LAW OF CONTRACTS

ARTICLE

SHREYA SHARMA
R18BL055
Geece is strategically located between the mainland of Europe and the Middle East. It lies in
the south of the Balkan Peninsula and is bordering to the north with Albania, FYROM
(Former Yugoslav Republic of Macedonia) and Bulgaria. Greece shares its border with
Turkey while its western front faces the Adriatic Sea and its southern side straddles the
Mediterranean Sea. The country covers an area of 32,000 km2. Greece is a mountainous
peninsula with fertile plateaus, coastal belts and about 50 inhabited islands, of which Crete is
the largest. The climate is relatively mild during the winter. Daytime temperatures are usually
between 6° C and 14° C with many hours of sunshine. The summer is warm, with
temperatures between 28° C and 36°C. Low humidity and rainfall make the country and its
islands in particular, one of the most populationvacation destinations in the world.
It boasts a well educated workforce and is a member of the Euro-zone. The tourism and
shipping industries are very important in the country, and are growing rapidly. English is
widely spoken, especially within the business Community. Historically, Greece represents
one of the most ancient civilisations, with advanced cultural and political institutions dating
back to 500 B.C.
During the Roman era, the country became part of the Roman Empire, becoming later one of
the main administrative areas of the Byzantine Empire. Following the conquest of
Constantinople by the Turks, Greece became a territory of the Ottoman Empire for nearly four
centuries and achieved its independence in1829. It was only after a series of local wars that
Greece stabilised its present territory. The period ending in 1974 was often characterized by
political instability, culminating in the seven-year military coup of 1967. The 1974 democratic
elections and a referendum created a parliamentary republic and abolished the monarchy,
giving way to decades of relative political stability continuing through today.
EVOLUTION OF THE COUNTRY
Anumber of state agencies supervised by the Ministry of Economy are responsible for
handling different aspects of the government and finance programs for economic
development, including the National Tourist Organization (EOT), the Center of Planning and
Economic Research (KEPE), the Hellenic Center for Investments (ELKE), and the Hellenic
Organisation of Small and Medium-sized Enterprises and Handcrafters (EOMMEX).
A significant part of the economic activity is dominated by state-owned corporations. These
have either total or almost total control of the railway, air-line, postal services, energy and
natural resources, as well as sugar industry and arms and ammunition manufacturing. Most
private businesses in Greece are small, operating as either family businesses or partner-ships
with less than 50 employees. Share ownership in quoted companies is limited, but the Athens
Stock Exchange continues to attract new listings every year. Government policy during the
last decade aimed at keeping unemployment low while countering prolonged investment
stagnation, which resulted in a significant expansion of the public sector and placed great
strain on the economy. In recent years, government policy has been focused on the
introduction of tight "austerity" budgets to restrain public spending and rationalize public
debt. After achieving convergence with the E.U. and the full inclusion of the country in the
Eurozone, the goals of the economic policy are to keep inflation and unemployment at low
levels, reduce the wider public sector with extensive privatisation, complete infrastructure
work in the country, and fund private investment programs among other targets.
The government welcomes foreign investment and supports the free enterprise and free-trade
system. Greek and foreign investors are treated equally, while repatriation of proceeds and
transfer of profits are effected through mediating banks without restrictions. With respect to
investment, foreign ownership is permitted without restriction in almost all sectors (state-
controlled companies included). However, some sectors like the arms industry are state-
owned, and still closed to private investors. The most common forms of business
establishment for foreign investors are the corporation (société anonyme) and the limited
liability company. A minimum capital requirement is imposed on both sociétés anonyms and
limited liability companies. General and regional tax and other incentives are available to
both local and foreign investors. In addition, special industry incentives are also available to
investors in general.
