## 1. The new insolvency framework has helped reducing distressed debt, but its implementation is hindered by an inefficient judicial system, hampering economic performance

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---

### NPL reduction and remaining distressed debt
- NPL ratio reduced from 40 percent in 2019 to 3 percent in 2024 (EBA, 2024).
- Reduction implied transfer of NPLs from banking system balance sheet to credit servicers (IMF, 2022).
- Distressed debt held by credit servicers amounted to around 70bn at end–2024, accounting for 30 around percent of GDP (BoG, 2024).
- New insolvency framework operational since late 2021, consolidating proceedings under a single text (IMF, 2023).
- Implementation progress hindered by lengthy court proceedings (EC, 2024a), likely depressing private investment and productivity.

### Judicial reform launched in 2024 (objectives and components)
- Reform leveraging EU funding initiated in 2024 prioritizes:
  - Court reorganization.
  - Digitalization and upgrades in information systems and video conferencing.
  - Training and recruitment of additional judges and judicial clerks.
  - Shifting some tasks away from judges to decongest courts (e.g., allowing lawyers to perform several types of non-contentious cases).
- Implementation of a new judicial map in civil and criminal justice is underway (EC, 2024c).
- Main target: bring the length of court proceedings (disposition time) to the average EU level by 2027.

### Court system structure and institutional features
- Civil courts (starting from 2024):
  - 57 courts of first instance;
  - 19 courts of appeal;
  - the Court of Cassation (Supreme Court of Areios Pagos).
- Specialization and staffing:
  - Limited specialization; three first instance courts (Athens, Piraeus and Thessaloniki) have specialized benches in some civil areas.
  - Judges must rotate every four years, preventing permanent specialization in insolvency or commercial matters.
  - Insolvency trainings held once or twice a year; 29 judges currently have a specialized role related to insolvency.
  - As of January 2025, there are 192 registered insolvency professionals.
  - Insolvency professionals licensed after exams by the Insolvency Management Committee (established in 2021) and supervised by the Ministry of Economy and Finance.
  - Disciplinary sanctions: written reprimand, financial fine, temporary ban on duties, temporary withdrawal of license, removal from the registry.
- Management and data:
  - No central management; courts operate as individual entities with fragmented, court-specific data systems.
  - Recent efforts to improve management at first instance court level are underway.

### Judicial efficiency: measures and performance
- Key measures: clearance rate and disposition time (EC, 2024b).
- Clearance rate:
  - For civil and commercial cases, clearance rate has been well below 100 percent for both 1st and 2nd instance courts for almost the whole reporting period.
  - Performance dropped below 60 percent during the Global Financial Crisis (GFC) and the European Debt Crisis (EDC), creating a massive backlog.
- Disposition time:
  - Combining 1st and 2nd instance courts, it takes almost 1,200 days in Greece to reach a decision for civil and commercial cases.
  - EU average disposition time is 446 days.
  - Greece records the longest proceedings for 1st instance courts in the EU.

### Drivers of judicial efficiency — conceptual framework
- Demand-supply approach:
  - Demand for justice measured by incoming cases; driven by business cycle fluctuations, quantity and quality of law, costs and rules, alternative dispute resolution mechanisms, and national social norms.
  - Supply of justice measured by cases resolved; driven by financial and human resources, efficiency of judicial production processes, incentive structures of service providers, and governance of courts.
  - Market for justice clears through adjustments in length of court proceedings; inability to satisfy demand generates congestion and delays.

### Demand-side drivers (evidence and implications)
- Shock-driven demand:
  - Massive increase in demand during the GFC and EDC generated congestion; incoming cases have recently slowed and are below the EU average, but crisis shocks were exceptional for Greece.
  - Crisis period: cumulative loss of around 30 percent of GDP over a 5-year period, triggering widespread business and personal insolvencies; corporate defaults spiked in 2011 and started to decline only in 2014, with unemployment elevated until 2020.
- Court fees and legal aid:
  - Court fees to start judicial proceedings generally on the low side compared to other EU countries.
  - Beneficiary of legal aid can be a person whose capital annual income does not exceed the two-thirds of the lowest annual salaries, with courts retaining discretion to determine the amount of legal aid (EC, 2024b).
- Alternative dispute resolution (ADR):
  - ADR availability was relatively low during the crisis period; Greece adopted a modern system since 2019, contributing to a declining litigation rate.

