Breaking news

Greece’s €42.3 Billion Problem: The Persistent Shadow Of Zombie Companies

by THEFUTURE.TEAM

January 24, 2025

One in ten businesses in Greece is a “zombie” company—unable to service loans, collectively holding a staggering €42.3 billion in bad debt. These businesses, accounting for 8.9% of the corporate sector, have long been a drag on the Greek economy, earning their unenviable label as zombie firms.

In its latest quarterly economic report, the Foundation for Economic and Industrial Research (IOBE) underscores the urgency of resolving these bad business loans. It highlights that these firms, by their nature, cannot restructure their debt independently, posing a perpetual obstacle to entrepreneurial growth.

Follow THE FUTURE on LinkedIn, Facebook, Instagram, X and Telegram

The Scale Of The Problem

The unresolved bad loans from these zombie firms include €8.9 billion still managed by commercial banks and an additional €33.4 billion transferred to loan servicers by the end of 2022. This combined figure of €42.3 billion remains a significant burden on the banking system, stifling its ability to finance new ventures and economic growth.

The origins of this debt crisis trace back to Greece’s prolonged economic downturn. Non-performing business loans peaked at €58 billion in 2015, representing 47% of all business loans. Although this figure has declined significantly—down by €49.1 billion to €8.9 billion in 2022—the remaining €42.3 billion underscores the persistent challenge. Since 2015, the “real” reduction in business-related bad loans totals €15.7 billion.

Zombie Companies By The Numbers

The phenomenon of zombie businesses—firms unable to meet loan or interest payments—escalated during the 2010-2018 economic crisis. Between 2005 and 2013, their share rose from 10% to 18.6% of all businesses, before receding to 8.9% by 2022.

Interestingly, while smaller businesses have historically shown higher rates of zombification, large firms also exhibited notable vulnerability during the 2005-2016 period. However, since 2013, the share of zombie companies has declined across all business sizes.

A Leading Indicator Of Financial Distress

According to IOBE, the prevalence of zombie businesses closely correlates with the rate of non-performing exposures (NPEs) on bank balance sheets. Notably, the rise in zombie companies typically preceded the increase in NPEs, suggesting that the zombie rate serves as a leading indicator of financial distress in the banking sector.

More recently, the decline in zombie businesses has outpaced the reduction in NPEs. This trend, IOBE explains, stems from the protracted liquidation of companies that have ceased operations but whose debts remain unresolved. These defunct firms are excluded from databases like ICAP, which track active businesses.

Moreover, the size of the average zombie company has shifted. Before the crisis, and again after 2017, zombie firms were generally smaller, reflecting a change in the economic landscape over time.

The Path Forward

The persistence of zombie companies is not merely a banking issue; it is a systemic challenge for the Greek economy. Resolving these bad loans swiftly and effectively is essential to unlocking entrepreneurial potential and enabling Greece’s financial sector to support new business ventures.

As the IOBE report makes clear, addressing this issue isn’t just about cleaning up balance sheets—it’s about paving the way for sustainable economic growth.

The Future Forbes Realty Global Properties

ECB Launches Geopolitical Stress Tests For 110 Eurozone Banks

The European Central Bank is preparing a new round of geopolitical stress tests aimed at assessing potential risks to major financial institutions across the euro area. Up to 110 systemic banks, including institutions in Greece and the Bank of Cyprus, will take part in the exercise, which examines how geopolitical events could affect financial stability.

Timeline And Testing Process

Banks are expected to submit initial data on March 16, 2026. Supervisors will review the information in April, while the final results are scheduled to be published in July 2026. The process forms part of the ECB’s broader supervisory work to evaluate financial system resilience under different risk scenarios.

Follow THE FUTURE on LinkedIn, Facebook, Instagram, X and Telegram

Geopolitical Shock As The Primary Concern

The stress tests place particular emphasis on geopolitical risks. These may include armed conflicts, economic sanctions, cyberattacks and energy supply disruptions. Such events can affect banks through changes in market conditions, borrower solvency and sector exposure. Lending portfolios linked to regions or industries affected by geopolitical developments may face higher risk levels.

Reverse Stress Testing: A Tailored Approach

Unlike traditional stress tests that apply the same scenario to all institutions, the reverse stress test requires each bank to define a scenario that could significantly affect its capital position. Banks must identify a geopolitical shock that could reduce their Common Equity Tier 1 (CET1) ratio by at least 300 basis points. Institutions are also expected to assess potential effects on liquidity, funding conditions and broader economic indicators such as GDP and unemployment.

Customized Risk Assessments And Supervisor Collaboration

This methodology allows banks to submit risk assessments based on their own exposures and operational structures. The approach is intended to help supervisors understand how geopolitical events could affect institutions differently and to support discussions between banks and regulators on risk management and contingency planning.

Differentiated Vulnerabilities Across Countries

A joint report by the ECB and the European Systemic Risk Board indicates that countries respond differently to geopolitical shocks. The Russian invasion of Ukraine led to higher energy prices and inflation across Europe, prompting central banks to raise interest rates. Belgium, Italy, the Netherlands, Greece and Austria experienced increases in borrowing costs and lower investor confidence. Germany, France and Portugal recorded more moderate changes, while Spain, Malta, Latvia and Finland showed intermediate levels of exposure.

Conclusion

The geopolitical stress tests will not immediately lead to additional capital requirements for banks. Their results will feed into the Supervisory Review and Evaluation Process (SREP). ECB supervisors may use the findings when assessing capital adequacy, risk management practices and operational resilience at individual institutions.