An investor can either form a company or acquire an existing one without any requirement
for approval by the Greek government in relation to the valuation of the acquisition.
The government encourages establishment of industrial enterprises within specific industrial
areas near the major cities of the country specially designed to offer infrastructure and
facilities for industry. Location in less-developed areas or in the industrial areas is
encouraged through higher incentives. Moreover, long-term financing from specialized credit
institutions is available to local and foreign investors. Credit and financial services are also
available from a large number of domestic banks and branches of foreign banks. Finally,
profits are taxed at the company level, and dividends are distributed free of any withholding
or income tax. Regarding trade policy, as a member of the EU, Greece is part of a constantly
growing unified market of 380 million people, and the country is free of any restrictions or
other legislation aimed at providing distinctive assistance to the local market. Greece offers
tax and other incentives for manufacturing, tourism and advanced technology. The taxation
system does not discriminate against foreign investors, as tax incentives are provided to all
types of businesses. Worth noting too is that the domestic market is also receptive to
imported products.
The full implementation in 1994 of the free movement of capital and foreign currency
resulted in the abolition of all relevant restrictions and related procedures existing for
investments. Therefore, Greece now has no restrictions or obligations for special procedures
concerning foreign investment of non-EU origin. In general, all usual forms of carrying on
business are open to foreign investors, i.e., licensing, importing and manufacturing through a
branch or subsidiary; partnerships, or sole proprietorships. The presence of Greece within the
EU market and its proximity to the emerging markets of Eastern Europe and to the Middle
East make it a convenient location for companies to expand their distribution rapidly.
Therefore, many foreign investors seeking to expand their markets are investing in Greece by
acquiring established distribution networks either through the purchase of existing companies
or establishment of their own companies. Because of the government's privatisation program
several companies are becoming available for sale to local or foreign investors.
Overall, the government's favourable policy toward foreign investment is expected to
continue in the future, as government policy encourages all types of productivity investment
that generate economic growth and employment through industrialization, manufacturing,
automation, construction, expansion, and modernization of production with a package of non-
tax and tax incentives. Generally, the incentives for investment are aimed at the industrial or
tourist development of specific regions more than others.
ECONOMIC SYSTEM OF THE COUNTRY
Greece has a capitalist economy with a public sector accounting for about 40% of GDP and
with per capita GDP about two-thirds that of the leading euro-zone economies. Tourism
provides 18% of GDP. Immigrants make up nearly one-fifth of the work force, mainly in
agricultural and unskilled jobs. Greece is a major beneficiary of EU aid, equal to about 3.3%
of annual GDP.
The Greek economy averaged growth of about 4% per year between 2003 and 2007, but the
economy went into recession in 2009 as a result of the world financial crisis, tightening credit
conditions, and Athens' failure to address a growing budget deficit. By 2013, the economy
had contracted 26%, compared with the pre-crisis level of 2007. Greece met the EU's Growth
and Stability Pact budget deficit criterion of no more than 3% of GDP in 2007-08, but
violated it in 2009, when the deficit reached 15% of GDP. Deteriorating public finances,
inaccurate and misreported statistics, and consistent underperformance on reforms prompted
major credit rating agencies to downgrade Greece's international debt rating in late 2009 and
led the country into a financial crisis. Under intense pressure from the EU and international
market participants, the government accepted a bailout program that called on Athens to cut
government spending, decrease tax evasion, overhaul the civil-service, health-care, and
pension systems, and reform the labor and product markets. Austerity measures reduced the
deficit to 1.3% in 2017. Successive Greek governments, however, failed to push through
many of the most unpopular reforms in the face of widespread political opposition, including
from the country's powerful labor unions and the general public.