### Supply-side drivers (evidence and implications)
- Resolved cases:
  - Supply of judiciary services (resolved cases) has generally declined with Greece below the EU average and not responding adequately to elevated demand.
- Human and financial resources:
  - Greece has a very high number of judges per capita compared to the EU average and experienced one of the highest increases in the EU between 2012 and 2022, exceeding 60 percent.
  - Cross-country evidence: no statistically significant relationship between more judges and higher resolution rates; increase in judges can coincide with decreasing productivity per judge.
  - Support from non-judge staff has been very limited, overburdening judges with administrative tasks and reducing efficiency.
  - Judges’ salaries relevance is ambiguous; poorly designed reward schemes could demotivate top performers.
- Digitalization:
  - Greece lags behind EU peers in digital-ready procedural rules, tools and infrastructure for distance communication, and secure electronic communication between courts and legal professionals.
  - Digital tools can streamline processes, ensure fair workload allocation, and reduce pre-trial and trial duration.
- Incentive structure and monitoring:
  - Monitoring covers backlogs, incoming, resolved, and pending cases, but typically omits active monitoring of disposition time, clearance rate, and appeal rate.
  - Improved accountability and incentive structures can boost productivity and case closures.

### Impact on debt enforcement and insolvency proceedings
- Debt enforcement:
  - Court system shortcomings and rigidities in the Code of Civil Procedure can lead to several years before a creditor obtains a court order; debtors have multiple avenues to challenge and delay proceedings.
  - Delays often occur for hearings of legal challenges against enforcement proceedings/auctions, with hearings generally set for distant dates.
  - Measures underway include restricting possibilities for adjourning trials under the newly revised Code of Civil Procedure.
  - Newly revised code (to be adopted in June 2025) aims to create simpler, more effective rules that limit postponements.
  - Staffing of additional judges (30 previously magistrate judges) on debt enforcement proceedings to clear backlog is underway.
- Corporate insolvency:
  - Lack of procedural efficiency and strong judicial infrastructure causes distant hearing dates for insolvency petitions; delays between submission of an insolvency petition and opening of a case are particularly detrimental for saving a business.
  - Heavy bureaucracy and slow pace dissuade businesses from using the insolvency framework.
  - Corporate insolvencies require more complex financial and legal expertise than personal bankruptcy.
  - Bankruptcy procedure impacted to a lesser extent, though delays can occur for hearings of legal challenges against auctions or creditor classification lists.

### Impact on economic performance
- Timely dispute resolution reduces risk of opportunistic lawsuits, prevents undue costs that hurt firm competitiveness and may force small firms to exit, and provides legal certainty to improve investment choices.
- Judicial delays have likely contributed to slower reduction of distressed debt, depressed private investment, and lower productivity.

---

### 22. There are various transmission channels through which judicial system efficiency

### Transmission channels linking judicial efficiency to economic performance
- Key channels: investment, productivity, and credit markets (Palumbo and others (2013); Bosio (2023)).
- Contract enforcement affects investment by reducing business and policy uncertainty and increasing expected returns.
- Productivity gains arise via business dynamism, firm size, and innovation.
- Credit markets affected through access to finance for corporates and households.
- Relevance to Greece: smaller firm sizes, low private sector investments, low firm exit rates, and deteriorating allocation efficiencies since the EDC (Qu, 2025).

