The Greek economy has weaknesses that other European countries do not have, says the European Commission. [EPA]
The European Commission’s detailed report on the Greek economy, released on Monday, highlighted the five problems inherent in Greece, reminding that while the country is set to exit its enhanced surveillance status, it continues to suffer excessive macroeconomic imbalances.
The report, which is part of the European Semester process, notes that Greece has recovered quickly from the pandemic, but its economy remains exposed to legacy imbalances. Only Greece, Cyprus and Italy are in such a state.
The five problems highlighted by the Commission are: high public debt, high rate of non-performing loans, persistent trade deficit, high unemployment rate and low potential growth rate. All of these open wounds, along with a series of other partial problems, had been smoldering the Greek economy for years and were not resolved by the bailouts despite progress being made in some areas.
Despite being drastically reduced to 12% last September, Greece’s NPL rate remains the highest in the European Union and is weighing on banks’ profits as well as their potential credit expansion to households and businesses. . We also note that the equity ratio in Greece remains one of the lowest in the euro zone, at 15%.
The external position of the Greek economy remains negative: despite improving last year, as of 2020 the trade deficit stood at 5.9% of gross domestic product, well above the level required for Greece regains international balance.
Foreign direct investment may have increased by 13% a year in 2021, but its stock remains well below the EU average, at 27.3% of GDP compared to 77% in the bloc. Economic activity, the report points out, is centered on small and very small businesses with limited access to finance, while tourism remains centered on the “sea and sun” model.
Unemployment remains among the highest in the EU, although it has fallen, while competitiveness has improved but remains quite low, the Commission noted.