In April 2010, a leading credit agency assigned Greek debt its lowest possible credit rating,
and in May 2010, the IMF and euro-zone governments provided Greece emergency short-
and medium-term loans worth $147 billion so that the country could make debt repayments
to creditors. Greece, however, struggled to meet the targets set by the EU and the IMF,
especially after Eurostat - the EU's statistical office - revised upward Greece's deficit and debt
numbers for 2009 and 2010. European leaders and the IMF agreed in October 2011 to
provide Athens a second bailout package of $169 billion. The second deal called for holders
of Greek government bonds to write down a significant portion of their holdings to try to
alleviate Greece’s government debt burden. However, Greek banks, saddled with a
significant portion of sovereign debt, were adversely affected by the write down and $60
billion of the second bailout package was set aside to ensure the banking system was
adequately capitalized.

In 2014, the Greek economy began to turn the corner on the recession. Greece achieved three
significant milestones: balancing the budget - not including debt repayments; issuing
government debt in financial markets for the first time since 2010; and generating 0.7% GDP
growth — the first economic expansion since 2007.

Despite the nascent recovery, widespread discontent with austerity measures helped propel
the far-left Coalition of the Radical Left (SYRIZA) party into government in national
legislative elections in January 2015. Between January and July 2015, frustrations between
the SYRIZA-led government and Greece’s EU and IMF creditors over the implementation of
bailout measures and disbursement of funds led the Greek government to run up significant
arrears to suppliers and Greek banks to rely on emergency lending, and also called into
question Greece’s future in the euro zone. To stave off a collapse of the banking system,
Greece imposed capital controls in June 2015 shortly before rattling international financial
markets by becoming the first developed nation to miss a loan payment to the IMF. Unable to
reach an agreement with creditors, Prime Minister Alexios TSIPRAS held a nationwide
referendum on 5 July on whether to accept the terms of Greece’s bailout, campaigning for the
ultimately successful “no” vote. The TSIPRAS government subsequently agreed, however, to
a new $96 billion bailout in order to avert Greece’s exit from the monetary bloc. On 20
August, Greece signed its third bailout which allowed it to cover significant debt payments to
its EU and IMF creditors and ensure the banking sector retained access to emergency
liquidity. The TSIPRAS government — which retook office on 20 September after calling
new elections in late August — successfully secured disbursal of two delayed tranches of
bailout funds. Despite the economic turmoil, Greek GDP did not contract as sharply as
feared, with official estimates of a -0.2% contraction in 2015, boosted in part by a strong
tourist season.

NATIONAL INCOME
Greece’s economic freedom score is 57.7, making its economy the 106th freest in the 2019
Index. Its overall score has increased by 0.4 point, with strong improvements in financial
freedom and fiscal health exceeding a significant decline in judicial effectiveness. Greece is
ranked 43rd among 44 countries in the Europe region, and its overall score remains below the
regional and world averages.

Despite exiting its latest economic adjustment program in 2018, the government is subject to
huge policy constraints and faces an enormous level of general government debt.
Competitiveness has been severely eroded. Greece has made progress in restoring
macroeconomic stability and implementing much-needed initial fiscal adjustments, but the
public sector still consumes too much GDP, and a rigid labor market impedes productivity
and job growth. Corruption remains a problem. The economy is hostage to powerful public
unions, and the government’s statist model undermines entrepreneurs.

BACKGROUND

INFLATION
The annual inflation rate in Greece increased to 0.9 percent in March of 2019 from 0.6 percent
in the previous month and above market expectations of 0.5 percent. It was the highest inflation
rate since November of 2018, as prices rose faster for housing (1.8 percent from 1.3 percent in
February). On the other hand, cost slowed for food & non-alcoholic beverages (1.3 percent
from 2.1 percent) and hotels, cafés & restaurants (0.5 percent from 0.7 percent). In addition,
prices rebounded sharply for transport (2.3 percent from -0.9 percent) while cost continued to
fall for household equipment (-1.4 percent from -1.6 percent); recreation and culture (-1.7
percent from -1.8 percent); education (-0.8 percent from the same as in February) and other
goods and services (-0.5 percent from -0.2 percent). On a monthly basis, consumer prices
jumped 1.8 percent, following a 0.1 percent gain in February. Inflation Rate in Greece averaged
8.33 percent from 1960 until 2019, reaching an all time high of 33.70 percent in January of
1974 and a record low of -2.90 percent in November of 2013.

Greece Prices Last Previous Highest Lowest Unit

Inflation Rate 0.90 0.60 33.70 -2.90 percent

Consumer Price Index CPI 107.08 105.17 111.34 1.14 Index Points

Harmonised Consumer Prices 102.32 100.86 104.67 58.92 Index Points

Core Consumer Prices 97.50 100.00 105.30 96.90 Index Points

Core Inflation Rate 0.20 0.40 3.13 -16.39 percent

GDP Deflator 96.80 95.00 100.80 58.61 Index Points

Producer Prices 107.20 106.10 114.60 76.10 Index Points

Producer Prices Change 4.40 3.10 15.57 -11.40 percent

Import Prices 103.25 101.17 115.00 1.12 Index Points

Inflation Rate Mom 1.80 0.10 5.98 -2.08 percent

CPI Housing Utilities 120.84 120.50 134.22 63.28 Index Points

 Greece Prices Last Previous Highest Lowest Unit

CPI Transportation 125.44 120.92 129.60 76.55 Index Points

Food Inflation 1.40 2.10 12.85 -3.00 percent

Greece Inflation Rate

In Greece, the most important categories in the consumer price index are: food and non-
alcoholic beverages (17 percent of total weight); transport (13 percent); housing (12 percent)
and hotels, cafés and restaurants (11 percent). The index also includes: clothing and footwear
(9 percent); health (7 percent); furnishing and household equipment (7 percent); recreation and
culture (5 percent); communication (5 percent). Education, alcoholic beverages, tobacco and
other goods and services account for the remaining 14 percent of total weight. This page
provides the latest reported value for - Greece Inflation Rate - plus previous releases, historical
high and low, short-term forecast and long-term prediction, economic calendar, survey
consensus and news. Greece Inflation Rate - actual data, historical chart and calendar of
releases - was last updated on April of 2019.

