EU Report Exposes Greece’s Weak Economic Base Behind Regional Ambitions
By Bosphorus News Geopolitics Desk
Greece has moved well beyond the acute crisis years, but the European Commission's 2026 Country Report shows an economy still carrying deep structural weaknesses as Athens expands its defense and Eastern Mediterranean agenda.
The Commission's June 3 report says Greece grew faster than the EU average in the post-pandemic period, with real GDP rising by an annual average of 2.1 percent in 2023-2025, compared with 1 percent across the EU. Growth is projected at 1.8 percent in 2026 and 1.6 percent in 2027, supported by investment and consumption but slowing as Recovery and Resilience Facility implementation comes to an end.
Athens can present that as a recovery story. The harder numbers point to a more constrained picture. Greece's real GDP in 2025 remained almost 14 percent below its 2008 peak, while per capita income stood at 68.4 percent of the EU average. Long-term real growth is estimated at around 1.5 percent, only slightly above the EU average, leaving convergence with the rest of Europe slow and fragile.
Investment has improved, but the recovery still leans heavily on EU support. Greece's investment-to-GDP ratio rose from 11.3 percent in 2018 to 16.9 percent in 2025. The Recovery and Resilience Facility is expected to raise Greek GDP by almost 4.5 percent in 2026 compared with a no-policy-change scenario, while Greece ranks among the top five EU member states in cohesion fund absorption for the 2021-2027 period.
That EU funding cushion has softened the post-crisis adjustment. It has not removed the deeper productivity problem. The report says low investment in intellectual property continues to hold back innovation, while the economy remains reliant on lower value-added sectors such as tourism and agriculture, along with small and medium-sized companies that lack scale and have limited international exposure.
The external balance remains one of the clearest warning signs. Greece's current account deficit fell to 5.7 percent of GDP in 2025, but the Commission still describes it as elevated and says the country's net external liability-to-GDP ratio improved only marginally. Headline growth has returned, yet Greece remains exposed to external financing pressure.
The bad-loan legacy has also moved rather than disappeared. Bank non-performing loans declined further in 2025, but the stock of non-performing loans held by servicers stayed broadly unchanged and continues to weigh on private-sector balance sheets. Credit servicers were managing 80 billion euros of debt at the end of 2025, equal to 32.2 percent of GDP.
The productivity data is sharper. Labour productivity in Greece remains only 54.6 percent of the EU average, while the country recorded the highest number of hours worked per employee in the bloc. Greece is working long hours without generating the level of output needed for faster convergence.
Skills shortages deepen that ceiling. The report says 80 percent of companies identify the lack of skilled staff as an obstacle to investment, while weak basic and digital skills, low adult-learning participation and regional disparities continue to limit the efficient use of labour reserves.
Housing adds another pressure point. House prices rose by 7.8 percent in 2025 after a 9.1 percent increase in 2024, and the Commission says recent price developments show signs of overvaluation. Golden visa incentives and tourism-linked investment demand cooled after tighter rules, but housing supply remains constrained, affordability has worsened and the urban-rural divide has deepened.
The fiscal picture is stronger than during the crisis decade, but the room for manoeuvre remains limited. Greece recorded a general government surplus above 1 percent of GDP in both 2024 and 2025, projected to narrow to 0.8 percent in 2026 and 0.6 percent in 2027. Public debt dropped to 146.1 percent of GDP in 2025 and is expected to fall to 140.7 percent in 2026 and 134.4 percent in 2027. It remains the highest debt ratio in the EU.
Defense spending now sits inside that fiscal calculation. The Commission says Greek government defense expenditure rose from 2.2 percent of GDP in 2024 to 2.4 percent in 2025 and is forecast to reach 2.6 percent in 2026. Greece is also using EU instruments to support defense investment and has allocated 634 million euros to defense-related priorities in the cohesion policy mid-term review, ranking third in the EU after Poland and Romania.
Athens is no longer dealing only with routine procurement. It is funding a broader defense modernization cycle, including the Achilles Shield defense package approved by parliament in March 2026 and Israeli-linked precision firepower programmes such as the PULS rocket artillery deal.
The regional agenda has widened at the same time. Greece has expanded military coordination with the Greek Cypriot administration and Israel in the Eastern Mediterranean, a line Bosphorus News examined through the Greece-Cyprus-Israel trilateral military pact. The security value is clear for Athens. The economic base underneath it remains uneven.
The Commission also flags Greece's reliance on tourism and transport services, which together account for around 20 percent of GDP and are heavily exposed to regional geopolitical risks. Energy price shocks remain a major vulnerability because the economy is still strongly dependent on fossil fuels.
The report leaves Greece in a more complicated position than the recovery narrative suggests. Athens has regained policy space, absorbed large EU funds and improved its fiscal numbers. It is also trying to carry higher defense spending, a wider Eastern Mediterranean role and a larger security agenda while productivity, external exposure, unresolved loan burdens and housing pressure remain unresolved.
Greece's recovery is real. The Commission's report shows why the economic base behind it remains too narrow for Athens to treat its expanding defense and regional agenda as cost-free.
***Full reports: European Commission country reports on Greece