OECD Economic Surveys: Greece 2024

Antoine Goujard

Timo Leidecker

Over the past two decades, Greece’s productivity has not been able to catch up with the OECD average (Figure 2.1, Panel A). Following the sovereign debt crisis, a collapse of business and public investment and the resulting falling productive capital stock has been one of the main factors, along with weak total factor productivity (TFP) growth, which is closely related to innovation. Both of these have led to slow labour productivity growth, dragging down potential GDP growth (Figure 2.1, Panel B). Boosting firm growth and innovation is crucial to raise Greece’s wages, employment and living standards (OECD, 2023[1]; 2020[2]).

These performance gaps can be partially explained by Greece’s industrial specialisation. Sectors with typically low value-added per worker, such as agriculture and tourism, make up a larger part of its economy compared to other EU countries; conversely, higher value-added sectors such as manufacturing and information and communication, are comparatively small (Figure 2.2, Panel A) and the growth of the digital economy has been comparatively low (OECD, 2024[3]). However, Greece’s performance gaps are significant across all sectors (Panel B), suggesting a widespread failure to invest and adopt new technologies, including in those sectors with greater potential for high performance (OECD, 2023[1]; Greek National Productivity Board, 2023[4]). The productivity gap of Greek businesses relative to other OECD economies is also particularly large for micro and small firms, and unleashing their potential will play a key role for closing productivity gaps as 47% of employment was concentrated in micro firms in 2022 and SMEs accounted for 83% of total employment (see below and (Greek National Productivity Board, 2023[4]; Hellenic Republic, 2022[5]).

These widespread productivity gaps suggest a need for better policies to foster productivity growth. This chapter focuses on three policy levers to support a more dynamic economy that encourages and enables more firms to flourish through innovation or adapting digital technologies:

• Reducing further regulatory barriers in services, improving the quality of regulations, and streamlining spatial planning would make the business environment more conducive to competition, firm growth and innovation.

• Improving the take-up and quality of adult training, including for managerial and digital skills and among the numerous small firms, would support adult skills, reduce skills shortages and ease the diffusion of innovation.

• Easing the restructuration of non-performing debt, reducing the length of bankruptcy procedures, and carefully evaluating existing investment support schemes to target support on firms with the greatest innovative potential would improve access to finance for many firms.

The next section describes key features of Greece’s business structure and innovation and stresses the need for reforms in terms of business regulation, skills and access to finance. Section 2.3 reviews policy developments to improve Greece’s regulatory framework and policies to further remove obstacles to investment and competition. Section 2.4 discusses the observed severe skill shortages and their implications for the lifelong learning system. Section 2.5 explores the link between the access to finance of Greek firms and their propensity to innovate and grow, showing that there is room to improve the current mix of public support for businesses and foreign direct investment promotion policies.

Greece’s persistent productivity gap has gone hand-in-hand with weak investment. Business investment collapsed with the economic crisis in 2007. While investment as a share of GDP started to recover in recent years, the investment gap with other EU countries is still large (Figure 2.3, Panel A). Likewise, business spending on research and development as a share of GDP has been rising but remained well below the EU average in 2022 (Figure 2.3, Panel B).

Large investment gaps are accompanied by slow diffusion and innovation in digital technologies, especially among smaller firms. More than half of SMEs (not including firms with less than 10 employees) have very low digital intensity, the largest share among EU countries (Figure 2.4, Panel A). Large firms in Greece perform significantly better at using digital technologies but the share of lagging firms with at least 250 employees and very low digital intensity, at 13%, is still the second largest among EU countries. Lagging adoption and innovation in digital technologies is reflected for example in fewer firms having a website, using cloud computing, or using artificial intelligence (Figure 2.4, Panels B to D).

Greece has a disproportionate number of small firms, and their capacity to adopt technologies, innovate and grow appears limited. Almost half of Greece’s workforce is employed by firms with less than 10 employees, the largest share among EU economies (Figure 2.5, Panel A). The strong tourism sector may be one factor behind this, but the weight of small firms does not result from Greece’s focus on tourism alone. Small firms employ a larger share of workers compared to most OECD countries in several sectors, including in accommodation and food but also in construction and wholesale and retail (OECD, 2023[6]). Low levels of labour productivity are mainly a reflection of this large weight of small firms, as performance gaps – compared to EU peers of the same size class – are particularly pronounced among smaller firms (Panel B). The differential of labour productivity between micro and small firms and large companies is substantially larger in Greece than in the EU average country, Italy, Portugal or Spain, in the manufacturing and non-manufacturing sectors (Eurostat, 2024[7]). Meanwhile, business dynamism is weak, with comparatively few firms entering and exiting the market (Panel C).

Neither the dominance of small firms nor the sectoral composition of Greece’s economy necessarily stand in the way of stronger growth and economic catch-up, at least when considered in isolation. However, it is the combination of many small firms with large and persistent performance gaps, exacerbated by weak business dynamism, that creates a low-growth environment. Many firms stay small and stagnate at low productivity levels because they lack the means or opportunities to invest and adopt new technologies. Factors that stifle the growth of small firms and the spread of digital technologies across sectors, therefore, reflect broader weaknesses in the business environment that also weigh on larger firms, as well as firms innovating at the technology frontier. While the business environment has improved significantly in recent years, challenges remain. Remaining obstacles to innovation and firm growth notably include weak competition, high regulatory burdens, difficulties in obtaining external financing, and labour and skill shortages.

Greece has taken measures to boost firm growth among SMEs, including through tax incentives for mergers and the automatic preservation of previous business licenses in such cases (Ministry of Development, 2024[8]). Such mergers may help firms exploit economies of scale, for example by sharing technologies (EC, 2023[9]). However, the take-up of these provisions has been low and more could be done to promote stronger growth. Policies discussed below aim to boost performance and achieve broad-based gains in living standards by unleashing the innovative potential of Greece’s economy among both smaller and larger firms, including those that are already active in innovation.

Greece’s regulatory framework has become more competition-friendly. Greece has shown the largest improvement in the product market regulation index among OECD countries since 2018 and now scores close to the OECD average (Figure 2.6, Panel A). The extensive reforms underlying this improvement are described in Box 2.1. Regulations now appear to promote competition better or about as well as in most OECD countries in many areas. The regulatory framework makes it easy to start a business and puts in place formal requirements that promote good legislative quality (Panel B). It is broadly supportive of foreign firms investing and conducting business in Greece by imposing relatively few restrictions on foreign firms or other trade barriers (Panel C). Greece’s framework also sets conditions for the effective management of state-owned enterprises and creates a level playing field with private businesses, and the design of public procurement procedures and the extent of retail price controls are close to the OECD average. Progress in public sector digitalisation, discussed in Chapter 1, additionally contributes to simplifying and making public services more accessible.

