  2023  to  2.4%  and  to  1.9%  in  2024,  according  to  the  European  Commission’s  spring 
forecast.  Inflation  climbed  to  a  historical  high,  averaging  9.3%  in  2022  (0.1  pps  above  the  EU 
average). However, price pressures appear to have peaked in September 2022 and consumer price 
inflation  is  projected  to  fall to  4.2%  in  2023  and to  2.4% in  2024. Labour  market  developments 
remain  favourable,  with  employment increasing,  albeit  at  a  decelerating  rate. The  unemployment 
rate is projected to decline from 12.5% in 2022 (6.4pps above the EU average) to 12.2% in 2023 
and  to  11.8%  in  2024.  The  main  risk  comes  from  further  price  shocks  leading  to  a  longer  than 
expected slowdown in inflation. 

This  in-depth  review  presents  the  main  findings  of  the  assessment  of  macroeconomic 
vulnerabilities  for  Greece.  Vulnerabilities  related  to  external  balances  in  Greece  are  also 
discussed in a horizontal thematic note that was recently published. (4) The MIP assessment matrix 
is published in the 2023 Country Report for Greece. (5) 

(1)  European Commission (2022), European Semester Spring Package 2022, COM (2022) 600 final. 

(2)  European Commission (2022), Alert Mechanism Report 2023, COM (2022) 381 final. 

(3)  European Commission (2023), European Economic Forecast: Spring 2023, Institutional Paper 200. 

(4)  European Commission (2023), External Sustainability Analysis: Thematic Note to Support In-Depth Reviews, European 

Economy: Institutional Papers, 196. 

(5)  European Commission (2023), Country Report Greece 2023, SWD (2023)  608 final. 

4 

 
 
                                                 
 
2.  ASSESSMENT OF MACROECONOMIC 
VULNERABILITIES 

Gravity, evolution and prospects  

The  Greek  public  debt-to-GDP  ratio  declined  sharply  in  2022  but  it  remains  very  high. 
Public  debt  fell  to  171%  of  GDP  in  2022,  driven  by  an  increase  in  nominal  GDP,  while  a  better-
than-expected  primary  deficit  limited  the  need  for  additional  borrowing  (see  Graph  2.1).  This 
represents a fall of 35pps. from the peak of 206% in 2020 when the pandemic hit, increasing the 
public debt-to-GDP ratio above the 2014 level of 180% when the adjustment trend started. Going 
forward, the debt-to-GDP ratio is expected to decline further to around 160% in 2023 and to below 
155% of GDP in 2024, and to remain on a downward trajectory thereafter. Despite the emergency 
measures  taken  in  response  to  the  increase  in  energy  prices,  the  general  government  deficit 
narrowed considerably in 2022, reaching 2.3% of GDP which implies a primary surplus of 0.1% of 
GDP. The improvement compared to 2021 was due to the recovery of the tax base and the phasing 
out of the fiscal measures related to the pandemic. Looking ahead, the general government deficit 
is  expected  to  keep  shrinking  to  1.3%  in  2023  and  0.6%  of  GDP  in  2024.  Greece’s  exposure  to 
increases  in  interest  rates  is  limited  in  the  short  term,  since  most  of  its  debt  is  held  by  official 
lenders at concessional interest rates with long maturities, and the rest is either at fixed rates or 
hedged against interest rate risk. In the medium and especially in the long term, as market funding 
replaces official lending, Greece’s exposure to interest rate risk will increase considerably. Still, the 
Commission’s  fiscal  sustainability  assessment  shows  that  the  debt-to-GDP  ratio  remains  on  a 
downward path under the baseline scenario. Greece faces high fiscal  sustainability risks over the 
medium term and low ones in the long run.  (6) 

(6)  See the DSA in the Commission Country Report 2023 for the latest risk classification and Debt Sustainability Report 2022 

(April 2023) for methodological details. 

5 

 
 
                                                 
 
Graph 2.1: General government gross debt and budget balance, Greece 

2. 

Assessment of macroeconomic vulnerabilities 

Source: Eurostat, European Commission services 

The  current  account  balance  deteriorated  to  -9.7%  of  GDP  in  2022,  far  below  its  pre-
pandemic  levels,  also  in  cyclically  adjusted  terms.  The  2022  outturn  is  far  below  the  level 
required  to  return the NIIP  to the threshold  of  -35%  of  GDP  over  two  decades,  and  even  further 
below  the  level  required  to  reach  the  prudential  NIIP  benchmark  over  ten  years,  even  when 
adjusting for substantial  EU fund inflows. Increased energy costs explain only part of the current 
account deterioration. The trade balance, which was the key driver of the widening of the current 
account deficit since 2019, stood at -9.4% of GDP in 2022, considerably worse compared to pre-
pandemic levels. (7) The energy balance worsened from -3.1% of GDP in 2021 to -5.9% of GDP in 
2022,  which  was  partly  offset  by  a  tourism-induced  service  balance  recovery.  Overall,  the  trade 
balance excluding tourism and energy stood at -11% in 2022, compared to -7% in 2019.  

The  stock  of  net  external  liabilities  remains  the  highest  in  the  EU,  albeit  a  very  large 
share  of  it  is  held  by  official  creditors,  which  contains  liquidity  risks.  Greece’s  net 
international investment position stood at -141% of GDP in 2022, improving from -172% of GDP in 
2021, and remained far below the prudential NIIP benchmark at around  -47% of GDP. The sector 
with  the  largest  negative  net  position  is  still  the  general  government,  while  the  position  of  the 
private  sector  deteriorated  in  2021  and  further  in  2022.  Decomposing  the  NIIP  in  terms  of 
instruments shows that the large negative position in the form of (mostly public) debt instruments 
remains at lower levels than before the pandemic. However, given that a substantial part of these 
instruments  is  held  by  official  EU  creditors  at  concessional  rates,  liquidity  and  rollover  risks  to 
external public debt remain limited.  

The widening of the current account deficit in 2020-2022 was largely financed by debt 
issuance.  During  this  period,  debt  instruments  have  substantially  increased  their  share  in  the 
financing  of  the  current  account  deficit (see  graph 2.2  b)).  Following  a  large increase  in  2020 to 
fund extensive policy programmes shielding households and businesses from the economic fallout 
of  the  pandemic,  debt  instruments  continued  to  play  a  significant  role  in  financing  the  widened 
current account deficit, albeit to a lower extent, in 2021 and 2022. Strong net inflows of debt were 
related to substantial increases in Greece’s Target2 liabilities. Another large share of the financing 
needs  was  covered  by  foreign  direct  investment,  especially  in  2022  when  they  overtook  debt 
instruments. Developments in the 2020-2022 period are in stark contrast to those in 2016-2017 
when financing needs allowed a reduction in debt instruments in the economy’s balance sheets.  

