Why Greece lags behind in investments from the EU

By Tasos Dasopoulos

Chronic problems of the Greek economy prevent the increase in productive investment and the increase in the competitiveness of the economy, in order to close the still high deficit in the current account balance.

This highlights, among other things, a report by the European Commission’s Directorate General for Economic Affairs on the permanent structural weaknesses of the economy. The report admits that Greece has made many strides in the fiscal field and in particular achieving high primary surpluses, reducing debt and promoting key reforms.

He emphasizes, however, that Greece still suffers seriously from low productivity and the international competitiveness of its economy, mainly due to the large decline in investment during the years of the multi-year economic crisis. In particular, business investments from 34% of GDP in 2008 reached 13.4% of GDP in 2019 and 15% of GDP in 2022, but remaining approximately 10 percentage points lower than the Community average. A very key deterrent to new investment remains the fact that during the crisis they borrowed too much to survive, currently having one of the highest debt-to-profit ratios.

It is emphasized, despite all that, that the low-interest loans amounting to 17.3 billion euros that Greece has secured from the Recovery and Resilience Fund give breathing space to the allocations to Greek companies

The main problems

The low productive investments in the economy, according to the report, are primarily due to the structure of the Greek market, which is characterized by the prevalence of the low-tech service sector, which is usually labor intensive, which implies lower investment needs.

In addition, the corporate sector is dominated by micro and small enterprises, which amount to 85% of the total. These businesses tend to be risk averse and therefore more reluctant to increase their business.

On the banks’ side, despite the significant reduction in non-performing exposures, the balance of non-performing loans, which reached 5.9% at the end of 2023, remains higher than the EU Community average, where non-performing loans do not exceed 1.8% of the total. Also, the liquidation of the balance of bad loans is still taking place at a low rate, having a negative effect on the increase in credit expansion.

It is also emphasized that, even today, a large number of Greek companies are burdened with non-performing loans, which put them outside the banks’ options for new lending.

In fact, from the results of a questionnaire by the European Investment Bank regarding companies’ access to bank loans, it is shown that Greek companies that cannot be financed by banks are 25% more than in other EU countries.

Low savings and the “shadow” economy

Another factor that keeps business investments at low levels is the low levels of savings in the private sector. As highlighted, household net savings averaged -2.7% of GDP over the period 2017-2022, well below the average indicators recorded in the euro area (3.6%) and the EU (2.9 %) the same period.

It is emphasized, however, that household and business savings figures may not be accurate, as due to the large number of small businesses, some self-employed may report their personal savings as their business savings. A second reason why the picture of savings is unclear is the large size of the “shadow economy”, estimated at 20.9% of GDP by the Bank of Greece.

The effect of “black” money can also be seen from the fact that, while savings are low, high growth rates of private consumption are recorded.