These improvements notwithstanding, perceived regulatory burdens in Greece remain high, according to surveys conducted by the European Investment Bank, World Bank, and World Economic Forum (Figure 2.7, Panel A to C). For example, the 42% share of firms indicating regulatory burdens as a major investment obstacle in 2023 was twice as high as the EU average (Figure 2.7, Panel A). This may partly reflect the lag in the time it takes for people’s perceptions to fully reflect recent reforms. Meanwhile, there remains scope to improve regulations further. This includes improving regulatory quality, notably by better using impact assessments and adapting regulations to new technologies, easing regulatory burdens on professional services, and improving spatial planning.

Reports highlight remaining difficulties with the drafting and implementation of laws and regulations as well as a formalistic legislative culture which contribute to an overly complex and sometimes contradictory legal framework (EC, 2023[9]; EBRD, 2021[11]; KEFIM, 2023[12]; Petrakis, 2024[13]). For example, recent reforms to improve public consultation and legislative quality may be less effective than they could be because many legislative changes are brought in as emergency regulations or amendments to existing laws, which are less subject to quality control (EC, 2023[14]). In 2020 to 2021 more than three quarter of laws were adopted in 30 or less days, compared to less than 20% of laws in the EU on average (EC, 2023[9]), while 82% of amendments in 2023 were unrelated to the law’s main subject (KEFIM, 2023[12]). Allowing sufficient time for public consultation and applying existing quality control measures to draft legislation more fully will be important to ensure that new laws do not add further complexity but instead help to simplify legislation (EC, 2023[14]).

Extending the scope and improving the quality of regulatory impact assessments (RIAs) can prevent new and reduce remaining regulatory burdens. RIAs help inform policymakers on how to design regulations that achieve policy goals with minimal collateral costs (OECD, 2012[15]). They inform whether less costly and more effective alternatives – ranging from the option to do nothing to steering or nudging behaviour with information campaigns or incentives – are available (OECD, 2020[16]). RIAs can also reduce burdens stemming from enforcement, for example by promoting proportionate and risk-based approaches on inspections (OECD, 2018[17]).

Regulatory impact assessments could be made more comprehensive. Greece already requires RIAs for all new primary laws and some subordinate regulations – i.e. regulations that provide detail and enforcement arrangements for the primary laws. However, Greece requires less comprehensive assessments than most other OECD countries (Figure 2.8). For example, assessments are not required to consider alternatives to regulations, such as a `do-nothing’ option, or the impact on business innovation. Moreover, assessments of the potential competition effects are required only for primary laws, but not for subordinate regulations, which include more detailed prescriptions than primary laws and usually restrict competition just as much as primary laws.

Implementing systematic ex-post evaluations would help reduce the large burdens arising from existing regulations. (OECD, 2020[18]). The potential for reducing burdens from existing regulations is showcased by the 2017 OECD Competition Assessment review, which identified scope to improve 28% of the reviewed legislation, covering regulations pertinent for about one-tenth of Greece’s economy (OECD, 2017[19]). The Ministry of Development has created a unit dedicated to identifying and reducing regulatory burdens, including through regular meetings and exchanges with business associations. Since 2016, efforts are ongoing notably to review investment licenses in logistics and food manufacturing (Ministry of Development, 2024[8]). A large legacy of existing regulations in combination with limited public-sector capacities suggest that formalising procedures to review existing regulations could focus resources on the most burdensome regulations and improve transparency. These procedures should define the involvement of stakeholders such as businesses, unions and the Hellenic Competition Commission. Denmark, for example, has achieved large reductions in regulatory burdens by establishing a Business Forum for Better Regulation (Box 2.2).

Ensuring sufficient analytical capacities for key ministries and agencies will be crucial to provide informative assessments that can guide decision making. Producing informative RIAs requires specific skills and knowledge, for example about alternative instruments or how to assess and quantify opportunity or environmental costs (OECD, 2020[16]). Reports suggest a large potential to make assessments more informative in Greece (Petrakis, 2024[13]; EC, 2023[9]; Vlachopoulos, 2024[21]; Pissarides et al., 2023[22]). For example, in 2023 no regulatory impact report contained quantitative information on potential impacts (KEFIM, 2023[12]). In 2019 Greece introduced the Committee Evaluating the Quality of the Law-Preparation Process (EAΠΝΔ-EAPND), comprising lawyers as well as economists, which is welcome to improve the quality of assessments (Petrakis, 2024[13]). Providing staff in line ministries with the skills and experience needed to draft informative RIAs may require additional training and enabling staff to specialise. Additional capacities could be leveraged by assuring that the Hellenic Competition Commission, which is invited to issue opinions on legislation, has sufficient resources to identify and review relevant legislation.

Regulations will have to adapt to address challenges arising from innovative technologies. Digital technologies such as artificial intelligence (AI) have the potential to raise productivity growth and public sector effectiveness by automating tasks and developing data-driven decisions. At the same time, AI poses new challenges to competition as well as risks to businesses and consumers, for example on copyright or personal privacy (Nicoletti, Vitale and Abate, 2023[23]).

Greece is promoting AI innovation as an engine for growth. The government aims to create an enabling policy environment for AI, including through infrastructure investments and the establishment of AI research centres (Ministry of Digital Governance, 2024[24]). It has already attracted large investments from key players, such as Microsoft, Meta and Google. Additionally, the government also aims to be at the forefront of using AI for the digitalisation of public services, for example with its mAIgov chat bot for Gov.gr (Ministry of Digital Governance, 2023[25]). While the use of AI is still at an early stage, the government expects a wider use with large impacts across Greek society by 2030 (Tsekeris and Karkaletsis, 2024[26]).

AI regulation is mostly defined at the EU level, which helps to avoid fragmentation, but some EU countries are using sandboxes to promote regulatory experimentation. Sandboxes create spaces where authorities engage firms to test innovative products or services that challenge existing legal frameworks. Firms benefit from temporary waivers from existing regulations, while regulators obtain technical and market data to assess regulations. To help firms and regulators develop expertise in AI, Greece could join countries such as Spain in creating an AI regulatory sandbox to test the future proposed EU AI Act (OECD, 2023[27]).

Professional services face tighter regulations compared to most other EU and OECD countries (Figure 2.9, Panel A and B). One example is legal professions, which provide important intermediate services for businesses. By preventing competition and innovation with new business models, such restrictions tend to make legal services more expensive, which can ultimately deter innovation, including for firms using legal services as inputs (van der Marel, Janez and Iootty, 2016[28]; Bambalaite, Nicoletti and von Rueden, 2020[29]; OECD, 2024[30]). For example, instead of setting their own price, lawyers and notaries in Greece are mostly paid through regulated fees (EC, 2021[31]). Lawyers or notaries in Greece are not allowed to jointly own a legal firm with non-lawyers, although non-lawyers may contribute complementary or management skills. Greece also restricts the number of notaries per prefecture, although it is unclear to what extent this constrains the supply of notarial services, as Greece has a high density of notaries compared to other European countries (CEPEJ, 2023[32]). In France, the partial opening of the notary openings has led to increased firm entry and to lower regulated tariffs (Box 2.3).