Actual Previous Highest Lowest Dates Unit Frequency

0.90 0.60 33.70 -2.90 1960 - 2019 percent Monthly 2009=100, N

UNEMPLOYMENT
The seasonally adjusted unemployment rate edged up to 18.5 percent in January of 2019 from
an upwardly revised 18.4 percent in the previous month. Compared with the previous month,
the number of unemployed increased by 0.5 percent to 873 thousand and the number of
employed went down by 0.2 percent to 3.83 million. A year ago, the jobless rate was recorded
at 20.6 percent. The number of unemployed persons fell by 10.5 percent while employment
rose by 1.8 percent. Unemployment Rate in Greece averaged 16.23 percent from 1998 until
2019, reaching an all time high of 27.80 percent in July of 2013 and a record low of 7.30
percent in May of 2008.
GOVERNMENT SPENDING
Government Spending in Greece increased to 11112.20 EUR Million in the fourth quarter of
2018 from 9567.30 EUR Million in the third quarter of 2018. Government Spending in Greece
averaged 10683.09 EUR Million from 1995 until 2018, reaching an all time high of 14069.70
EUR Million in the fourth quarter of 2007 and a record low of 8175.90 EUR Million in the
first quarter of 1995.

Greece Government Last Previous Highest Lowest Unit

Government Debt to GDP 181.10 176.20 181.10 22.60 percent

Government Budget 1.10 0.70 1.10 -15.10 percent of GDP

 Greece Government Last Previous Highest Lowest Unit

Government Budget Value -694.00 -441.80 22737.60 -30872.00 EUR Million

Government Spending 11112.20 9567.30 14069.70 8175.90 EUR Million

Government Spending to GDP 48.00 49.50 62.30 43.70 percent

Government Revenues 12003.00 7831.00 60352.00 244.00 EUR Million

Government Debt 358948.65 356034.10 367978.00 215415.74 EUR Million

Fiscal Expenditure 12754.00 8965.00 86355.00 1369.00 EUR Million

Military Expenditure 4959.43 4963.48 8865.12 759.84 USD Million

Credit Rating 9.78

Asylum Applications 5065.00 6900.00 7470.00 390.00 persons

Greece Government Spending

Government Spending refers to public expenditure on goods and services and is a major
component of the GDP. Government spending policies like setting up budget targets, adjusting
taxation, increasing public expenditure and public works are very effective tools in influencing
economic growth. This page provides the latest reported value for - Greece Government
Spending - plus previous releases, historical high and low, short-term forecast and long-term
prediction, economic calendar, survey consensus and news. Greece Government Spending -
actual data, historical chart and calendar of releases - was last updated on April of 2019.

Actual Previous Highest Lowest Dates Unit Frequency

11112.20 9567.30 14069.70 8175.90 1995 - EUR Quarterly Constant 2010 Pr

2018 Million NSA
 Greece Balance of Payments (BoP)

Greece’s Balance of Payments (BoP): Current Account (CA) data was reported at -
990.413 EUR mn in Feb 2019. This records an increase from the previous number of
-1,182.558 EUR mn for Jan 2019. Greece’s Balance of Payments (BoP): Current
Account (CA) data is updated monthly, averaging -1,271.179 EUR mn from Jan 2002
to Feb 2019, with 206 observations. The data reached an all-time high of 2,601.439
EUR mn in Jul 2013 and a record low of -4,730.321 EUR mn in Dec 2007. Greece’s
Balance of Payments (BoP): Current Account (CA) data remains active status in
CEIC and is reported by Bank of Greece. The data is categorized under Global
Database’s Greece

Greece - Banking Systems

As of April 2016, the Greek banking system consists of a central bank (Bank of Greece,
which is a Eurosystem-member central bank) and another 39 credit institutions. Eighteen
credit institutions are based in Greece (eight commercial banks, 9 local cooperative banks,
and one Loan & Consignment Fund), and 17 are branches of commercial banks based in
other EU member states. Another four are branches of banks based outside the EU, one of
which is Bank of America. Greek-owned banks command the lion’s share of the market with
about 80% of total asset value. Foreign-owned banks hold 12%, and the remaining 8% is
shared between specialized institutions and local cooperative banks. The top four banks
control 90% of both the loan market and deposits. Greek banks suffered large losses in the
March and December 2012 Greek debt restructuring operations (Private Sector Involvement
– PSI), but have been recapitalized. Other notable developments in early 2013 include the
acquisition of the Greek branches of three Cypriot banks (Bank of Cyprus, Cyprus Popular
Bank and Hellenic Bank) by Piraeus Bank. Piraeus has also signed an agreement to acquire
Portuguese-owned Millennium Bank and in 2012 acquired the healthy assets of the public
Agricultural Bank of Greece. Alpha Bank acquired Emporiki Bank, Eurobank acquired
Hellenic Postbank and Proton Bank and NBG acquired FBB and Probank.