### International evidence supporting the channels
- Investment channel:
  - Pang and Wu (2009): better contract enforcement associated with more efficient capital allocation in contract-intensive industries.
  - Lorenzani and Lucidi (2014): higher judicial efficiency leads to higher foreign direct investment.
- Productivity channel:
  - Chemin (2020): judicial efficiency significantly improves firm productivity in sectors requiring relationship-specific investments.
  - Lorenzani and Lucidi (2014): role of business dynamism (firm entry and exit).
  - Beck and others (2006): relevance of firm size.
- Credit market channel:
  - Qian and Strahan (2007) and Bae and Goyal (2009): better contract enforcement induces credit suppliers to increase loan size, lengthen loan maturity, and reduce loan spreads.
- Kapopoulos and Rizos (2024): supports judicial efficiency relevance for real growth per capita.

### Country examples of reforms and outcomes
- Portugal (reforms 2011–2013; building on 2006 jurisdictional change):
  - Reforms: new code of civil procedure, jurisdictional organization act creating court clusters, special task forces, tighter supervision, expanded ADR.
  - Outcomes: disposition time in first instance courts declined from around 400 days in 2013 to around 200 days in 2019; significant improvements in clearance rate.
  - Firm-level evidence suggests positive impact on investment and productivity (Chemin, 2020 framework).
- Slovakia (reforms 2012–2016):
  - Reforms: new court dealing with enforcement, adoption of two new codes for civil law and procedure.
  - Outcomes: disposition time in first instance courts declined from around 500 days in 2014 to around 200 days in 2019; clearance rate increased from around 80 percent in 2013 to around 120 percent in 2019.
  - Firm-level evidence suggests positive impact on investment and productivity.

### Policy simulations for Greece
- Method: pooled firm-level data for Portugal and Slovakia with Chemin (2020) difference-in-difference framework; simulations assume average impact of reforms based on Portugal and Slovakia (Appendix I).
- Findings:
  - Simulated impact for Greece suggests gains in investment and productivity, with a higher simulated impact for investment than for productivity.
  - Results illustrative and surrounded by a wide margin of error.
  - Simulations suggest a meaningful growth dividend payout associated with judicial system efficiency reforms.
- Data and samples:
  - Orbis dataset, annual, covering 2010 to 2020, truncated to 2019.
  - Firms present both in year before reform (2012 for Portugal, 2013 for Slovakia) and in year 2019 used for estimates.
  - Final sample sizes after cleaning: about 62 thousand firms (Portugal), 10 thousand firms (Slovakia), 5 thousand firms (Greece).

### Conclusions and policy implications
- Current assessment:
  - Greece’s judicial system efficiency is one of the lowest in the EU.
  - New insolvency framework helped reduce distressed debt, but implementation is hindered by an inefficient judicial system, adversely impacting economic performance.
- Drivers of weakness:
  - Crisis period amplified weaknesses via surge in demand, creating congestion and significant insolvencies.
  - Court fees low; legal aid discretionary.
  - ADR only recently an important supporting factor.
  - Supply-side deterioration: inadequate deployment of human and financial resources and low digitalization.
  - Need for improved incentive structures and specialization for judges.
- Policy recommendations (multi-pronged):
  - Quantitative priorities:
    - Reduce case processing times and court backlogs; address staffing levels.
    - Continue court reorganization, digitalization, training, and shifting some tasks from judges (ongoing EU-funded reform).
    - Establish quantitative indicators to monitor progress, specific and aggregatable/disaggregatable across levels.
  - Qualitative priorities:
    - Specialization of judges and professionalization of insolvency representatives.
  - Consider establishing commercial courts to enable permanent specialization in commercial matters; enhance support staffing and ensure adequate budget (appointment of 300 new judicial clerks noted).
  - Improve judicial statistics and case management:
    - Comprehensive data systems to enable resource assignment and reallocation across courts.
    - Centralized and individual court-level management based on comprehensive statistics to rebalance workload timely.
  - Procedural efficiency:
    - Revise and simplify the Code of Civil Procedure to limit postponements and delaying tactics.
  - Insolvency professionals:
    - Further development, adequate regulation and continued supervision to strengthen institutional capacity; enable insolvency professionals to make many decisions with legal effect and reduce court workload.
- Urgency:
  - Bold and swift policy actions indispensable to address legacy issues and create conditions for higher growth and resilience.
  - Ongoing reforms have correctly identified key challenges and priorities but require swift execution to meet the disposition time target and realize a meaningful growth dividend payout.