Meanwhile, Greece is easing licensing restrictions on several technical professions relevant for innovation, including electricians, technicians and machinery operators (Ministry of Development, 2024[8]). Under the current system, offering these services requires lengthy licensing procedures, including obtaining degrees and accumulating experience before being able to pass exams to obtain a license. Ongoing efforts aim at increasing access to these services by simplifying and accelerating licensing.

The spatial planning system remains a barrier to investment, though progress is ongoing. Uncertainty about planning rights creates risks and add costs for investors. Progress with completing the cadastre is helping to reduce this uncertainty. In May 2023 Greece had mapped 72% of property rights in the country, up from 63.5% in 2022, with mapping of nearly all of the remaining property rights being underway (EC, 2023[9]; EC, 2022[33]). Mapping of forests has been completed. Meanwhile, incomplete spatial plans and special spatial frameworks, for example for Natura 2000 protected areas, continue to stifle investments (EC, 2023[9]).

Clarifying and simplifying spatial planning processes would help protect the environment and create greater certainty about land use rights to facilitate investments. Swiftly completing and revising spatial plans would also support climate change adaptation, for example by incorporating climate hazards to prevent further population growth in risk-prone areas (Sutherland et al., 2024[34]). Greece’s system of spatial planning is complex with Greece having among the largest number of spatial plans compared to other OECD countries (OECD, 2017[35]). Approving and implementing regional spatial frameworks and zoning plans is taking many years (OECD, 2020[36]; Dandoualki et al., 2023[37]). As described in the 2023 Economic Survey, delays reflect fragmented and sometimes contradicting responsibilities across sub-national authorities and the central government. Misalignments in the sequencing of updating plans add to delays and uncertainty about land use. For example, in the past, lower-level plans, such as regional zoning plans, were approved before higher-level ones, i.e. strategic spatial frameworks or the national spatial framework, were completed, while the latter should inform the former (OECD, 2020[36]).

Greece’s increasingly educated workforce constitutes an important asset for firms’ potential to innovate and grow. Combined with structural reforms and contained wage costs, this has helped to increase exports and turn Greece’s economy into an attractive market for foreign investors. A relatively high share of new graduates from tertiary education hold degrees in natural science, mathematics, ICT and engineering, notably among women (OECD, 2024[38]). Foreign language skills, in particular English, are generally well-ranked in international comparisons and are in high demand (EF, 2023[39]) (OECD, 2023[40]).

Despite this progress, the share of adults with low skills is higher than in neighbouring countries and the OECD average (Figure 2.10). In addition, the effective use of skills is lagging, with a particularly high degree of skill mismatches in the labour market according to both OECD and Cedefop indicators (OECD, 2016[41]; Cedefop, 2024[42]). A vital condition for improving business innovation and internationalisation is the existence of a sufficiently large pool of workers with a high level of education and skills. Greek firms tend to rely on relatively low skills and few knowledge-intensive services compared to other OECD countries (OECD, 2016[43]).

Business surveys indicate labour shortages – across small, medium and larger firms – as a key factor limiting production (Figure 2.11) (Eurobarometer, 2023[44]). Indeed, the unemployment rate is close to its 15-year low, despite remaining among the highest in the OECD. In the short term, the training system will face strong needs to facilitate the reallocation of workers towards sectors and firms that have high potential, as well as activating the long-term unemployed, as more than 6.2% of the active population have been out of work for a year or more (Eurostat, 2024[45]). Measures to promote longer working life and to ease women labour force integration could also help reduce shortages, especially as many of them are relatively high skilled (Chapter 1). In the longer term, it will be important to strengthen the skills needed for the adoption of technological innovations (OECD, 2024[46]; Bulman, 2020[47]) and further improve the initial education system (Chapter 1). Indeed, automation is set to affect a significant share of jobs, while population ageing is set to lower labour supply.

The high rate at which skills become obsolete makes it harder for seniors to find work, whereas demographic ageing requires better employability and working conditions for older workers. According to the European Commission projections, if nothing changes, the working-age population in Greece will shrink by 11% over the next ten years and the share of the 55-64 year olds will reach 28% (EC, 2023[48]). Seniors will have to work until later in life (Chapter 1), which means they need to fight against stereotypes and discrimination. At the same time, digitalisation may accelerate skill depreciation for many workers, increasing inequality. Around 59% of jobs in Greece could become redundant or risk changing substantially due to new technologies (Lassébie and Quintini, 2022[49]; Nedelkoska and Quintini, 2018[50]). Automation and digitalisation are set to further reduce demand for manual and repetitive tasks, and increase demand for interpersonal and problem-solving skills to ensure machines’ and workers’ complementarity (OECD, 2023[51]).

Further efforts to enhance lifelong learning will be essential to improve the use of skills and reduce mismatches between workers’ skills and labour-market needs. The participation in continuous training is low in some areas (Figure 2.12, (OECD, 2021[52])), despite the estimated high returns to job related training (Fialho, Quintini and Vandeweyer, 2019[53]). As in many OECD countries, low-skilled, unemployed and inactive workers struggle to access training, notably formal training courses.

Active labour market policies in Greece include public works programmes, wage subsidy programmes, programmes promoting entrepreneurship, and training and work experience programmes for youths and longer-term unemployed. The public employment service (DYPA) coordinates access to these, alongside its core role of matching jobseekers with job openings. The government has streamlined its governance in 2022 and is aiming at improving the service’s performance, by investing in DYPA’s staffing and digitalisation, including matching tools, through the Recovery and Resilience Funds and developing a broad strategy for ALMP provision (Box 2.4) (OECD, 2024[46]). In mid-2022, new legislation also introduced general guidelines of a new mutual obligations framework, requiring the registered unemployed to work with counsellors to create individual career action plans and providing additional incentives for the long-term unemployed to search for work (Box 2.4).

Despite still high levels of unemployment in international comparison and effective training and wage-subsidy programmes, spending on active labour market policies (ALMPs) has been low and volatile in recent years (Figure 2.13) (OECD, 2024[46]). A recent OECD evaluation shows that training and wage subsidy programmes have been successful in terms of employment and earnings (OECD, 2024[46]). However, the low levels of spending, coupled with high demand, have translated into limited support for jobseekers and, in the past, few people have participated in training and wage subsidies programmes. Counsellors face high caseloads, making it hard to meet jobseekers’ needs and provide tailored support. In a wellcome move, Greece is currently reforming its Public Employment Services and ALMPs (Box 2.4) and the 2022 National Skills Strategy and the NRRP Greece 2.0 plan to increase such activities. The 2023 National Reform Programme also aims at training 15,000 unemployed aged 25-45 through upskilling and reskilling activities, as well as a short-term employment subsidy, and 22,500 unemployed based on local labour market characteristics (Hellenic Republic, 2023[54]). Additional measures are planned to develop the counselling skills of the current counsellors.