(7)  For details, see: External sustainability analysis: thematic note to support In-Depth Reviews, Brussels, 17 February 2023. 
The note considers the data up to 2022Q3 and uses Autumn forecast 22, which is updated in the IDR to 2022 and SF23. 

6 

-12-10-8-6-4-20205010015020025020142015201620172018201920202021202220232024% of GDP% of GDPGeneral government gross debtBudget balance (rhs)     
                                                 
Graph 2.2: Current and financial account 

2. 

Assessment of macroeconomic vulnerabilities 

Source: European Commission services 

The current account balance is projected to improve, but not sufficiently to stabilise the 
NIIP even at its current level. The current account balance is projected to improve to -7.3% in 
2023  and  to  -6.0%  in  2024,  driven  mainly  by  improving  trade  balances.  The  trade  balance  is 
projected to improve from -9.4% in 2022 to -7.6% this year and to -6.4% in 2024. The key driver 
behind the improvement is the fall in energy prices this year, which accounts for a substantial part 
of the trade balance deterioration in 2022. However, medium-term projections suggest that even 
under an optimistic scenario, the NIIP is projected to fall slightly below the current level by 2032. 
Projections under a baseline scenario result in an NIIP of around -162% of GDP in 2032, while an 
adverse scenario sees the levels of the NIIP falling to around -180% of GDP by 2032. (8)  

From a savings-investment perspective, the net borrowing position of the total economy 
is expected to gradually improve. As spending on support measures declines, the government is 
set  to  reduce  deficits.  By  contrast,  household  savings  are  projected  to  decline  gradually  after 
having increased during the pandemic. Investment is forecast to increase to 14.3% of GDP in 2023 
and  14.8%  in  2024,  levels  significantly  above  those  recorded  before  the  pandemic,  as  projects 
from the RRP continue to be implemented and support an investment and export-oriented growth 
model. (9)  

Cost  competitiveness  improved  over  the  last  decade,  which  supported  Greek  exports, 
with further gains expected in real terms. Before picking up the pace in recent years, nominal 
wages had increased only moderately since 2010, slightly below inflation and productivity growth. 
This  led  to  a  steady  decline  in  nominal  unit  labour  costs  up  until  2020,  improving  cost 
competitiveness of Greek exporters. In 2021 and 2022, nominal unit labour costs recorded a slight 
increase and are forecast to increase further this year and next. However, labour costs in real terms 
have been shrinking since 2020 and are set to remain on a declining path, set to decrease by 2.6% 
in 2023 and 1.3% 2024. Exports of goods and services accounted for 49% of GDP in 2022, almost 

(8)  The optimistic alternative scenario (scenario 1) assumes higher trade balances in 2025 and thereafter by 2 pps. of GDP, 
and higher real GDP growth in 2025 by 2 pp, than in the baseline scenario. It illustrates a case of a more positive trade 
balance evolution amid lower energy prices and better export performance than under the baseline. The pessimistic 
alternative scenario (scenario 2) simulates the impact of a corresponding adverse shock in which it assumes the same 
timing and the magnitude of deviations from the baseline, but with the opposite sign. See also Graph 3.4 b below. 

(9)  Note that capital account inflows from Recovery and Resilience Facility resources to finance RRP projects through 2026 

will, by accounting identity, widen the current account deficit, but improve the composition of external financing. See also 
the thematic note on external sustainability referenced in footnote (21).    

7 

-15-10-50510080910111213141516171819202122% of GDPb) Financial accountDebt flows (net) NENDI excl reservesDirect investment (net)Portfolio investment, equity and inv. fund shares (net)Official reserves (net)Net errors and omissionsNet lending/borrowing (CA+KA)-30-20-100102015161718192021222223*24*% of GDPa) Decomposition of external positionGoods, fcastServices, fcastGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc. bal.Second. inc. bal.Current accountNet lending/borrowing      
                                                 
2. 

Assessment of macroeconomic vulnerabilities 

doubling from 2011. Greece’s exports have diversified from tourism and transport services towards 
goods, which grew from 10% of GDP in 2010 to 26% in 2022. (10)  

The  banking  sector  has  strongly  reduced  the  stock  of  non-performing  loans  in  its 
balance  sheet;  nevertheless,  the  legacy  stock  of  these  debts  remains  in  the  hand  of 
servicers and continues to weigh on the economy. The ratio of non-performing loans (NPL) (11) 
to total loans in banks’ balance sheet fell to 6.4% in September 2022, compared to 26.5% in 2020 
and  47.4%  at  its  peak in  September  2016.  The  state-supported  securitisation  transactions  under 
the Hercules scheme, expired in October 2022 (12), were the main driver behind this sharp reduction. 
The  banking  sector’s  NPL  ratio  remains  the  highest  in  the  EU  and  continues  to  weigh  on  banks’ 
profitability and lending capacity, which have nonetheless improved. Banks’ in-house management 
of non-performing loans is expected to bring the NPL ratio closer to the EU average. At the same 
time,  high  energy  costs  and  rising  interest  rates  risk  undermining  households’  and  nonfinancial 
corporations’ debt repayment capacity and may eventually affect banks’ asset quality. Moreover, a 
large amount of legacy non-performing private debt remains in the hands of credit servicers and 
thus remains in the economy. At the end of September 2022, servicers held EUR 87 bn worth of 
loans. The ability of banks and credit servicers to efficiently resolve and restructure new and legacy 
non-performing  private  debt  will  be  key  to  economic  performance.  The  continuous  functioning  of 
the non-performing loan secondary market is crucial in these efforts. 

Improving bank fundamentals support capital ratios, but the quality of capital remains 
low,  while  challenges  persist.  The  impact  of  the  prudential  phase-in  of  IFRS9 (13)  accounting 
rules on banks’ capital position was almost fully offset by profits in the first nine months of 2022. 
As  a  result,  banks’  average  Common  Equity  Tier  1  and  Total  Capital  ratios  hardly  changed  with 
respect  to  end-2021  and  stood  at  13.5%  and  16.2%  of  risk-weighted  assets (14),  respectively,  at 
the end of September 2022, compared to EU averages of 15.3% and 18.6%. At the same time, the 
quality of capital remains a concern due to the high share of deferred tax credits. The banks’ core 
profitability  has  improved  and  is  set  to  benefit  from  increasing  interest  rate  margins.  In  parallel, 
banks  have  taken  measures  to  shield  their  balance  sheets  from  sovereign  yield  volatility,  given 
their  significant  holdings  of  domestic  sovereign  bonds. (15)  Banks,  however,  face  rising  funding 
costs,  given  their  need  for  further  debt  issuances  to  meet  regulatory  requirements (16)  and  the 
phasing  out  of  ECB’s  targeted  longer-term  refinancing  operations.  The  cost  of  borrowing  is  high, 
particularly for households and small businesses, and growing on the back of higher interest rates, 
with  the  weighted  average  interest  rate  on  new  loans  rising  from  3.75%  in  February  2022  to 
5.57% in February 2023, while underdeveloped capital markets offer limited alternative sources of 
finance. Any deterioration in asset quality or falling credit demand would pose further challenges 
for banks’ profitability. 

