# EUR-Lex - 52012PC0116 - EN

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# 52012PC0116

**Recommendation for a COUNCIL DECISION amending Decision 2011/734/EU addressed to Greece with a view to reinforcing and deepening fiscal surveillance and giving notice to Greece to take measures for the deficit reduction judged necessary to remedy the situation of excessive deficit /* COM/2012/0116 final - 2012/ () */**

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EXPLANATORY MEMORANDUM

Measures concerning the coordination and
surveillance of the budgetary discipline of Greece and the setting out economic
policy guidelines for Greece are defined in Council Decision 2011/734/EU on the basis of Articles 126(9) and 136
TFEU.

Compliance with the decision is relevant
not only in the context of the excessive deficit procedure, but also in the
context of the financing to Greece by the euro-area Member States, through the
EFSF.

The government deficit (ESA95 basis)
ceiling for 2011 established by the Council Decision was missed. For 2012, the
government adopted a budget aimed at sticking to the target set in the Council
decision and has adopted measures which would ensure a further reduction in the
deficit in subsequent years.

Economic activity in 2011-2014 is currently
estimated and projected to be, much weaker than previously exepcted when
Council Decisions 2010/320/EU and 2011/734/EU were adopted. In February 2012,
the Greek government announced measures aimed at reducing the primary deficit
in 2012, including the adoption of a supplementary budget. In March 2012,
Greece executed a debt exchange operation which substantially reduced interest
expenditure in 2012 and in next years, and contributed to the sustainability of
government debt.

Given this, there is a need to revise the
annual targets while keeping the deadline for the correction of the excessive
deficit. Targets expressed in terms of the primary surplus as a percent of GDP
of -1.0 in 2012, +1.8 in 2013 and +4.5 in 2014, appear appropriate given the
deadline for the correction of the excessive deficit by 2014, and the need to improve
the debt sustainabilty.

There have been intensive discussions among
Greece and the Commission services, the ECB and the IMF staff, on the update of
the policy conditionality in the Memorandum of Understanding of the economic
adjustment programme of Greece. These discussions considered not only the
fiscal consolidation measures, but also the need to enhance the growth-friendly
nature of these measures and to minimise any social impact.

The Commission has adopted a Recommendation
for a Council Decision amending decision 2011/734/EU and has transmitted it to
the Council.

Recommendation for a

COUNCIL DECISION

amending Decision 2011/734/EU addressed to
Greece with a view to reinforcing and deepening fiscal surveillance and giving
notice to Greece to take measures for the deficit reduction judged necessary to
remedy the situation of excessive deficit

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union (TFEU), and in particular Article 126(9) and
Article 136 thereof,

Having regard to the recommendation from
the Commission,

Whereas:

(1)       Article 136(1)(a) TFEU
foresees the possibility of adopting measures specific to the Member States
whose currency is the euro with a view to strengthening the coordination and
surveillance of their budgetary discipline.

(2)       Article 126 TFEU
establishes that Member States are to avoid excessive government deficits and
sets out the excessive deficit procedure to that effect. The Stability and
Growth Pact, which in its corrective arm implements the excessive deficit
procedure, provides the framework supporting government policies for a prompt
return to sound budgetary positions taking account of the economic situation.

(3)       On 27 April 2009, the
Council decided, in accordance with Article 104(6) of the Treaty establishing
the European Community (TEC), that an excessive deficit existed in Greece.

(4)       On
10 May 2010, the Council adopted Decision 2010/320/EU[1] addressed to Greece under Article 126(9) and
Article 136 TFEU with a view to reinforcing and deepening the fiscal
surveillance and giving notice to take measures for the deficit reduction
judged necessary to remedy the situation of excessive deficit at the latest by
the deadline of 2014. The Council established 2014 as the deadline for
correcting the situation of excessive deficit, and annual targets for the
government deicit.

(5)       Council Decision
2010/320/EU was substantially amended several times. Since further amendments were
to be made, it was recast, on 12 July 2011, by Council Decision 2011/734/EU[2] in the interests of clarity.