The expansion of training programmes for the unemployed and those outside the labour force should go hand-in-hand with an increased focus on the quality of those programmes and their evaluation, as specified in the 2022 “Jobs again” reform and the 2022 National Skill Strategy (Box 2.4). Greece’s many small private training providers that are certified by the Ministry of Education could expand the availability of adult and skill training, but their accountability needs to improve. In addition, they require support to boost their capacity and the quality and relevance of their courses, which remains patchy. The rich data collected by DYPA and the Labour Ministry would allow a more systematic evaluation and certification culture (OECD, 2024[46]). This would help Greece to follow the example of other OECD countries such as Denmark, France and the Netherlands, by publishing quality grades of training providers and courses. In a welcome move, the National Skills Strategy plans to introduce outcome-based payments for training providers (Ministry of Labour and Social insurance, 2023[55]), which could strengthen the incentives for better-quality training programmes.

Expanding the counselling capacity of the Public Employment Service (DYPA) and ensuring stable financing of training programmes will also be crucial. At an estimated 1,847 jobseekers per counsellor, the caseload of Greek counsellors remained well above other OECD countries in 2022 (OECD, 2024[46]; EC, 2023[9]). This may notably prevent counsellors from reaching out and supporting more vulnerable groups with weak attachment to the labour market, as this requires intensive face‑to-face counselling and post-placement support (OECD, 2021[58]). The scaling-up of training programmes and the new individualaction plans, which include following up and enforcing sanctions in a proactive and proportionate way, will also require substantially boosting counsellors’ capacity (OECD, 2023[1]). European funds will allow the recruitment of 600 additional employment counsellors on a temporary basis over 2021-27 (EC, 2023[59]). These efforts are being complemented by ongoing improvements with respect to profiling, process simplification and automation, which are expected to make the work of counsellors more effective. Greece can build on this progress by rebalancing the high share of support for direct job creation (public works) towards training and counselling for unemployed workers (Figure 2.13). Indeed, international evidence tends to show that support schemes for direct job creation are generally not effective in bringing participants back to the open labour market (OECD, 2024[46]; Card, Kluve and Weber, 2017[60]).

Greece has scope to increase participation in training, notably for workers in SMEs and self-employed workers (Figure 2.14). Workplace training for SMEs is particularly costly given fewer staff and resources, a low retention rate and the high risk of poaching by other firms. The direct cost of training an employee may also be higher if the firm cannot benefit from economies of scale, or if the initial cost of searching suitable opportunities can only be split over a limited number of training participants (OECD, 2019[61]; 2021[62]). Providing additional financial support and technical assistance to SMEs would increase work-based learning opportunities. Financial support for the development of programmes and cost reimbursement have proved to be the most effective initiatives in improving SMEs work-based learning. Pooling of resources can also help address various obstacles that small firms face with respect to offering training, and policy makers can support firm networks by allowing these entities to apply for support alongside individual firms (see below and (OECD, 2021[62])).

A training levy has been in existence since 1994. The Public Employment Service (DYPA) is currently responsible for operating and managing the scheme before social partners take over the management as foreseen in the 2022 “Jobs again” reform. Since 2015, employers have had to contribute 0.24% of salary costs to a training fund if they do not provide training. The levy (“LAEK”) is collected together with contributions for covering the costs of initial vocational education on one hand, and training of the unemployed, on the other hand. In addition to the 0.24% levy, employers contribute 0.12% to a special joint account for unemployment programmes and employees contribute 0.10% to the same account. Companies with 50 of more employees can seek training cost reimbursement via a training scheme, while small enterprises (up to 49 employees) can benefit from training subsidies. In addition, training vouchers are supporting digital and green skills for 500,000 workers over 2021-25.

There is scope to make wider use of direct financial incentives. According to the 2022 Eurostat Adult Education Survey, costs and time constraints related to training and work schedule as well as family arrangements, are the most salient constraints to participate in adult learning in Greece. Cost factors appear relatively stronger than in other European Union countries, notably for the 25-34 year olds, women, and those with vocational education levels (Figure 2.15). More measures to support individuals’ ability to pay, such as targeted training vouchers and subsidised training places, complemented with effective quality assurance, information and guidance, can be effective (OECD, 2019[63]) and appear relatively limited in Greece (Cedefop, 2020[64]). The government could top-up the existing training fund to enable some adults to undertake longer, more rewarding training programmes and better target thecurrent programmeswhose fuding is not differentiated according to workers, training types or the performance of training programmes. This could be done by providing additional financing for the training of workers in SMEs (OECD, 2021[62]) or to upgrade some specific workers’ training accounts, notably for the youth, low-skilled or long-term unemployed workers, that they would repay through future income (Card, Kluve and Weber, 2017[60]). In addition, Greece could follow other countries in providing statutory education and training leave, which can also help training to be seen as standard practice (Bulman, 2020[47]).

The ongoing establishment of individual learning accounts could also increase adult participation in learning. The implementation of individual learning accounts was foreseen in fthe “Jobs again” reform (Box 2.4) and DYPA manages the pilot phase for unemployed and private sector workers. Such accounts could help facilitate learning throughout an individual’s career. Because of their portability such accounts would have the potential to reduce inequalities in access as they are accessible to workers with non-standard employment contracts. This could draw on elements of the training accounts developed in countries such as France and Italy (OECD, 2019[61]; 2019[65]). Employers and employees could both contribute to the account and tax credits could encourage contributions above the required minimum. The government may top up these accounts for priority groups, such as registered jobseekers or social transfer recipients, those with little formal education, with disabilities or other characteristics that make finding work harder, or those working in sectors undergoing significant structural change.

Digital training should remain an important part of the upskilling strategy, as outlined in the NRRP and the National Digital Strategy, given the looming risk to jobs from digitalisation and automation (Hellenic Republic, 2021[56]; 2021[66]). Boosting workers’ digital skills can help the many Greek SMEs strengthen their productivity and position in global value chains (GVCs) by helping them to specialise in high-value added activities or to integrate in higher-value added segments (OECD, 2019[67]; Unsal et al., 2024[68]). According to the OECD Survey of Adult Skills, the share of adults with no computer experience is significantly above the OECD average, and Greeks perform relatively poorly in ICT-related tests regardless of their educational attainment (OECD, 2016[41]). Moreover, ICT specialists are in short supply and employers face difficulties finding ICT specialists (Eurobarometer, 2023[44]).

ICT training was low in 2021 (Figure 2.14), but will likely receive a boost from the NRRP plannedtargeted reskilling programmes for digital skills, notably through the new National Academy for Digital Skills (NADS) that provides educational activities and online training. Basic and medium level ICT skills are currently being offered to employed and unemployed workers through an extended network of training providers. Yet, the budgeting of such programmes will need to be secured beyond 2026. Moreover, international experience tends to show that the most effective tools for promoting robotic and digital solutions combine financial support and technical follow-up (Faquet and Malardé, 2020[69]). This could encourage the take-up of digital innovation, as experience from Germany, Finland and Italy has shown (OECD, 2021[70]).