### Appendix I. Technical aspects (data, methodology, and regression results)
- Data:
  - Source: Orbis dataset.
  - Coverage: annual, 2010 to 2020; truncated to 2019.
  - Sectors: market economy sectors only; excludes education, human health and social work activities, and public administration and defense (NACE Rev. 2).
  - Final sample sizes after cleaning: about 62 thousand firms (Portugal), 10 thousand firms (Slovakia), 5 thousand firms (Greece).
- Methodology:
  - Difference-in-difference technique following Chemin (2020).
  - Identification: court-sensitive sectors (manufacturing, financial and insurance activities, real estate activities and construction) vs control sectors.
  - Regression specifications include firm fixed effects, time fixed effects, lagged firm features, and reform dummy interacting with court-sensitive indicator. Coefficient β measures impact.
- Selected regression coefficients (standard errors in brackets):
  - Table 1. Impact of Judicial Reforms on log Labor Productivity Growth
    - Portugal:
      - ln Fixed assets: -0.054 (0.001)
      - ln MRPK: -0.074 (0.001)
      - I_{i∈court sensitive}: 0.077 (0.004)
    - Slovakia:
      - ln Fixed assets: -0.047 (0.003)
      - ln MRPK: -0.057 (0.004)
      - I_{i∈court sensitive}: 0.083 (0.004)
    - Additional reported numbers: 0.021 (0.011) and 0.023 (0.011).
  - Table 2. Impact of Judicial Reforms on log Fixed Assets Growth
    - Portugal:
      - ln Fixed assets: -0.073 (0.002)
      - ln MRPK: 0.159 (0.002)
      - I_{i∈court sensitive}: 0.141 (0.007)
    - Slovakia:
      - ln Fixed assets: -0.127 (0.007)
      - ln MRPK: 0.087 (0.008)
      - I_{i∈court sensitive}: 0.159 0.021 0.073 (0.007) (0.021) (0.020) — presented verbatim as in source.
- Policy simulation refinement:
  - Heterogeneous impacts via interaction of reform dummy, court-sensitive indicator, and firm features at NACE Rev. 2 level 2.
  - Conditional firm features include industry fixed coefficients, firm’s log fixed assets, log marginal revenue productivity of capital and labor relative to industry average.
  - Simulation results shown in Figure 15 of the main text (Orbis and IMF staff estimates).

*Source: IMF staff summary of "There are various transmission channels through which judicial system efficiency" (sipea2025057).*

### 1. The new insolvency framework has helped reducing distressed debt, but its

### 1. The new insolvency framework has helped reducing distressed debt, but its implementation is hindered by an inefficient judicial system, hampering economic performance

### NPL reduction and remaining distressed debt
- Leveraging on the Hercules program, the NPL ratio was reduced from 40 percent in 2019 to 3 percent in 2024 (EBA, 2024).
- The reduction implied a transfer of NPLs from the banking system balance sheet to the credit servicers in charge of recovering former NPLs (IMF, 2022).
- The resulting distressed debt in the hands of credit servicers amounted to around 70bn at end–2024, accounting for 30 around percent of GDP (BoG, 2024).
- The new insolvency framework was operationalized since late 2021 and rearranged all existing proceedings under a single text, including improved out-of-court workout, a pre-insolvency procedure for rehabilitation of business, liquidation, and a bankruptcy procedure for traders and non-traders (IMF, 2023).
- Progress in implementation has been hindered by lengthy court proceedings (EC, 2024a), adversely impacting reduction of distressed debt and likely private investment and productivity.