The  labour  market  has  absorbed  the  slack  accumulated  during  the  pandemic  as 
employment has exceeded its end-2019 level, but the employment rate remains among 

(10)  Source: ELSTAT.   

(11)  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) as reported by the European Central Bank. This figure is 
different from 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.  

(12)  Notwithstanding three pending transactions submitted prior to its expiry. 

(13)  International Financial Reporting Standards 9. 

(14)  On a consolidated basis. 

(15)  In January 2023, 8.6% of total assets of Greek banks was invested in domestic sovereign bonds while their overall 

sovereign bond portfolio amounted to 12% of total assets, compared to an EA average of 4%. 

(16)  Namely the minimum requirement for own funds and eligible liabilities (MREL). 

8 

                                                 
2. 

Assessment of macroeconomic vulnerabilities 

the lowest in the EU. Approximately 176,000 jobs have been created since end-2019, bringing 
total employment to a record high of 4.85 million and the employment rate to 66.8% in Q4 2022 
which,  however,  remained  8 pps.  below  the  EU  average.  Moreover,  employment  rates  continue  to 
vary considerably across the country, with several regions in Western Greece, Western Macedonia, 
and  Epirus  showing  rates  of  just  above  50%.  Meanwhile,  the  unemployment  rate  is  gradually 
falling  to  levels  from  before  the  global  financial  crisis,  partly  thanks  to  the  short-time  work 
schemes that helped prevent large lay-offs during the pandemic. The unemployment rate stood at 
10.9% in March 2023 but remained  4.4 pps. above the EU average. Joblessness disproportionally 
affects the youth (24.2%) and long-term unemployment remains persistent. The activity rate (ages 
of 15-64) decreased from 68.5% in 2019 to 65.3% in 2020, but rebounded rapidly in 2021, and 
increased further in 2022 to 69.4%. 

Assessment of MIP relevant policies 

Greece  is  expected  to  maintain  fiscal  primary  surpluses  from  2023  onwards.  The  fiscal 
balance  of  2022  was  considerably  better  than  expected,  with  a  primary  surplus  of  0.1%  of  GDP 
compared to a deficit of 1.7% in the draft budgetary plan. This was the result of the better-than-
implying  higher  tax  revenues,  combined  with  ongoing 
expected  economic  performance 
improvements  in  the  tax  collection  capacity,  and  of  the  moderation  of  energy  prices  in  the  last 
quarter of the year, which reduced the fiscal cost of the energy support measures. It is important 
that  fiscal  policy  remains  prudent  and  achieves  sufficiently  high  primary  surpluses  to  accelerate 
debt reduction. Stepping up further efforts in tax collection and reinforcing payment discipline are 
instrumental in making the fiscal position robust in the medium term.  

Implementation  of  a  wide  array  of  measures  to  enhance  growth,  competitiveness  and 
export capacity is progressing in the context of the Recovery and Resilience Plan. Timely 
and  full  implementation  of  reforms  and  investments  included  in  Greece’s  RRP  is  expected  to 
contribute  to  economic  growth  and  support  the  unwinding  of  macroeconomic  imbalances.  The 
Commission  estimates  an  increase  in  GDP  growth  of  2.1  pps.  to  3.3  pps  over  the  period  2021-
2026,  as  a  result  of  the  implementation  of  the  RRP,  even  without  considering  the  likely  positive 
impact  of  structural  reforms. (17)  RRP  measures  are  targeted  at  addressing  the  large  investment 
gap, while facilitating the green and digital transitions and the modernisation of the economy, with 
a view to promoting export-led growth. Several measures under way aim to improve productivity, 
competitiveness  and  openness  of  the  economy,  such  as  actions  to  simplify  the  business 
environment,  further  improve  the  ease  of  doing  business,  including  through  the  streamlining  and 
digitalisation of licencing, regulatory and export processes, and incentivise productivity growth. Key 
reforms  already  completed  include  the  adoption  of  an  improved  legal  framework  for  attracting 
strategic investments, tax incentives for green and digital investments by SMEs, as well as tax and 
other  incentives  for  scale  ups  through  business  transformations.  The  latter  is  expected  to  tackle 
weaknesses  associated  with  the  predominantly  small  size  of  Greek  enterprises  and,  in  turn,  to 
promote  higher  productivity  and  increase  export  capacity.  Moreover,  the  RRP  includes  measures 
that promote the development and modernisation of key sectors, such as tourism, agriculture, and 
industry. The RRP also provides for the digitalisation of public administration and SMEs, as well as 
increased  public-private  cooperation  in  research  and  development,  including the  support  of  start-
ups.  Finally,  the  Loan  Facility,  which  concerns  the  provision  of  loans  at  below-market  rates  for 
private sector investments, is already financing projects related to the green and digital transitions, 
research, development and innovation, as well as the expansion of companies’ export capacity. 

(17)  European Commission (2021), Analysis of the recovery and resilience plan of Greece, SWD (2021) 155 final/2. 

9 

                                                 
2. 

Assessment of macroeconomic vulnerabilities 

The impact of financial sector reforms is starting to materialise, while efforts continue 
to address remaining deficiencies. While the recently phased out Hercules scheme has strongly 
contributed to the clean-up of banks’ balance sheets and to the development of the secondary NPL 
market, the impact of other reforms is only gradually materialising. The ability of banks and credit 
servicers to efficiently resolve and restructure new and legacy non-performing private debt will be 
key  to  economic  performance.  A  functioning  non-performing  loan  secondary  market  is  crucial  in 
these efforts. The use of out-of-court restructurings by banks and borrowers has picked up but the 
number of cases remains modest, while the use of the other platforms under the new insolvency 
framework  is  even more limited.  Further improvements  to the  early  warning  and  preventive  debt 
restructuring framework are being developed continuously, including under Greece’s Recovery and 
Resilience Plan (RRP). The number of e-auctions has risen to the highest number in years, while the 
recent plenary decision of the Supreme Court should have dispelled legal uncertainty and avert any 
disruptive effect on enforcement proceedings. (18) The share of failed auctions remains high but is 
slowly declining, partly because of past policy actions. The clearance of the backlogs of household 
insolvency cases and called state guarantees has accelerated, and completion is envisaged within 
2023 and 2024 respectively. At the same time, loan disbursements under the loan component of 
the  RRP  -  the  Loan  Facility  -  have  started  to  support  credit  growth  to  businesses  and  promote 
private investment.  