Regular evaluation of learning should be standard across all modes and providers, as currently being developed (Box 2.4). Formal and non-formal education is delivered by a diverse range of formal public education and training institutions and private providers of adult education and training. Informal learning is less structured and often self-taught. More thorough and rigorous evaluation of education and training provision might identify effective ways of upskilling and re-skilling. Greece has already set up a graduate tracking portal (ELA) that provides additional information on the labour market outcomes of graduates from different disciplines in formal education. However, there appears to be little rigorous analysis of the impact of adult training on labour market outcomes (OECD, 2024[46]). Such analysis would help adults better choose their training and would better inform public funding and support for adult training programmes.

Many Greek firms, notably SMEs, do not have strong human resource infrastructures to implement training policies and, more generally, innovation and growth strategies. A number of studies hint at room for improving management skills, with positive effects on technology diffusion, innovation and internationalisation (Sorbe et al., 2019[71]; Bloom et al., 2020[72]; Martins, 2021[73]). Greek firms appear particularly weak in tasks requiring people management, planning and oversight, or requiring synergies, dialogue and collaboration (Lorenz and Potter, 2019[74]; Anyfantaki et al., 2022[75]). High-performance workplace practices, as measured by the development of teamwork, autonomy, prioritisation, mentoring, job rotation and the implementation of new learning, as well as management practices (including employee participation, pay incentive schemes, training practices and flexibility of working hours), appear lagging (Figure 2.16) (OECD, 2016[76]; Eurofound and Cedefop, 2020[77]). Many managers of micro and small firms also lack basic financial skills (OECD, 2024[78]). The limited number of highly skilled managers is considered one of the main barriers to growth, and the lack of support from management is a barrier to innovation including the adoption of digital tools or efficient energy management processes.

Several OECD countries, including Austria, Finland, Italy and the United Kingdom have implemented programmes to improve the managerial and organisational performance of firms (Box 2.1). This type of active policy support for change in the workplace could be influential in stimulating the adoption of more pro-innovation organisational designs and better skills use (Marchese et al., 2019[79]; OECD, 2021[62]). In complement, diagnostic tools and self-assessment surveys could provide an affordable way for companies to assess their current work organisation and needs. These tools can be built with different objectives, helping companies and employers to assess their needs with regard to skills and professional development specifically, or within the broader context of workplace innovation and digital maturity (OECD, 2021[62]). 

Building on these international experiences and the assessment of its own initiatives, the Greek authorities could consider supporting the establishment of co-operation networks to identify and disseminate best practices for stimulating a learning culture in the workplace. The chambers of commerce and group-based interventions can be particularly important for sharing good management practices, with particular value for SMEs (Iacovone, Maloney and McKenzie, 2021[80]). Yet, as in other OECD countries, frictions in information sharing appear to prevent small firms from accessing relevant training (Custodio, Hansman and Mendes, 2021[81]). Government support can provide the impulse for the creation of learning and training networks. Coaching, promoting best practices and disseminating these through the creation of networks of firms are common features of many management training programmes that help smaller firms to compensate for limited internal capacities (Box 2.1) (OECD, 2020[82]). Indeed, Greek firms collaborating on business activities are more likely to innovate than non-collaborating firms of the same size class (OECD, 2023[6]). However, policies supporting SME network expansion in Greece tend to focus on production and supply chains, with limited support for knowledge exchange (Figure 2.17).

Facilitating the immigration of skilled workers could play an important role in overcoming local skills shortages and improving business internationalisation. Immigrants’ country and language knowledge may reduce uncertainty and improve the governance of foreign operations (Ottaviano, Peri and Wright, 2018[83]). Greece’s workforce includes a significant share of foreign-born workers but their many skills are often underused (OECD, 2023[1]). The share of the foreign-born population reached 11.2% in 2022 (OECD, 2023[84]) and is concentrated among the working-age population (Elstat, 2022[85]). However, the unemployment rate of foreign-born workers (first generation immigrants) remained close to 25% and 39% for the 15-29 year-old in 2023 (Eurostat, 2024[86]). At the same time, 60% of foreign-born workers with tertiary education were working in low- or medium-skilled occupations (Eurostat, 2024[87]).

Greece scores low in most dimensions of the OECD Indicators of Talent Attractiveness (ITA) (OECD, 2023[88]). Most immigrant workers, even many who are well-educated, work in low-skilled jobs in Greece (OECD/European Commission, 2023[89]; EMN, 2023[90]). Foreign-born workers comprised 29.4% of new low-skill jobs in 2023, 13.8% of middle-skill jobs and 1.7% of high-skill jobs (MLMD, 2024[91]). Over recent years, large shares of immigrants, especially youth and the Greece-born children of immigrants, are unemployed or fully out of the workforce (OECD, 2023[84]). To improve attractiveness as a workplace for third-country nationals and help employers benefit from foreign-born workers’ skills, Greece should ease the recognition of their qualifications, joining European and other international initiatives to recognise foreign qualifications and experience (OECD, 2023[1]). One way forward would be to join the Lisbon Convention on the Recognition of Qualifications, but this will require a constitutional change and likely take years. In the meantime, laws 4957/2022 and 5094/2024 facilitated the recognition of degrees by setting up registries of recognized foreign HEIs and academic titles. In addition, reducing its high fees or translation requirements for the recognition of foreign qualifications would to align with other European countries (OECD, 2023[88]; 2017[92]). For those unable to document their qualifications, Greece can develop fair and transparent alternative assessment methods, such as establishing a national system of recognition of prior learning, as currently envisaged. Finally, the large share of foreign-born workers in Greece from countries with weak professional and vocational education, such as Albania, Georgia and Pakistan, highlights the potential benefits from ensuring these workers can access Greece’s reforming vocational education.

Strengthening ties with the large Greek expatriate community, and helping return migration may be another way to enhance firms’ access to skills. Returning emigrants could bring skills, networks and financial capital (Oikonomou, 2023[93]; Pissarides et al., 2023[22]). Since 2019, Greece has provided wage subsides for skilled returning migrants and a special tax regime for Greek executives, employees, freelancers and other entrepreneurs relocating to Greece was established in 2021. The 2023 programme “Rebrain Greece” also develops a diaspora skills database to directly connect potential returning migrants with employers. In addition, the "Brain Regain" initiative aimed to repatriate Greeks living and working abroad. The actions part of this initiative include national Greek online hubs and forums in foreign countries mentoring and an online hub for citizens abroad advertising jobs, training, and business and research opportunities at home. More systematic, tailored counselling and general assistance related to employment, housing, education and administrative procedures to start a business could also be helpful, for example, drawing on the Irish “Back to Business” mentoring programme (EMN, 2014[94]).

Business investment in R&D and innovation (RDI) remains limited, despite its rapid increase since 2005 (Figure 2.18). One factor may be Greece’s industrial structure with its bias towards less R&D-intensive industries such as business services and medium-low-technology industries. But even after controlling for industrial structure, Greece has a low investment and business R&D intensity compared to the OECD average (Hua, Méndez and Xu, 2022[95]).

