Greece – Deficit to Remain 3.6% of GDP

Coface assessment


  • Support from the international financial community, possible debt relief at the end of 2018
  • World’s leading ship owner
  • Tourism


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

After being hit again by the recession in 2015, due to uncertainty generated by the Syriza’s party’s rise to power and the introduction of capital controls, the country should gradually return to growth in the second half of 2016 due to increased confidence generated by easing of tensions with the international financial community.

The expected completion of the first review of the European Stability Mechanism programme, following the agreement reached on 25 May 2016 by the euro area and the implementation in early June of additional measures, should lead to the resumption of European disbursements and pave the way for debt relief at the end of 2018.

Renewed confidence linked to these latest developments should help lift capital controls and encourage investment recovery. Drawings on European loans should allow the government to pay its arrears and re-inject money into the economy.

The unemployment rate is expected to continue to decline marginally in 2016 due to the reforms of recent years and a recovery in economic activity. However, unemployment remains high (24.4% in Q4 2015).

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Major reforms were passed in May 2016
The third bailout package, following those of 2010 and 2012 and approved by the Eurogroup in August 2015, involve the provision of 86 billion euros in exchange for the implementation of significant reforms. The Greek parliament approved a number of these reforms between Mid 2015 and December 2015, including regulations governing property seizure.

In May 2016, government adopted controversial pension and tax reforms as well as new austerity measures. These included indirect tax increases and the creation of a new state privatisation fund, an independent public revenue authority and a contingency mechanism designed to cut spending if the country fails to meet fiscal targets.

At the beginning of June 2016, other measures included phasing out pensioner benefits, privatisation of an electricity operator and lifting of restrictions on selling nonperforming loans guaranteed by the state.

Bank recapitalisation, completed by the end of 2015, temporarily increased the total public deficit to over 7% of GDP. Reforms and measures taken in 2016 should generate new savings and ensure that the deficit will remain limited to around 3.6% of GDP this year. With the resumption of financial assistance, payment defaults by government should once again be avoided.

If commitments under the rescue plan are met, Greece should benefit at the end of 2018 from a major debt relief as a result of reprofiling its European loans. However, even after restructuring, the debt dynamics will remain sensitive to economic and fiscal shocks.

Banking sector convalescing
Greek banks experienced a severe crisis marked by a lack of access to international capital markets, deposit flights, a long recession and losses caused by the forced restructuring of Greek sovereign debt in 2012. Banks were recapitalised and consolidated in 2014 and again in late 2015.

However, their profitability and quality of assets have strongly deteriorated (nonperforming loans account for nearly 35% of total loans). If the introduction of capital controls helped stem deposit withdrawals, these have not been replenished. The situation in the banking sector should remain weak in 2016 although efforts are being undertaken to address the problem of bad loans.

Greece’s politics continue to be impacted by the financial and economic crisis
Greece has experienced, in recent years, strong political instability (five elections and one referendum in seven years). Each government has been torn between donor requirements and the need to prevent social upheavel.

The current government, led by the party of the radical left “Syriza”, which emerged victorious from new early legislative elections in September 2015, now only has a two-seat majority in Parliament and remains fragile. Moreover, the country has found itself in the front line of the migrant crisis, creating further pressure and uncertainty.


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