Actions under the Recovery and Resilience Plan are set to benefit the labour market. The 
RRP’s strong focus on labour market policies has a potential to increase labour market participation 
and  employment.  A  comprehensive  set  of  measures  in  the  plan  is  directed  at  addressing  labour 
market deficiencies, facilitating a structural increase in employment, and upgrading the education 
and  training  system.  Currently  implemented  measures  include  labour  market  policy  reforms  to 
enhance  job  creation,  improve  job  quality,  strengthen  economic  and  social  resilience,  promote 
labour  market  inclusion,  and  reduce  inequalities,  poverty  and  exclusion.  Further,  reforms  and 
investments in skills, lifelong learning, vocational education and training, research performance of 
universities,  and  digitalisation  of  all  levels  of  education  aim  at  increasing long  term  employment 
and productivity.  

Reforms  and  investment  promoting  balanced  growth  are  first  steps  to  help  safeguard 
the sustainability of external borrowing. Building on best practices and reforms undertaken as 
part  of  the  recovery  and  resilience  plan,  the  review  of  the  tax  system  and  extending  the  use  of 
electronic  payments  is  likely  to  support  the  broadening  of  the  tax  base  and  strengthening  tax 
compliance.  Moreover,  ensuring  to  attract  the  right  skills,  while  maintaining  its  human  resource 
costs at pre-pandemic levels is set to safeguard the efficiency of the public administration. Banks 
and  credit  servicers  are  expected  to  further  reduce  the  stock  of  non-performing  loans  with 
improved  debt  enforcement  and  a  functional  non-performing  loan  secondary  market.    Further 
measures could contribute to improving the business environment, for instance by completing the 
cadastre  project,  expediting  environmental  permitting  procedures,  completing  special  spatial 
frameworks in key sectors, and ensuring the effective application of environmental legislation. The 
labour  market  could  further  benefit  from  an  improvement  in  the  effectiveness  of  activation 
support, with a particular focus on young people and women. Export capacity continued to improve, 
but this trend needs to be persistent to enhance external sustainability. 

The gradual withdrawal of policy support is set to contribute to better aligning domestic 
demand  growth  with  external  sustainability.  In  the  wake  of  the  COVID-19  pandemic  and 
energy crises, domestic policy intervened forcefully to stabilise incomes. However, with these crises 
gradually  subsiding,  domestic  demand  growth  appears  to  sizeably  exceed  output  growth.  The 
performance  of  the  export  sector  has  improved  but  did  not  prevent  the  widening  of  the  current 

(18)  For details on the court decision see: European Commission (2023), Post-Programme Surveillance Report, Greece Spring 

2023 

10 

                                                 
2. 

Assessment of macroeconomic vulnerabilities 

account deficit. The substantial policy support provided during the 2020-2022 period is set to be 
phased  out  which  will  allow  fiscal  policy  to  recalibrate  incentives  with  sustainable  domestic 
demand growth. However, untargeted spending items, such as the interest rate subsidy for young 
first-time home buyers, could result in further demand growth at a time when there is a need for 
ensuring  external  rebalancing.  In  this  context,  measures  stimulating  housing  investment  and  the 
associated strong inflow of foreign direct investment into the property sector are unlikely to help 
strengthen the external sustainability of the economy. 

Conclusion 

Greece’s  long-standing  vulnerabilities  relating  to  high  public  debt  and  a  high  stock  of 
non-performing loans in the context of high unemployment have been receding, but its 
external position has deteriorated.  While  the public debt-to-GDP ratio remains the highest in 
the  EU,  it  improved  substantially  in  2022,  largely  driven  by  strong  nominal  growth.  The  stock  of 
NPLs recorded a sharp fall last year, after large reductions in recent years. However, the NPL ratio 
remains the highest in the EU and continues to weigh on banks’ profitability and lending capacity. 
Greece’s  current  account  deficit  widened  to  9.7%  of  GDP  in  2022,  representing  a  noticeable 
deterioration relative to the pre-pandemic period and a potential source of heightened vulnerability. 
Even though it is forecast to shrink this year and next, the external balance is set to stay well below 
the  level  that  would  be  required  to  ensure  a  lasting  improvement  in  the  net  international 
investment position. While the labour market proved resilient in the face of both the pandemic and 
the energy crisis, unemployment remains high and employment growth is set to moderate in the 
coming years in line with slowing economic growth. 

The authorities have taken measures to facilitate economic adjustment that contributed 
to the unwinding of imbalances, but further efforts would be needed to reduce external 
imbalances.  Greece  has  reduced  the  legacy  of  non-performing  exposures  to  banks’  balance 
sheets, reformed labour market, and improved the business environment to support productivity. It 
maintains a steady pace of implementation of its Recovery and Resilience Plan, which represents a 
major  opportunity  to  tackle  structural  weaknesses,  boost  growth  and  modernise  the  economy. 
Greece has also maintained  prudent fiscal policies and overperformed its 2022 target to reach a 
small  primary  surplus  of  0.1%  of  GDP.  Public  policy  will  continue  to  play  an  important  role  for 
sustaining  and  extending  these  achievements,  for  example  through  further  strengthening  the  tax 
base  and  tax  compliance,  enhancing  the  efficiency  of  healthcare  spending,  or  accelerating  the 
reduction  of  the  stock  of  non-performing  loans.  Yet  further  efforts  would  be  needed  to  ensure 
continued  unwinding  of  imbalances,  in  particular  to  ensure  that  external  balances  are  put  on  a 
firmly improving path.  

Based on the findings in this in-depth review, the Communication “European Semester – 
2023  Spring  Package”   sets  out  the  Commission’s  assessment  as  to  the  existence  of 
imbalances or excessive imbalances in Greece, in line with Regulation 1176/2011. (19)  

(19)  European Commission (2023), European Semester Spring Package 2023, COM (2023) 600 final. 

11 

 
 
                                                 
2. 