### Judicial reform launched in 2024 (objectives and components)
- Reform leveraging EU funding initiated in 2024 prioritizes:
  - Court reorganization.
  - Digitalization and upgrades in information systems and video conferencing.
  - Training and recruitment of additional judges and judicial clerks.
  - Shifting some tasks away from judges to decongest courts (e.g., allowing lawyers to perform several types of non-contentious cases).
- Implementation of a new judicial map in civil and criminal justice is underway to balance case distribution among first instance judges and speed up administration of justice (EC, 2024c).
- Main target: bring the length of court proceedings (disposition time) to the average EU level by 2027.

### Court system structure and institutional features
- Civil courts (starting from 2024) comprise:
  - 57 courts of first instance;
  - 19 courts of appeal;
  - the Court of Cassation (Supreme Court of Areios Pagos).
- Specialization:
  - Limited specialization in civil courts; three first instance courts (Athens, Piraeus and Thessaloniki) have established specialized benches in some civil areas.
  - Judges must rotate every four years, preventing permanent specialization in insolvency or commercial matters.
  - Insolvency trainings are held once or twice a year; currently 29 judges have a specialized role related to insolvency.
- Management and data:
  - No central management of the court system; courts operate as individual entities with fragmented, court-specific data systems.
  - Recent efforts to improve management at first instance court level are welcome.
- Insolvency professionals:
  - As of January 2025, there are 192 registered insolvency professionals.
  - Insolvency professionals are licensed after exams organized by the Insolvency Management Committee (established in 2021) and supervised by the Ministry of Economy and Finance.
  - Disciplinary sanctions range from written reprimand, financial fine, temporary ban on duties, temporary withdrawal of license, to removal from the registry.

### Judicial efficiency: measures and performance
- Key efficiency measures: clearance rate and disposition time (estimated length of court proceedings) (EC, 2024b).
- Clearance rate:
  - For civil and commercial cases in Greece, the clearance rate has been well below 100 percent for both 1st and 2nd instance courts for almost the whole reporting period.
  - Performance dropped below 60 percent during the Global Financial Crisis (GFC) and the European Debt Crisis (EDC), creating a massive backlog.
- Disposition time:
  - Combining 1st and 2nd instance courts, it takes almost 1,200 days in Greece to reach a decision for civil and commercial cases.
  - EU average disposition time is 446 days.
  - Greece records the longest proceedings for 1st instance courts in the EU.

### Drivers of judicial efficiency — conceptual framework
- Demand-supply approach:
  - Demand for justice: measured by incoming cases; driven by business cycle fluctuations, quantity and quality of law, costs and rules, alternative dispute resolution mechanisms, and national social norms.
  - Supply of justice: measured by cases resolved; driven by financial and human resources, efficiency of judicial production processes, incentive structures of service providers, and governance of courts.
  - Market for justice clears through adjustments in length of court proceedings; inability to satisfy demand generates congestion and delays.

### Demand-side drivers (evidence and implications)
- Shock-driven demand:
  - Massive increase in demand during the GFC and EDC generated congestion; incoming cases have recently slowed and are below the EU average, but crisis shocks were exceptional for Greece.
  - Crisis period: cumulative loss of around 30 percent of GDP over a 5-year period, triggering widespread business and personal insolvencies; corporate defaults spiked in 2011 and started to decline only in 2014, with unemployment elevated until 2020.
- Court fees and legal aid:
  - Court fees to start judicial proceedings are generally on the low side compared to other EU countries.
  - Beneficiary of legal aid can be a person whose capital annual income does not exceed the two-thirds of the lowest annual salaries, with courts retaining discretion to determine the amount of legal aid (EC, 2024b).
- Alternative dispute resolution (ADR):
  - ADR availability was relatively low during the crisis period; Greece adopted a modern system since 2019, contributing to a declining litigation rate.