Following the implementation of a broad-based recapitalization program in 2012 and 2013

and a rapid sectoral consolidation, the banking sector largely stabilized in 2014. However,
the economic uncertainty associated with the new government’s policies and the stalemate in
negotiations with the country’s official sector creditors has led to a substantial drop in
deposits and to heightened demand for Emergency Liquidity Assistance from the European
Central Bank, on which Greece’s principal banks were heavily dependent as of May 2015. In
November 2015, as part of initial implementation of the August 2015 ESM bailout
agreement, Greece recapitalized its four major banks for a third time in five years. Large
U.S. and foreign hedge funds participated in recapitalization of the principal Greek
banks. The banking system remains unable to finance the national economy as over 40% of
all bank-held loans are non-performing. Efforts to create an NPL market to service these
loans – a requirement under the ESM agreement – have been halting. As a result, businesses
of all sizes struggle to obtain bank loans to support their operations. Due to this constraint,
international financial institutions, such as the European Bank for Reconstruction and
Development, are now working to issue loans and bring additional liquidity to the Greek
market. Deposits stood at €121.4 billion as of March 1 2016 , down slightly from
€138.5 billion a year earlier. In the seven year period since December 2009 (when deposits
picked at €237.5 billion), overall deposits have shrunk by a total of €116.1 billion. As of
December 2015 the Banking Association listed the four systemic banks assets as: Piraeus
€83 billion; National Bank €77.1 billion; Alpha Bank €64.9 billion; Eurobank
€64.1 billion.

As of January 1, 2001, Greece entered the European Monetary Union (Eurosystem) and
implemented its single currency monetary policy in Greece through the central bank, the
Bank of Greece. The Eurosystem is comprised of the European Central Bank and the
national central banks of European Union states that have adopted the euro. The Bank of
Greece is also the depository for government accounts. The Bank of Greece acts as
regulatory agent for the European Central Bank’s Single Supervisory Mechanism (SSM),
which entered into force November 1, 2014. The SSM and the Bank of Greece, together
regulate and supervise the commercial banking industry in Greece, as well as Greek banks
operating outside of Greece, and approves the establishment of foreign banks in the country.

BUSINESS CYCLE

Business cycle theory has captured the attention of economists ever since the very beginning
of economics as a science. Early theoreticians regarded business cycles and crises chiefly as
self sustained phenomena inherent to the capitalist economic system, where each crisis
fuelled the phases of recovery and boom. However, the so-called “Keynesian revolution”
shifted the focus of economic theory from crises and economic fluctuations to the fight
against short-term unemployment. Later on, economists altered, once again, the focus of the
profession to the neoclassical models of economic growth.

Without exaggeration one could argue that during the sixties there was a feeling of
generalized euphoria that economic crises and business cycles could be cured. However, the
poor economic performance of the seventies shifted the attention on business cycle theory,
and the effectiveness of economic policy to deal with similar phenomena was questioned
during the eighties. The nineties could be characterized as a period of renewed interest in
business cycles theory focusing on the role of productivity and technological change for the
propagation of shocks in a (neo) Schumpeterian spirit (Kaskarelis 1993).

In this paper, we analyze the macroeconomic fundamentals of business cycle in Greece in the
time period 1960-2008. We adopt a definition according to which business cycles are
regarded as “deviation” cycles, i.e. fluctuations around a trend. The trend can be deterministic
or stochastic. In order to investigate the

stationarity properties of each time series examined, it is essential to test the 72

existence of unit roots in time series. In our study, we use the augmented Dickey-Fuller
(ADF) test. Given that the macroeconomic series contain a trend, linear, exponential or
quadratic de-trending is highly recommended. Apart from the above mentioned de-trending
methods, we also apply the Hodrick-Prescott filter and the Baxter-King filter. Moreover, we
use spectral analysis to extract periodograms which indicate, approximately, the lengths of
business cycles based on the available data, then we test whether the various de-trended
macroeconomic time series tend to follow a cyclical pattern or if their evolution in time is
white noise.