Assessment of macroeconomic vulnerabilities 

Box 1: Inflation exposures and cross-border pass-through 

This  box  sheds  light  on  the  sources  of  inflation  in  Greece  and  its  spillovers  with  EU 
partners.  The  period  since  2021  has  been  characterized  by  pandemic  aftershocks  and  global 
supply  chain  disruptions  compounding  global  inflationary  pressures  and  a  surge  in  commodity 
prices  triggered  by  Russia’s  war  of  aggression  against  Ukraine.  As  a  result,  inflation  in  Greece 
surged.  Wage  and  profit  growth  also  picked  up  across  the  EU,  which  further  added  to  price 
pressures  in  Greece.  With  input-output  data,  domestic  inflation  can  be  decomposed  into  the 
contributions from key cost factors. Taking into account some data limitations, the framework can 
be  used to attribute consumer and investment price changes to i) extra-EU import price changes, 
which include both directly imported inflation and inflation passed through from EU partners import 
costs  ii)  domestic  unit  labour  cost  changes  iii)  domestic  unit  profit  changes,  including  indirect 
taxation changes and iv) rest-of-EU value added price changes. (20) 

Data suggests that much of inflation in  Greece in 2022 reflected surging import prices 
as well as domestic factors. In 2022, as shown in Graph 2.3, energy and extra-EU non-energy 
imports  contributed  substantially  to  the  increase  in  consumer  and  investment  inflation.  Domestic 
profits were also an important factor behind surging inflation. In addition, costs passed through EU 
partners  further  lifted  prices  of  consumption  and  investment  in  Greece.  Going  forward,  domestic 
factors, particularly profits, are expected to keep consumer and investment inflation elevated over 
the forecast horizon. Still, non-energy imports are set to become a key driver of inflation. Spillovers 
from value added inflation in other EU countries are set to remain negligible. 

Graph 2.3: Components of gross fixed capital formation deflator growth and consumer price 
inflation 

Source: European Commission services 

(20)  The graphs below are based on national accounts data and the Commission’s Spring 2023 forecast, which are combined 

through a ‘Ghosh’ matrix based on Eurostat’s Figaro input-output available for 2015-2020. HICP is taken as the measure of 
the price of private consumption, including non-residents. Energy import prices from extra-EU reflect realised median prices 
until 2022, and energy price assumptions underlying the Spring forecast thereafter. Other goods prices reflect median 
European prices per industry until 2022, and forecast non-energy goods and service trade prices for 2023-2024. Value 
added deflators are assumed to affect all industries within a country to the same degree. Changes in import prices and 
value-added deflators are assumed to affect demand prices with a delay of 4 months for consumption and investment 
inflation, respectively. For a similar analysis using an input-output-based methodology, see “Inflation Differentials in Europe 
and Implications for Competitiveness: Thematic Note to Support In-Depth Reviews” European Commission 2023, 
Institutional paper 198. 

12 

 
  
 
                                                 
Table 2.1: Selected economic and financial indicators (Part 1), Greece 

2. 

Assessment of macroeconomic vulnerabilities 

(e) estimate based on ECB quarterly data 
(1) Potential output is the highest level of production that an economy can reach without generating inflationary 
pressures. The methodology to compute the potential output is based on K. Havik, K. Mc Morrow, F. Orlandi, C. Planas, R. 
Raciborski, W. Roeger, A. Rossi, A. Thum-Thysen, V. Vandermeulen, The Production Function Methodology for Calculating 
Potential Growth Rates & Output Gaps, COM, European Economy, Economic Papers 535, November 2014. 
(2) Deviation of actual output from potential output as % of potential GDP. 
(3) Current accounts in line with fundamentals ("current account norms") are derived from reduced-form regressions 
capturing the main determinants of the saving-investment balance, including fundamental determinants, policy factors 
and global financial conditions. See L. Coutinho et al. (2018), "Methodologies for the assessment of current account 
benchmarks", European Economy, Discussion Paper 86/2018, for details.  
(4) This benchmark is defined as the average current account required to halve the gap between the NIIP and the 
indicative MIP benchmark of -35% of GDP over the next ten years, or to stabilise the NIIP at the current level if it is 
already above the indicative MIP benchmark. Calculations make use of Commission’s T+10 projections. 
(5) NENDI is a subset of the NIIP that abstracts from its pure equity-related components, i.e. foreign direct investment 
(FDI) equity and equity shares, and from intracompany cross-border FDI debt, and represents the NIIP excluding 
instruments that cannot be subject to default. 
(6) Fundamentals-based benchmarks are derived from regressions capturing the main determinants of credit growth and 
taking into account a given initial stock of debt. Prudential thresholds represent the debt threshold beyond which the 
probability of a banking crisis is relatively high, minimising the probability of missed crisis and that of false alerts. 
Methodology to compute the fundamentals-based and the prudential benchmarks based on Bricongne, J. C., Coutinho, L., 
Turrini, A., Zeugner, S. (2019), “Is Private Debt Excessive?”, Open Economies Review, 1- 42. 
Source: Eurostat and ECB as of 2023-04-28, where available; European Commission for forecast figures (Spring forecast 
2023) 