Access to finance appears a far greater barrier to private firms’ investment plans in Greece than in other OECD countries (Figure 2.19), due primarily to limited finance from banks, especially for SMEs, and few alternative sources of finance (EC, 2023[59]). The government’s loan guarantees, introduced as part of the COVID response package, led to a temporary increase in lending to SMEs (OECD, 2024[96]). However, many firms still face significant financing challenges (EIB, 2024[97]; EIF, 2023[98]), especially for long-term funding needed for investments in intangible assets, skills and technology that is difficult to finance without own funds and limited collateral.

Greece’s large amount of legacy non-performing debt hampers access to finance and its workout remains a challenge for the economy. Following Greece’s decade-long economic crisis, many firms, notably SMEs, are not considered to be bankable. Non-performing debt effectively block their debtors and their remaining assets, restricting them from accessing new credit to rebuild or restart business. Considering the dominance of banks in the Greek financial system, these firms are often cut off from Greece’s main market-based source for obtaining external finance to fund investments. Dealing with non-performing loans on banks’ balance-sheets and distressed debt in the non-bank financial sector more decisively would contribute to expanding access to bank finance.

The banking sector remains burdened by a high, albeit considerably reduced, non-performing loans ratio. State-supported securitisations under the Hercules Scheme (set to expire in December 2024) have been a key driver behind the sharp reduction in the stock of non-performing loans on bank balance-sheets from 49.1% in early 2017 to 6.5% in December 2023. The scheme enabled the sale of NPLs to a private securitisation vehicle that could subsequently sell more senior securities backed by these assets and guaranteed by the state to credit servicers. Its coverage of securitised NPLs reaches EUR 43 billion in mid-2023 (19.4% of GDP). While this helped to address legacy challenges, risks have migrated to the non-bank financial sector and the scheme has been less successful in opening up new bank financing to SMEs. The bulk of new credit has remained concentrated in large firms and interest rates for both SMEs and large firms increased again in 2022-23, reversing a downward trend that had lasted for nine years (Figure 2.20, (OECD, 2024[96])).

Distressed debt handled by the credit servicers still needs to be restructured to facilitate access to finance, firm growth and resource reallocation. Credit servicers are in charge of recovering former NPLs that were offloaded from banks’ balance sheets: at end-2023, the distressed debt under recovery stood at EUR 69.5 billion (31.3% of 2023 GDP), down from 87 billion in March 2022, of which a third is due by corporations and 17% by SMEs (Bank of Greece, 2024[99]). Greek credit servicers, engaged in managing portfolios under the Hercules scheme, have a commitment to achieve performance objectives of NPL recovery through agreed business plans. However, they have repeatedly fallen behind on original performance targets (IMF, 2024[100]). The delay in the workout compared to the original plans is mainly the result of low recoveries from collateral liquidations owing to the suspension of enforcement proceedings during the COVID-19 pandemic. However, delays in court procedures, a high ratio of unsuccessful auctions and the illiquid secondary market for NPLs also slow the process (Figure 2.21)

Accelerating the reduction of non-performing debt held by banks and credit servicers should remain a priority. Additional tools, such as the 2020 insolvency code and its out-of-court workout framework, are already bringing positive results (EC, 2023[59]). The main design characteristics of Greece’s insolvency framework, such as the time to discharge, creditors’ ability to initiate restructuring, the presence of pre-insolvency regimes, the possibility and priority of new financing or the possibility to 'cram-down' on dissenting creditors, appear now close to OECD best practices.

Outstanding tax arrears are another issue preventing access to bank finance. Tax arrears (including debt considered not collectable) reached 203% of total net revenue in 2021 (OECD, 2023[101]). The setting-up of the Greek Independent Authority for Public Revenue (IAPR) has allowed significant gains in the collection of tax arrears (EC, 2023[102]). The IAPR has re-oriented resources towards recovering collectable tax arrears and progressively writing off those deemed to be uncollectable. New procedures have slowed down the accumulation of new tax debt. These involve sending reminders about forthcoming tax-payment deadlines, contacting all taxpayers who missed the deadline within the first 30 days and following up on those who still do not pay. Moreover, risk analysis procedures are being increasingly used to evaluate and prioritise each month’s unpaid tax debt cases (OECD, 2020[2]). Further progress will hinge on detailed assessments of debtor payment capacity and compliance history to avoid the high drop-out rate observed for previous instalment schemes (IMF, 2019[103]). The OECD Tax Debt Management Network (TDMN) produces a Debt Management Compendium of innovative working practices that could be of use to Greece.(Figure 2.21) (André and Demmou, 2022[104]). These mechanisms help debtors, banks and credit servicers in tackling the accumulation of private debt through more effective restructuring solutions. However, the time needed to resolve civil, commercial, administrative and other cases remained significantly above the European Union average in 2021 (EC, 2023[105]). The use of out-of-court procedures remains modest and could be further expanded, although it has picked up significantly (Ministry of Finance, 2024[106]).

Accelerating the insolvency cases that are stalled in the court system would help clear the legacy of the past crises (OECD, 2023[1]). This is one of the objectives of the 2024 reform of the judicial system (Box 2.7). Faster and more efficient insolvency procedures could contribute to higher private investment and facilitate the reallocation of capital and other resources to more productive companies. The staffing and capacity of the courts should be enhanced, as well as their geographical distribution, notably by increasing the number of court clerks per judge. While the number of courts is not particularly low in international comparison (CEPEJ, 2022[107]), some first-instance courts appear to operate with insufficient human resources, while others have poor performance indicators despite sufficient staffing (World Bank, 2023[108]). The technological infrastructure for insolvency proceedings also has room for improvement (CEPEJ, 2022[107]). Easing procedures of e-auctions of foreclosed properties would require improving the digitalisation and operations of the cadastre and land registry (see above).

Outstanding tax arrears are another issue preventing access to bank finance. Tax arrears (including debt considered not collectable) reached 203% of total net revenue in 2021 (OECD, 2023[101]). The setting-up of the Greek Independent Authority for Public Revenue (IAPR) has allowed significant gains in the collection of tax arrears (EC, 2023[102]). The IAPR has re-oriented resources towards recovering collectable tax arrears and progressively writing off those deemed to be uncollectable. New procedures have slowed down the accumulation of new tax debt. These involve sending reminders about forthcoming tax-payment deadlines, contacting all taxpayers who missed the deadline within the first 30 days and following up on those who still do not pay. Moreover, risk analysis procedures are being increasingly used to evaluate and prioritise each month’s unpaid tax debt cases (OECD, 2020[2]). Further progress will hinge on detailed assessments of debtor payment capacity and compliance history to avoid the high drop-out rate observed for previous instalment schemes (IMF, 2019[103]). The OECD Tax Debt Management Network (TDMN) produces a Debt Management Compendium of innovative working practices that could be of use to Greece.