(6)       Economic activity in
2011-2014 is currently estimated and projected to be, much weaker than previously
exepcted when Council Decisions 2010/320/EU and 2011/734/EU
were adopted. Economic activity is estimated to have contracted in 2011 by 6.8
percent. Currently, the Commission forecasts the real Greek GDP to contract by 4.7
percent in 2012, to stagnate in 2013, before resuming growing by 2.5 percent in
2014. In nominal terms, GDP contracted by 5.2 percent in 2011, and is expected
to contract by 5.4 and 0.4 percent in 2012 and 2013, respectively, before
expanding by 2.5 percent in 2014.

(7)       In February 2012, the
Greek government announced measures aimed at reducing the primary deficit in
2012, including the adoption of a supplementary budget. Extensive discussions
on these measures have taken place between the Hellenic authorities and the
Commission services. These
discussions considered not only the fiscal consolidation measures, but also the
need to enhance the growth-friendly nature of these measures and to minimise
any social impact.

(8)       In
March 2012, Greece launched and executed a debt exchange
operation which substantially reduces the debt level and interest expenditure
in 2012 and in the next years, and contributes to the sustainability of
government debt.

(9)       In the light of the above
considerations, it appears appropriate to amend Decision 2011/734/EU in a
number of respects, including the fiscal adjustment path, while keeping
unchanged the deadline for the correction of the excessive deficit,

HAS ADOPTED THIS DECISION:

Article 1

Decision
2011/734/EU is hereby amended as follows:

1.         In Article
1, paragraphs (2) and (3) are replaced by:

'(2)       The
adjustment path towards the correction of the excessive deficit shall aim to
achieve a general government primary deficit (deficit excluding interest
expenditure) not exceeding EUR 2 037 million (1.0% of GDP) in 2012, and
primary surpluses of at least EUR 3 652 million (1.8% of GDP) in 2013 and
EUR 9 352 million (4.5% of GDP) in 2014. Following the debt exchange,
these targets for the primary deficit/surplus are consistent with an overall
deficit of EUR 14 811 million (7.3% of GDP) in 2012, EUR 9 462
million (4.7% of GDP) in 2013 and EUR 4 499 million (2.2% of GDP) in 2014.
To this aim, an improvement in the structural balance of at least 10% of GDP
will have been achieved over the period 2009-2014. Proceeds from the
privatisation of assets (financial and non-financial assets), as well as the
amounts paid to Greece by the euro-area Member States from future income
accruing to their national central banks on their Greek government bond
holdings shall not reduce the required fiscal consolidation effort and shall not
be counted in the assessment of these targets.

(3)        The adjustment path
referred to in paragraph 2 is consistent with an annual change in the general
government consolidated debt of EUR -26 954 million in 2012, of EUR 6 775
million in 2013 and of EUR 1 492 million in 2014.'

2.         In Article
2, the following paragraph is inserted after paragraph 7:

'7a.       Greece
shall adopt the following measures without delay

(a)        a
reduction in pharmaceutical expenditure by at least EUR 1 076 million, in 2012;

(b)        a
reduction in overtime pay for doctors in hospitals by at least EUR 50 million
in 2012;

(c)        a
reduction in the procurement of military material by EUR 300 million (cash
and deliveries) in 2012;

(d)        a reduction
by 10 percent in the remuneration of elected and related staff at local level in
2012 and reduction in the number of deputy mayors and associated staff in 2013
with the aim of saving at least EUR 9 million in 2012 and 28 million in 2013
onwards;

(e)        a
reduction in the central government's operational expenditure, and
election-related spending, by at least EUR 370 million (compared to the 2012 budget), of which at least EUR 100
million in military-related operational expenditure, and at least EUR 70
million in electoral spending;

(f)         a reduction in operational expenditure by local
government with the aim of saving at least EUR 50 million in 2012;

(g)        cuts
in subsidies to residents in remote areas, and cuts in grants to several
entities supervised by the ministries, with the aim of reducing expenditure in
2012 by at least EUR 190 million;