13 

all variables y-o-y % change, unless otherwise stated2003-072008-122013-18201920202021202220232024Real GDP 4.1-5.50.01.9-9.08.45.92.41.9Potential growth  (1)3.4-1.0-1.9-0.7-0.8-0.30.41.01.5Contribution to GDP growth:Domestic demand 5.1-7.0-0.51.5-4.76.96.52.11.6Inventories 0.0-0.70.4-0.31.30.82.4-0.1-0.1Net exports -1.12.10.10.7-5.60.7-3.00.50.4Contribution to potential GDP growth (1):Total Labour (hours) 0.70.9-0.1-0.6-0.7-0.7-0.30.10.3Capital accumulation 1.00.1-0.5-0.4-0.3-0.10.00.10.2Total factor productivity 1.7-2.0-1.30.30.20.50.70.80.9Output gap (2)1.5-8.3-13.5-6.1-13.8-6.3-1.10.30.8Unemployment rate9.814.724.117.917.614.712.512.211.8Harmonised index of consumer prices (HICP)3.32.9-0.20.5-1.30.69.34.22.4GDP deflator 3.11.5-1.20.2-0.91.38.14.72.9External positionCurrent account balance (% of GDP), balance of payments-10.3-10.0-1.6-1.5-6.6-6.8-9.7-7.3-6.0Trade balance (% of GDP), balance of payments-9.0-7.2-1.3-0.9-6.8-7.6-9.4..Primary income balance (% of GDP)-1.5-2.3-0.2-0.9-0.20.2-0.1..Secondary income balance (% of GDP)0.2-0.5-0.10.30.30.7-0.1..Current account explained by fundamentals (CA norm, % of GDP) (3)-2.2-1.7-1.3-1.2-1.1-1.1-1.0-0.9-0.8Required current account to stabilise NIIP above -35% of GDP over 20Y (% of GDP) (4)0.72.9-0.7-1.5-2.8-1.9-1.0-0.6-0.3Capital account balance (% of GDP)1.21.20.90.41.72.21.5..Net international investment position (% of GDP)-75.7-94.2-138.5-154.1-173.8-171.9-141.3..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5).-96.2-130.1-133.5-155.1-150.2-118.2..Net FDI flows (% of GDP)0.0-0.1-1.1-2.1-1.4-2.4-2.2..CompetitivenessUnit labour costs (ULC, whole economy)3.12.8-3.30.07.2-3.1-1.71.91.5Nominal compensation per employee 5.6-0.9-3.3-0.3-0.62.30.33.62.8Labour productivity (real, hours worked)2.3-3.5-1.02.02.6-1.40.31.11.1Real effective exchange rate (ULC)1.30.6-4.9-2.22.9-3.3-5.3-3.6-2.0Real effective exchange rate (HICP)1.70.2-0.9-1.8-0.3-1.1-0.3..Export performance vs. advanced countries (% change over 5 years)12.7-5.1-9.51.5-10.214.6...Private sector debtPrivate sector debt, consolidated (% of GDP)84.7125.6126.9110.3124.9120.798.9..Household debt, consolidated (% of GDP)35.359.261.855.959.555.547.7..Household  debt, fundamental benchmark (% of GDP) (6)9.814.219.923.024.827.230.2..Household  debt, prudential threshold (% of GDP) (6)31.733.334.731.733.032.127.3..Non-financial corporate debt, consolidated (% of GDP)49.466.565.154.465.465.251.2..Corporate debt, fundamental benchmark (% of GDP) (6)23.129.135.238.642.146.953.4..Corporate debt, prudential threshold (% of GDP) (6)52.456.459.353.557.556.948.4..Private credit flow, consolidated (% of GDP) 13.61.8-2.4-1.05.1-0.10.8e..Corporations, net lending (+) or net borrowing (-) (% of GDP)4.87.27.41.02.30.9-0.5-0.4-0.1Households, net lending (+) or net borrowing (-) (% of GDP)-7.4-4.7-4.2-3.21.71.2-5.0-4.1-3.7Net savings rate of households (% of net disposable income)-0.4-6.8-13.8-10.1-5.1-3.2...forecast 
  
 
 
 
Table 2.2: Selected economic and financial indicators (Part 2), Greece 

2. 

Assessment of macroeconomic vulnerabilities 

(7) Unweighted average of price-to-income, price-to-rent and model valuation gaps. The model valuation gap is 
estimated in a cointegration framework using a system of five fundamental variables; total population, real housing 
stock, real disposable income per capita, real long-term interest rate and price deflator of final consumption expenditure, 
based on Philiponnet, N., Turrini, A. (2017), "Assessing House Price Developments in the EU," European Economy - 
Discussion Papers 2015 - 048, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission. 
Price-to-income and price-to-rent gaps are measured as the deviation to the long-term average (from 1995 to the latest 
available year). 
(8) Price-to-income overvaluation gap measured as the deviation to the long-term average (from 1995 to the latest 
available year). 
(9) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
Source: Eurostat and ECB as of 2023-04-28, where available; European Commission for forecast figures (Spring forecast 
2023) 

14 

all variables y-o-y % change, unless otherwise stated2003-072008-122013-18201920202021202220232024Housing marketHouse price index, nominal7.5-4.9-4.37.24.57.611.1..House price index, deflated4.2-6.5-3.37.25.76.63.3..Overvaluation gap (%) (7)9.813.0-7.0-4.70.13.15.7..Price-to-income overvaluation gap  (%) (8)9.711.2-3.8-6.51.80.7-1.8..Residential investment (% of GDP)9.75.61.00.81.11.31.6..Government debtGeneral government balance (% of GDP)-7.1-11.3-3.50.9-9.7-7.1-2.3-1.3-0.6General government gross debt (% of GDP)103.7144.2180.3180.6206.3194.6171.3160.2154.4Banking sectorReturn on equity (%).6.0-8.80.7-7.9-20.1...Common Equity Tier 1 ratio.9.615.416.215.014.0...Gross non-performing debt (% of total debt instruments and total loans and advances) (9).9.135.631.322.27.1...Gross non-performing loans (% of gross loans) (9)..43.935.526.58.66.4..Cost of borrowing for corporations (%)5.86.14.83.93.13.04.7..Cost of borrowing for households for house purchase (%)4.44.03.02.92.72.53.7..forecast 
     
 
3.  THEMATIC CHAPTER: EXTERNAL SUSTAINABILITY 

The economy of Greece increasingly depends on external financing, reflected by a rising 
current account deficit. Greece experienced a substantial widening of its current account deficit 
in  the  last  three  years.  The  deficit  reached  9.7%  of  GDP  in  2022,  the  highest  in  a  decade, 
worsening sharply from 1.5% in 2019 and 6.8% of GDP in 2021. Hence, the outturn for 2022 came 
in closer to the level recorded right after the outbreak of the global financial crisis. (21) 

A  strong  rebound  in  domestic  demand  has  not  been  matched  by  output  growth  since 
2020.  In  the  eight  years  up  to  the  pandemic,  output  roughly  matched  demand.  Real  output 
contracted  sharply  when  the  COVID-19  shock  hit  the  Greek  economy.  The  subsequent  strong 
economic rebound, led by consumption and investment, induced strong import growth, and pushed 
the trade balance into a widening deficit (See graph 3.1a). This raised concerns over Greece’s ability 
to  return  to  a  path  towards  a  more  sustainable  external  position  in  the  medium  to  long  run.  In 
2022, the growth of absorption, i.e., consumption and investment, including inventories, exceeded 
output  growth  both  in  nominal  and  real  terms.  In  current  prices,  this  was  also  due  to  strong 
increases  both  in  the  consumption  and  investment  deflators,  strongly  influenced  by  the  surge  in 
energy  prices  (See  graph  3.5c  and  d).  The  large  increase  in  investment  was  associated  with  a 
significant  rise in inventories  over  2021  and  2022 (See  graph  3.1b).  This  is  the  result  of  specific 
accounting  methods  used  for  the  registrations  of  work  in  progress  and  unfinished  constructions 
which fall under this category. 