### Supply-side drivers (evidence and implications)
- Resolved cases:
  - Supply of judiciary services (resolved cases) has generally declined with Greece below the EU average and not responding adequately to elevated demand.
- Human and financial resources:
  - Greece has a very high number of judges per capita compared to the EU average and experienced one of the highest increases in the EU between 2012 and 2022, exceeding 60 percent.
  - Cross-country evidence suggests no statistically significant relationship between more judges and higher resolution rates; an increase in judges can coincide with decreasing productivity per judge.
  - Support from non-judge staff has been very limited, overburdening judges with administrative tasks and reducing efficiency.
  - Judges’ salaries relevance is ambiguous; poorly designed reward schemes could demotivate top performers.
- Digitalization:
  - Greece lags behind EU peers in digital-ready procedural rules, tools and infrastructure for distance communication, and secure electronic communication between courts and legal professionals.
  - Digital tools can streamline processes, ensure fair workload allocation, and reduce pre-trial and trial duration.
- Incentive structure and monitoring:
  - Monitoring covers backlogs, incoming, resolved, and pending cases, but typically omits active monitoring of disposition time, clearance rate, and appeal rate.
  - Evidence suggests improved accountability and incentive structures can boost productivity and case closures.

### Impact on debt enforcement and insolvency proceedings
- Debt enforcement:
  - Shortcomings in the court system and rigidities in the Code of Civil Procedure can lead to several years before a creditor obtains a court order; debtors have multiple avenues to challenge and delay proceedings.
  - Delays often occur for hearings of legal challenges against enforcement proceedings/auctions, with hearings generally set for distant dates.
  - Measures underway include restricting possibilities for adjourning trials under the newly revised Code of Civil Procedure.
  - Newly revised code (to be adopted in June 2025) aims to create simpler, more effective rules that limit postponements.
  - Staffing of additional judges (30 previously magistrate judges) on debt enforcement proceedings to clear backlog is underway.
- Corporate insolvency:
  - Lack of procedural efficiency and strong judicial infrastructure causes distant hearing dates for insolvency petitions; delays between submission of an insolvency petition and opening of a case are particularly detrimental for saving a business.
  - Heavy bureaucracy and slow pace dissuade businesses from using the insolvency framework.
  - Corporate insolvencies require more complex financial and legal expertise than personal bankruptcy.
  - Bankruptcy procedure has been impacted to a lesser extent, though delays can occur for hearings of legal challenges against auctions or creditor classification lists.

### Impact on economic performance
- Timely dispute resolution is pivotal to:
  - Reduce risk of opportunistic lawsuits.
  - Prevent undue costs that hurt firm competitiveness and may force small firms to exit.
  - Provide legal certainty, enabling firms to make better investment choices.
- Judicial delays have likely contributed to slower reduction of distressed debt, depressed private investment, and lower productivity.

*Prepared by Katherine Dai, Mariusz Jarmuzek, Ritong Qu, and Amira Rasekh.*

### 22. There are various transmission channels through which judicial system efficiency

### 22. There are various transmission channels through which judicial system efficiency

### Transmission channels linking judicial efficiency to economic performance
- Key channels: investment, productivity, and credit markets (Palumbo and others (2013); Bosio (2023)).
- Contract enforcement affects investment by reducing business and policy uncertainty and increasing expected returns (Dixit and Pindyck, 1994; Aboal and others, 2014).
- Productivity gains arise via business dynamism, firm size, and innovation (Cooley and others, 2004; Chemin, 2020).
- Credit markets are affected through access to finance for corporates and households (Jappelli and others, 2005).
- Ponticelli and Alencar (2016) provide a theoretical framework combining interactions between access to bank loans, investment, and productivity.
- Relevance to Greece: smaller firm sizes, low private sector investments, low firm exit rates, and deteriorating allocation efficiencies since the EDC (Qu, 2025).

### International evidence supporting the channels
- Investment channel:
  - Pang and Wu (2009): better contract enforcement associated with more efficient capital allocation in contract-intensive industries.
  - Lorenzani and Lucidi (2014): higher judicial efficiency leads to higher foreign direct investment.
- Productivity channel:
  - Chemin (2020): judicial efficiency significantly improves firm productivity in sectors requiring relationship-specific investments.
  - Lorenzani and Lucidi (2014): role of business dynamism (firm entry and exit).
  - Beck and others (2006): relevance of firm size.
- Credit market channel:
  - Qian and Strahan (2007) and Bae and Goyal (2009): better contract enforcement induces credit suppliers to increase loan size, lengthen loan maturity, and reduce loan spreads.
- Kapopoulos and Rizos (2024): support for the relevance of judicial efficiency for real growth per capita.