Beyond measures to increase the number of bankable firms, the authorities have taken numerous steps to support access to finance for SMEs and start-ups. As in other OECD countries, loan guarantees were one of the most widely used policy instrument used by governments to facilitate SME access to finance, notably during the COVID-19 pandemic (OECD, 2024[96]). Though their amount decreased in 2022, government loan guarantees still reached EUR 4 billion in 2022 (2% of GDP) and many firms assess grants and subsidised lending as key for their financing (Figure 2.22). Yet, in 2022, the existing guarantee programmes covered only 4.2% of Greek SMEs, a relatively small share compared to Spain (6.3%) or Portugal (8.9%) (AECM, 2023[109]).

The Hellenic Development Bank (HDB), created in 2019, provides financing targeted to small and medium-sized enterprises (SMEs), as well as support for exports, sustainable development and innovation. The HDB also aims to facilitate investments in infrastructure, encourage equity investments and other alternative financing sources and provide business support to SMEs, mainly through shared-risk loans and guarantee facilities, as well as financial expertise to the public sector. It replaced the Hellenic Fund for Entrepreneurship and Development (ETEAN) created in 2011. HDB’s scope is to improve SMEs’ access to finance and foster innovation. In addition to the HDB, several funds aim at improving SMEs’ access to finance, combining the national budget, the private sector, and the ERDF’s funds (Box 2.8).

These programmes have been successful at raising bank lending. While this may help overcome market failures that limit SMEs’ access to finance, there is also a risk of going too far and creating new distortions. For example, large government support may induce bank forbearance, allow the survival of low-productivity firms, lower long-run efficiency and crowd-out alternative financing sources (Adalet McGowan, Andrews and Millot, 2017[110]; Hong and Lucas, 2023[111]). Greece should evaluate the effects of its public credit guarantee schemes in the last decade, especially their fiscal costs, the degree to which they may have supported mature, low-productivity ("zombie") firms, as well as potential negative spillovers towards non-targeted firms (OECD, 2023[1]). Making anonymised micro data available to external researchers would be helpful to support an independent evaluation of these programmes.

The authorities are also on-lending loans from the EU Recovery and Resilience Facility to private investors (RRF, Box 1.2). The on-lending strategy seeks to provide financing at below-market costs to address Greece’s private investment gap, without requiring direct contributions from public finances. The impact on available funding is substantial (OECD, 2023[1]). Fully disbursing the RRF loans will provide EUR 17.7 billion, of which EUR 16.7 billion (7.5% of 2023 GDP) will be channeled through commercial banks between 2022 and 2026, targeting new private investment projects in the RRF priority areas. So far, the take-up of RRF-financed loans has been significant. In January 2024, commercial banks had co-financed projects worth EUR 10.3 billion, of which EUR 4.4 billion though RRF loans and EUR 3.5 billion through bank loans (Bank of Greece, 2024[112]). The national budget bears the risk of non-payment by private investors for up to 50% of the financing provided from the RRF as the risk is shared according to the financers’ contributions. To minimise implementation risks, it is important to continue to monitor the programme carefully. A more complete evaluation of its economic impact, notably its additivity, would also help to ensure its safeguards are fully implemented, and to proactively adjust the strategy should weaknesses emerge.

Diversifying financing instruments and sources would bolster SMEs’ resilience to volatile credit markets and help them manage their debt. The OECD recommendation on SME Financing and the 2022 Updated G20/OECD High-Level Principles on SME Financing provide guidance in this regard (OECD, 2023[113]; 2022[114]). FinTech can help lower information asymmetries, by leveraging the speed, security and transparency of digital technologies. FinTech may enhance the efficiency of allocation of finance, reaching underserved segments and regions and strengthening the ecosystem for SME finance. Developing online lending intermediated by FinTech platforms can improve efficiency and increase competition and diversification in lending.

Non-bank finance and FinTech can be particularly complementary when the traditional banking sector is impaired, by providing small and medium-sized companies (SMEs) an alternative to conventional bank lending (Kaousar Nassr and Wehinger, 2016[115]). Traditional banks are not well suited to financing new and riskier digital start-ups with innovative business models but little collateral (OECD, 2015[116]). While developing an ecosystem of alternative sources may take some years, it will also take some time before Greece’s banks are able to support new or fast-growing investors, as they continue restoring their financial health and reorganising their operations.

Regulators can help develop alternative sources of finance in Greece by being proactive and aligning their strategies. The Baltic countries have been especially successful in developing the FinTech sector, increasing the number of new FinTech start-ups by 70%. This was supported by comprehensive strategies, and cooperation with neighbouring jurisdictions to expand their market size (OECD, 2023[1]). Supportive domestic regulations can help Greece attract the wholesale funds for marketplace lending platforms, and protect and give confidence to borrowers, especially in the early development of the platforms. Establishing transparency across FinTech platforms about SME borrowers and the platforms’ performances improves FinTech markets’ performance (OECD, 2022[117]). Policy makers can support this, for example by developing common Open Data platforms, as the Bank of England is developing. Collaborating with regulators elsewhere in the European Union would help align Greece’s markets with others, and can help regulators in this quickly evolving area.

Opportunities offered by equity and quasi-equity to finance SME investments could also be developed further (Figure 2.23). Venture capital can be especially supportive of entrepreneurs without established relationships with banks, such as researchers looking to commercialise their innovations, an area which has been especially challenging in Greece. The government is expanding its support for venture capital funds, notably through on-lending of its Recovery and Resilience Facility credits (Box 2.9). This injection of funds can deepen and develop the market in Greece. Strong, independent monitoring and accountability can support their performance and the efficiency of their governance and operations.

Improving financial education would complement the measures to expand the use of capital markets. Adults’ financial knowledge appears low and further efforts to improve financial literacy could help to limit financial risks for households in the longer term, as proposed in the OECD strategy to raise financial literacy (OECD, 2024[78]). While micro, small and medium-sized business owners possess a “general financial literacy” that is higher than the rest of the population, there are noteworthy gaps. In particular, around 40% of owners of micro and small businesses do not know what a dividend is, one fifth does not understand how changing loan maturities affects both monthly payments and interest, and one third struggles with the concept of equity. Less than half are confident enough to approach banks and external investors to obtain financing for their business.

Beyond policies to improve access to finance, increasing innovative investment also requires that firms and investors expect good returns on their projects. Firms’ innovative expenditures, including firm R&D spending, can boost productivity and their gains may be shared with other firms through knowledge and information spillovers. In this respect, public support to increase such investments appears justified. The government fosters innovative investments through tax incentives and direct funding of business R&D and innovation. Moreover, it can play an important role as a customer for new technologies, for example through public procurement (Chapter 1).