Graph 3.1: Demand, output and gross capital formation 

Source: European Commission services 

Domestic demand growth has been led by investment in machinery and construction and 
household  expenditure  on  health  and  communication  after  2019.   Investment  activity  is 
concentrated in the construction and machinery sector while investment in other potentially more 
productive  sectors  is  growing  at  a  lower  pace.  Investment  spending  outpaced  the  EU  average 
across  almost  all  categories.  The  'machinery'  and  'other  machinery  &  equipment,  including 

(21)  External sustainability analysis: thematic note to support In-Depth Reviews, Brussels, 17 February 2023. The note considers 

the data up to 2022Q3 and uses Autumn forecast 22, which is updated in the IDR to 2022 and SF23. 

15 

 
   
                                                 
 
3. 

Thematic chapter: External Sustainability 

weapons'  were  the  categories  with  the  highest  relative growth  compared  to  the  EU  average.  The 
increase  in  dwellings  investment  may  also  reflect  the  increase  in  construction  costs  though.  In 
addition,  household  spending  remains  strong,  although  it  is  set  to  moderate  over  the  forecast 
horizon.  Above  EU  average  household  expenditure  was  led  by  spending  on  health  and 
communication  (see  Graph  3.6).  Disaggregating  trade  flows  according  to  broad  economic 
categories (BEC), the bulk of the increase in Greece’s non-energy trade  deficit is primarily due to 
intermediate  goods,  followed  by  capital  goods  and  consumption  goods  (see  Graph 3.2).  The 
substantially  increased  contribution  of  intermediate  and  to  a  lesser  extent  capital  goods  may 
indicate  a  higher  genuine  demand  for  investment,  though  it  may  also  reflect  supply-side 
constraints and increased energy prices (22). 

Graph 3.2: Trade balance and import developments by broad economic category (BEC) 

Source: European Commission services 

From  a  sectoral  net  lending  perspective,  the  widening  of  the  current  account  deficit 
after  2019  reflects, to a  large  extent, the decline  in  the  government net  position.  High 
budgetary  costs  to  mitigate  the  impact  of  the  pandemic  crisis  widened  fiscal  deficits  to  9.7%  in 
2020 and 7.1% of GDP in 2021, which were among the highest fiscal deficits in the EU. In 2022, 
the Greek government introduced one of the largest economic and social support packages among 
EU Member States, around 2.3% of GDP (23), mitigating the economic consequences of the energy 
price surge. Still, the deficit declined substantially, to 2.3% of GDP, on account of strong nominal 
growth  and  the  phasing  out  of  pandemic  related  support  measures.  During  the  COVID-19 
pandemic,  private  consumption  was  suppressed  due  to  containment  measures  and  precautionary 
motives.  As the economy opened up in 2021, households normalised their consumption behaviour 
and  the  increased  savings  of  2020  and  early  2021  turned  out  to  be  temporary.  Households’  net 
position turned negative again, moving from 1.2% in 2021 to  -5% of GDP in 2022. Similarly, the 
net position of corporations declined from 0.9% in 2021 to -0.5% of GDP in 2022 (see Graph 3.3).  

(22)  Energy inputs are included in the intermediate goods category. 

https://ec.europa.eu/eurostat/ramon/other_documents/bec/BEC_Rev_4.pdf 

(23)  See communication from the commission to the European Parliament, the European Council and the European Central 

Bank, on the 2023 Draft Budgetary Plans: Overall Assessment 22-11-2022. 

16 

 
 
                                                 
Graph 3.3: Net lending/borrowing position and savings/investment developments 

3. 

Thematic chapter: External Sustainability 

Source: Eurostat and European Commission services 

The large inflows of EU funds improve the net borrowing position of the Greek economy, 
while  foreign  direct  investment  (FDI)  inflows  cover  an  increasing  share  of  external 
financing needs. The net borrowing position net of borrowing financed by EU funds shrank to a 
still  substantial  -5.9% of GDP in 2022. Greece continues to attract large FDI inflows, which have 
recently exceeded the longer-term pre-pandemic levels. FDI inflows covered 28% of net financing 
needs in 2020 and 53% in 2021 and 26% in 2022. A large part of FDI was concentrated in the real 
estate sector, where a significant increase was observed in 2022 vis-à-vis previous years. However, 
the use of debt instruments in financing the external deficit also increased in recent years. In 2022 
debt instruments covered more than half of net financing needs. More specifically, the net outflows 
of  portfolio investment  debt  were more  than  offset by  strong  net inflows  of  debt  in the  form  of 
other investment. 

Considering  Greece’s  substantial  negative  net  international  investment  position  (NIIP), 
high  current  account  deficits  do  not  bode  well  for  the  resilience  of  the  economy  to 
adverse shocks. The net international investment position of Greece remains the lowest in the EU. 
Following  a  protracted  period  of  economic  stagnation  in  the  last  decade,  the  Greek  economy 
entered the COVID-19 crisis with the NIIP at -154% of GDP (see chart 3.4 a). The position deepened 
considerably in 2020 as the income from tourism, a key external source of income of the economy, 
plummeted.  At  the  same  time,  generous  fiscal  support,  which  mitigated  the  hit  to  domestic 
demand,  relied  on  external  financing.  After  a  broad  stabilisation  in  2021,  the  NIIP  improved  to 
slightly  below  2019 levels  in  2022,  driven  mainly  by  nominal  growth.  Nevertheless,  at  -141%  of 
GDP in 2022, the NIIP remained the lowest in the EU and considerably below prudential  levels (-
46% of GDP), as well as levels explained by fundamentals (-78% of GDP). The Greek economy is 
leveraging  the  Next  Generation  EU  funding  and  the  favourable  interest  rate  structure  to  raise 
investment to improve potential growth and living standards. As the financing costs are expected to 
increase, the burden of financing the large negative NIIP will add to the challenge of narrowing the 
current account deficit, just when EU transfers start to decline. 

17 

-25-20-15-10-50510152025060708091011121314151617181920212223*24*% of GDPa) Net lending/borrowing positionCorporationsGeneral governmentHouseholds and NPISHTotal economy-15-10-50510152025091011121314151617181920212223*24*% of GDPb) Savings and investments by sectorGovernment savingGovernment investmentCorporations savingCorporations investment   
Graph 3.4: Net international investment position 

3. 