### Country examples of reforms and outcomes
- Portugal (reforms 2011–2013; building on 2006 jurisdictional change):
  - Reforms: new code of civil procedure, jurisdictional organization act creating court clusters, special task forces to reduce pending cases, tighter supervision instruments, expanded alternative dispute resolution (mediation, tax arbitration) (Lorenzani and Lucidi, 2014; Pereira and Wemans, 2018 and 2022).
  - Outcomes: disposition time in first instance courts declined from around 400 days in 2013 to around 200 days in 2019; significant improvements in clearance rate.
  - Firm-level evidence using Chemin (2020) framework suggests positive impact of the judicial reforms on investment and productivity in Portugal (Appendix I).
- Slovakia (reforms 2012–2016):
  - Reforms: new court dealing with enforcement to reduce caseload at district and regional courts; adoption of two new codes for civil law and procedure (ENCJ, 2016).
  - Outcomes: disposition time in first instance courts declined from around 500 days in 2014 to around 200 days in 2019; clearance rate increased from around 80 percent in 2013 to around 120 percent in 2019.
  - Firm-level evidence using the methodology by Chemin (2020) suggests positive impact of the judicial reforms on investment and productivity in Slovakia (Appendix I).

### Policy simulations for Greece
- Method: pooling firm-level data for Portugal and Slovakia and applying Chemin (2020) difference-in-difference framework; simulations assume average impact of reforms based on Portugal and Slovakia (Appendix I).
- Findings:
  - Simulated impact for Greece suggests gains in investment and productivity, with a higher simulated impact for investment than for productivity.
  - Results are presented for illustrative purposes and are surrounded by a wide margin of error.
  - Simulations suggest a meaningful growth dividend payout associated with judicial system efficiency reforms.
- Data and samples used for simulations:
  - Orbis dataset, annual, covering period from 2010 to 2020, truncated up to year 2019 to filter out Covid19 impact.
  - Firms available both in the year before the reform (2012 for Portugal, 2013 for Slovakia) and in year 2019 used for estimates.
  - Data cleaning results: about 62 thousand firms for Portugal, 10 thousand for Slovakia, and 5 thousand for Greece.

### Conclusions and policy implications
- Current assessment:
  - Greece’s judicial system efficiency is one of the lowest in the EU.
  - New insolvency framework helped reduce distressed debt, but implementation is hindered by an inefficient judicial system, adversely impacting economic performance.
- Drivers of weakness:
  - Crisis period amplified earlier weaknesses via surge in demand for judiciary services and congestion; resulted in significant business and personal insolvencies.
  - Court fees tend to be low; legal aid is left to courts’ discretion.
  - Alternative dispute resolutions have only recently become an important supporting factor.
  - Supply-side deterioration: inadequate deployment of human and financial resources and a low level of digitalization since the crisis period.
  - Need for improvements in incentive structure of judges and their specialization.
- Policy recommendations (multi-pronged approach):
  - Quantitative priorities:
    - Reduce case processing times, court backlogs; address staffing levels.
    - Continue court reorganization, digitalization, training, and shifting away some tasks from judges (ongoing reform leveraging EU funding).
    - Establish quantitative indicators to monitor progress that are specific and allow aggregation/disaggregation at different levels.
  - Qualitative priorities:
    - Specialization of judges and professionalization of insolvency representatives.
  - Consider establishing commercial courts to enable permanent specialization in commercial matters:
    - Rationale: complexity and urgency of insolvency cases, high economic stakes, and judicial discretion call for specialized judges with qualifications and expertise (company law, commercial contracts, intellectual property).
    - Additional needs: enhance support staffing and ensure adequate budget (upcoming appointment of 300 new judicial clerks noted as a positive step).
  - Improve judicial statistics and case management:
    - Better qualitative and quantitative statistics to support budgetary and staffing decisions.
    - Data systems should cover the entire system to enable resource assignment and reallocation across courts.
    - Centralized and individual court-level management based on comprehensive statistics to rebalance workload timely.
  - Procedural efficiency:
    - Revise and simplify the Code of Civil Procedure to limit room for postponement and delaying tactics.
  - Insolvency professionals:
    - Further development, adequate regulation and continued supervision of insolvency professionals to strengthen institutional capacity.
    - In an efficient system, insolvency professionals make many decisions with legal effect, reducing court workload and letting judges focus on complex issues.
- Urgency:
  - Bold and swift policy actions are indispensable to address legacy issues and create conditions for higher growth and greater economic resilience.
  - Ongoing reforms have correctly identified key challenges and priorities, but require swift execution to meet the ambitious disposition time target and generate a meaningful growth dividend payout in the foreseeable future.