Tax incentives for R&D have seen their preeminent role in the business R&D support policy mix in OECD and EU countries reinforced but, despite this increase, remain relatively modest in Greece (OECD, 2021[118]). In 2021, tax incentives accounted for around 55% of total (direct and tax) support for business R&D in the OECD, but only a quarter in Greece (Figure 2.24). A 2020 reform raised the rate of the volume-based R&D tax allowance from 30 to 100%, and with a five-year carry-forward the marginal tax subsidy rate for profit-making (lossmaking) SMEs in Greece appears above the OECD median. However, the number of firms that benefit from the R&D tax relief had stalled in 2016-19, before increasing again in 2020, and most of tax benefits go to larger firms (OECD, 2023[119]; Spilioti et al., 2021[120]). This scheme should be rigorously evaluated to ensure that the R&D tax incentives are clear, automatic and easy to access, and that SMEs as well as large firms are aware of them. This could help increase the take up, as the procedures for controlling and certifying these expenses seem to be time-consuming (Kalogirou et al., 2021[121]).

Further targeting R&D tax incentives could also increase their effectiveness, as there is currently no threshold or ceiling in the Greek scheme. Across OECD countries, R&D tax incentives often target firms and activities to induce larger R&D investment for a given tax expenditure (OECD, 2023[119]). In particular, the R&D tax incentives could target young firms and SMEs, given that the R&D investment by large firms is generally less responsive to tax incentives. An OECD study based on firm-level data on R&D found that across 20 OECD countries, one euro of R&D tax credit induces 1.4 euros of R&D by firms with less than 50 employees whereas it induces only about 0.4 euros of R&D by firms with 250 or more employees (OECD, 2020[122]; 2023[123]). One option could be to directly target the tax credits to smaller firms as in the United Kingdom. Alternatively, an upper bound on the amount of R&D spending that qualifies for R&D tax incentives could be set, as done in many OECD countries, and, following Germany, the tax subsidy could be increased below that threshold (Aghion, Chanut and Jaravel, 2022[124]). Some countries like Korea, Spain or Portugal also offer hybrids of a volume-based R&D tax incentive topped by an incremental one (OECD, 2022[125]).

Other measures could improve firms’ responsiveness to tax support. OECD analysis shows that the impact of R&D tax incentives is nearly twice as large when refund provisions are available in the case of loss, and three times as large when tax incentives are redeemable against payroll taxes or social security contributions and thus disconnected from the profit situation of firms (OECD, 2023[123]). However, refundability would represent a higher cost for the government.

Many public grants also target innovative investment in Greece, and historically constitute the bulk of public financing for business innovation (Figure 2.24). Direct funding has recently increased with the absorption of the funds of the NSRF 2014-2020 and the implementation of the National Smart Specialisation Strategy for Innovation 2021-27 and it is set to increase further in the coming years (EC, 2022[126]). For example, the R&D programme “Research-Innovate” of the 2021-27 programming period with an estimated budget of EUR 300 million has recently been launched to support collaboration schemes of public research entities and the business sector. In addition to loans and guarantees and equity instruments (see above), these diversified sources of funding for firms and innovations are expected to support business at different stages of development. 83% of public direct funding was concentrated in SMEs in 2020 (OECD, 2024[127]). Grants are in principle appropriate for supporting early-stage innovation by young firms, which generally lack the profits to benefit from non-refundable tax credits. OECD analysis shows a similar degree of input additionality for direct funding compared to tax support (OECD, 2023[123]).

The main challenge is to utilise the large inflows of EU and state financing tools efficiently (Box 2.8, Box 2.9, and Box 2.10). Research policy management and funding sources have long been fragmented across several ministries: the General Secretariat for Research and Innovation (GSRI), the Hellenic Foundation for Research and Innovation (HFRI) and regional authorities and they undergo frequent changes (EC, 2023[128]; OECD, 2020[2]). Coordination amongst these policy advisory and management bodies has been inadequate, with no administrative separation of research funding management between universities and research centres. Moreover, the various bodies involved in the financing of research activities are still characterised by high levels of bureacracy, which is due to specific laws, regulations and provisions that hinder the research projects (e.g. slow evaluation procedures). As a result, past programmes have been unequally used during the 2014-20 programming period (EY and IOBE, 2023[129]).

Foreign direct investment (FDI) can be a vehicle for financing improvements in the capital stock and innovation, as well as for the dissemination of digital-intensive and greener technologies by connecting domestic firms to international markets (OECD, 2023[130]). These features can be particularly critical for Greece, given its relatively low level of trade for a small open economy. Foreign enterprises tend to hire more high-skilled workers than domestic firms, possibly because their business operations might involve more advanced technologies or more complex tasks, which increases the demand for skilled labour and tend to pay higher wages than domestic firms (OECD, 2019[131]). FDI may also generate knowledge spillovers to local firms as they observe the advanced products and management practices of multinational enterprises (MNEs). Such demonstration effects can indeed stimulate innovation by local firms competing in the same industry. Local firms in upstream or downstream industries, which benefit from the use of advanced intermediate goods supplied by MNEs or technology transfer from MNEs associated with a buyer-supplier relationship (OECD, 2022[132]).

Greece could do more to leverage inward FDI as a driver of innovation and an opportunity for the internationalisation of innovative Greek firms. Greece’s stock of inward FDI as a share of GDP lags behind other OECD countries, especially other small open economies (Figure 2.25, Panel A). This mostly reflects historically low inflows, which however have rapidly increased to reach 3% of GDP on average over 2021-23 (Panel B) (EY, 2023[133]).

Reflecting the relatively small size of the inward investment stock compared to other OECD economies, foreign-owned enterprises accounted for just 7.5% of jobs in the private sector in 2021 and 23% of private sector value added produced in 2020. However, the gap vis-à-vis domestic firms is sizeable which hints at the historically limited absorptive capacities of many domestic firms (Figure 2.25, Panels C and D): the productivity premium of foreign firms is large and around 90% of the expenditure on in-house R&D that took place in industry and construction in Greece in 2021 was accounted for by foreign-controlled enterprises (Eurostat, 2024[134]).

Greece’s relatively open regulatory stance creates favourable conditions for foreign direct investment (OECD, 2024[135]). Nonetheless, there are still some regulatory hurdles (see above) which, if removed, could further increase Greece’s FDI attractiveness. More should also be done to increase spillovers from FDI to domestic firms, notably SMEs. Network support policies are focused exclusively on domestic linkages, in contrast to most OECD countries (Figure 2.26).

Among OECD countries, Greece stands out with policies that focus on increasing the absorptive capacity of SMEs, but do not target the the diffusion channels themselves (OECD, 2023[136]). Developing SME network policies focusing on international partnerships would also support spillovers from foreign-owned companies to domestic firms. In particular, strengthening access to knowledge-intensive business services can help to build international linkages. Slovenia, for example, gives subsidies and simplified access to micro firms for accessing knowledge-intensive business services, including on intellectual property protection and internationalisation (OECD, 2023[6]). Additionally providing matchmaking services and events to reduce the information barriers that prevent foreign investors from identifying local suppliers or customers could support SMEs’ integration, such as in the Slovak Republic and Spain (Box 2.11). A stronger focus on the quality of FDI would also help, as contrary to other agencies, the Greek investment promotion agency “Enterprise Greece” tends to rely predominantly on metrics relating to the number and value of investment projects (Sztajerowska and Volpe Martincus, 2021[137]).

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