Thematic chapter: External Sustainability 

Source: European Commission services 

Going  forward,  the  current  account  balance  is  expected  to  remain  well  below 
benchmarks  in  2023  and  2024.  According  to  the  Commission’s  Spring  2023  forecast,  the 
current account deficit is forecast to improve to 7.3% of GDP in 2023 and to 6.0% in 2024, as the 
fiscal balance is projected to remain in deficit and domestic demand to stay strong. In particular, 
the significant growth in investment in real terms, also boosted by RRF disbursements, is projected 
to persist, while consumption growth is set to stabilise at around 1.5% over the forecast horizon. 
Energy  commodity  prices,  including  prices  of  oil  and  petroleum  products  on  which  the  Greek 
economy  is  most  reliant,  have  fallen  recently,  helping  to  reduce  somewhat  the  current  account 
deficit.  The  spring  forecast  assumptions  for  commodity  prices  imply  a  reduction  in  the  current 
account deficit by around 2.7% of GDP in 2023. (24)  

More  efforts  would  be  needed  to  ensure  that  external  balances  are  put  on  a  firmly 
improving path. The projected current account balances are below the Commission’s estimates of 
Greece’s  current  account  “norm” (25),  i.e.  the  current  account  level  implied  by  economic 
fundamentals, of around -1% of GDP. In addition, the deficit persists well below the level required 
to halve the gap to the fundamental NIIP benchmark over 10 years, which is estimated at around -
0.9%,  and  below  the  current  account  required  to  reach  the  prudential  threshold  over  10  years, 
estimated at 3.9%. Moreover, with a deficit of this size, the NIIP cannot even be stabilised at the 
current deeply negative level over the next ten years. (26) Even if considering the reduction driven by 
expected  lower  energy  prices,  the  current  account  would  still  be  considerably  below  the  norm 
benchmarks.  As  a  result,  the  NIIP  is  set  to  deteriorate.  (27)  According  to  the  Commission’s  spring 

(24)  The energy price impact is set to fall from -4.1% in 2022 to -1.4% in 2023. 

(25)  Current accounts norms, i.e. current accounts in line with fundamentals, are derived from reduced-form regressions 

capturing the main determinants of the saving-investment balance, including fundamental determinants, policy factors and 
global financial conditions. See L. Coutinho et al. (2018), "Methodologies for the assessment of current account 
benchmarks", European Economy, Discussion Paper 86/2018. 

(26)  The NIIP-stabilising current account benchmark is defined as the current account required to stabilise the NIIP at the current 
level over the next 10 years. The current account required to reach a specific NIIP target is the current account required to 
reach the prudential threshold over the next 10 years, or to halve the gap to the NIIP in line with fundamentals, whichever 
is higher. NIIP prudential thresholds are determined from the maximisation of the signal power in predicting a balance of 
payment crisis, taking into account country-specific information summarised by per-capita income. NIIP in line with 
fundamentals (NIIP norms) are obtained as the cumulation over time of the values of the current account norms. For the 
methodology for the computation of NIIP prudential and fundamental benchmarks, see A. Turrini and S. Zeugner (2019), 
"Benchmarks for Net International Investment Positions", European Economy, Discussion Paper 097/2019. 

(27)  Overall, the large inflows under the Recovery and Resilience plan (which amount to 17% of 2021 GDP in total) cover part of 
the external financing needs. Their projected impact on the capital account and secondary income balance are taken into 
account in the NIIP projections referred to above. 

18 

-300-200-100010016Q317Q318Q319Q320Q321Q322Q3% of GDPa) NIIP by sectorGeneral governmentPrivate sectorMFI (excl central bank)Central bank (incl reserves)Net int'l investment position (NIIP)-190-180-170-160-150-140-130-120-110-1002122232425*26*27*28*29*30*31*32*% of GDPb) NIIP projectionsScenario 1Scenario 2Baseline   
                                                 
3. 

Thematic chapter: External Sustainability 

forecast,  the position is expected to remain broadly stable this year and next. However, medium-
term  projections  point  at  a  gradual  worsening  of  the  NIIP  even  under  favourable  assumptions. 
Baseline assumptions for growth, inflation and trade balances see the NIIP to fall to around -162% 
of GDP by 2032 (see Graph 3.4b). Should economic growth and trade perform better than assumed 
in the baseline (scenario 1), the NIIP would unlikely improve above current levels by 2032. (28) In a 
scenario, in which economic growth and international trade underperform the baseline assumptions 
(scenario  2),  the  NIIP  deteriorates  considerably  in  the  medium-term.  Hence,  public  policy  will 
continue  to  play  an  important  role  to  ensure  that  domestic  demand  growth  is  consistent  with 
external  sustainability  by  appropriately  calibrating  demand  incentives  and  by  paying  attention  to 
the  composition  of  tax  and  spending  items.  To  further  improve  the  external  sustainability  of  the 
Greek  economy,  while  closing  the  significant  investment  gap,  national  savings  need  to  increase 
significantly.  Supporting  productive  investment  needs  to  be  consistent  with  putting  external 
balances on a firmly improving path. 

(28)  See footnote 7 for the details of the scenarios. 

19 

                                                 
Graph 3.5: Consumption and investment, export and import developments 

3. 

Thematic chapter: External Sustainability 

Source: European Commission services 

20 

-5005010015020025020152016201720182019202020212022bn nat. curr.a) Consumption and investment in bn nat currC, const pricesI, const pricesC, price impactI, price impactC+I, constant pricesC+I, current prices-10-50510152020152016201720182019202020212022in %b) Decomposition of domestic demand growthΔC, constant pricesΔI, constant pricesΔC deflatorΔI deflatorΔC+I, constant pricesΔC+I, current prices-30-20-100102030-150-100-5005010015020152016201720182019202020212022bn nat. curr.c) Exports and imports, in bn nat currM, const prices, inversedX, constant pricesM, price impact, inversedX, price impactX-M, current prices, rhsX-M, constant prices, rhs-60-40-20020406020152016201720182019202020212022in %d) Decomposition of exports and imports growthΔX, constant pricesΔM, constant prices, inversedΔX deflatorΔM deflator, inversed-25-20-15-10-50510152025-250-200-150-100-5005010015020025020152016201720182019202020212022bn nat. curr.e) Output and absorption in bn nat currC+I, const prices, inversedGDP, const pricesC+I, price imp, inversedGDP, price impactGDP-(C+I) curr prices rhsGDP-(C+I) const prices rhs-20-15-10-50510152020152016201720182019202020212022in %f) Decomposition of output and absorption growthΔ(C+I), const. prices, inversedΔGDP, const. pricesΔ(C+I) deflator, inversedΔGDP deflator   
 
Graph 3.6: Investment and consumption growth by sector - Greece vs. Euro area 

3. 

Thematic chapter: External Sustainability 

area of the squares represent the weight on total consumption/investment and the colour represents the intensity of the 
growth rate  
Source: Eurostat and European Commission services 

21