### Appendix I. Technical aspects (data, methodology, and regression results)
- Data:
  - Source: Orbis dataset.
  - Coverage: annual, 2010 to 2020; truncated to 2019 to avoid Covid19 disruption.
  - Sectors: confined to market economy sectors; excludes education, human health and social work activities, and public administration and defense (NACE Rev. 2 definitions).
  - Firm samples for reform impact estimates: firms present in year before reform (2012 for Portugal, 2013 for Slovakia) and in 2019.
  - Final sample sizes after cleaning: about 62 thousand firms (Portugal), 10 thousand firms (Slovakia), 5 thousand firms (Greece).
- Methodology:
  - Standard ex post evaluation: difference-in-difference technique following Chemin (2020).
  - Identification: court-sensitive sectors identified as more capital intensive — manufacturing, financial and insurance activities, real estate activities and construction — with less court-reliant sectors serving as control group.
  - Regression specifications for log fixed assets and log MRPL growth include firm fixed effects, time fixed effects, lagged firm features (log fixed assets, log marginal revenue productivity of capital and labor), and a reform dummy interacting with court-sensitive indicator. Coefficient β measures impact of judicial reforms.
- Regression results (selected coefficients; standard errors in brackets):
  - Table 1. Impact of Judicial Reforms on log Labor Productivity Growth
    - Portugal:
      - ln Fixed assets: -0.054 (0.001)
      - ln MRPK: -0.074 (0.001)
      - I_{i∈court sensitive}: 0.077 (0.004)
    - Slovakia:
      - ln Fixed assets: -0.047 (0.003)
      - ln MRPK: -0.057 (0.004)
      - I_{i∈court sensitive}: 0.083 (0.004)
    - Additional reported numbers in table: 0.021 (0.011) and 0.023 (0.011) (as presented in source).
  - Table 2. Impact of Judicial Reforms on log Fixed Assets Growth
    - Portugal:
      - ln Fixed assets: -0.073 (0.002)
      - ln MRPK: 0.159 (0.002)
      - I_{i∈court sensitive}: 0.141 (0.007)
    - Slovakia:
      - ln Fixed assets: -0.127 (0.007)
      - ln MRPK: 0.087 (0.008)
      - I_{i∈court sensitive}: 0.159 0.021 0.073 (0.007) (0.021) (0.020) — presented verbatim as in source.
- Policy simulation refinement:
  - Heterogeneous impacts analyzed via interaction of reform dummy, court-sensitive indicator, and firm features at NACE Rev. 2 level 2 industries.
  - Conditional firm features include industry fixed coefficients, firm’s log fixed assets, log marginal revenue productivity of capital and labor relative to industry average.
  - Simulation results shown in Figure 15 of the main text (Orbis and IMF staff estimates).

*Source: IMF staff summary of "There are various transmission channels through which judicial system efficiency" (sipea2025057).*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025057.pdf_