(h)        a
reduction in the public investment budget (PIB) by EUR 400 million in 2012. This
reduction in the PIB budget will not have any impact on projects that are co-financed
by structural funds (including TEN-T projects);

(i)         changes
in supplementary pension funds and pension funds with high average pensions or
which receive high subsidies from the budget, and cuts in other high pensions,
with the aim of saving at least EUR 450 million in 2012 (net after taking into
account the impact on taxes and social contributions);

(j)         cuts
in family allowances for high-income households, with the aim of saving EUR 43
million in 2012;

(k)        ministerial
decisions to complete the full implementation of the new wage grid in all the
pertinent entities, and legislation on the modalities for the recovery of wages
paid in excess from November 2011 afterwards.

(l)         the
amendement of Articles 3 and 21 of
Law 4038/2012 so that the conditions to extend the instalment plans for overdue
taxes and social contributions are revised: instalment plans will only apply to
existing overdue amounts below EUR 10 000 for individuals and EUR 75
000 for corporations. Tax payers applying for an extended instalment plan
should disclose all their financial statements to the tax authorities.

(m)       a framework law, with an in-depth revision of the
functioning of secondary/supplementary public pension funds aimed at
stabilising pension expenditure, guaranteeing the budgetary neutrality of these
schemes, and ensuring medium- and long-term sustainability of the system.'

3.         In Article
2, paragraph 8 is amended as follows:

(a)        point
(a) and (b) are replaced by the following:

'(a)       a
reform of the secondary/supplementary pension schemes designed in consultation
with the European Commission, ECB and IMF, and validated by the EU Economic
Policy Committee as regards its estimated impact on long-term sustainability.
The parameters of the new secondary notional defined-contribution system ensure
long-term actuarial balance, as assessed by the National Actuarial Authority.

(b)        an
adjustment of pharmacies' profit margins and the introduction of regressive profit
margins with the aim of reducing the overall profit margin to below 15 percent.'

(b)        the
following points are added:

'(c)       the
finalisation of the on-going functional review on social programmes;

(d)        decisions
to provide for the Implementing Regulation of the SPPA (Single Public
Procurement Authority); the SPPA starts its operations to fulfil its mandate,
objectives, competences and powers as defined in the law on the SPPA and the
Action Plan agreed with the European Commission in November 2010; appointment
of the members of the SPPA;

(e)        the
identification of the schemes for which lump sums paid on retirement are out of
line with contributions paid, and adjustment of the payments.

(f)         a
reduction of the pharmaceutical wholesalers' profit margins to converge to 5
percent upper limit.

(g)        the
necessary tendering procedures to implement a comprehensive and uniform health
care information system (e-health system).

(h)        the
appointment of all legal, technical and financial advisors for the
privatisations planned for 2012 and 2013.'

4.         In Article
2, paragraph 9, point (a) is replaced by:

'(a)       the
finalisation of the review of public spending programmes. This review shall
draw on external technical assistance and focus on pensions and social
transfers (in a manner that will preserve basic social protection), defence
spending without prejudice to the defence capability of the country and
restructuring of central and local administrations; a further rationalization
of pharmaceutical spending and operational spending of hospitals, and of welfare
cash benefits will also be specified;

(b)        the adoption of a tax reform simplifying the tax system, eliminating exemptions and preferential
regimes, including broadening bases, thus allowing a gradual reduction in tax
rates as revenue performance improves. This reform relates to the personal
income tax, corporate income tax and VAT, property taxes, as well as social
contributions, and will maintain the relative tax burden from indirect taxes;

(c)        the
revision of the legal values of real estate to better align them with market
prices;

(d)        the
discontinuation of payments in cash and cheque in tax offices which should be
replaced by bank transfers, so that staff time is freed-up to focus on more
value added work (audit, collection enforcement and taxpayer advice);

(e)        reduction
by 12 percent, on average in the 'special wages' of the public sector, to which
the new wage grid does not apply. This will apply from 1 July 2012 on and
deliver savings of at least EUR 205 million (net after taking into account the
impact on taxes and social contributions).'

5.         In
Article 2, the following paragraphs are added:

'(10)     Greece shall adopt the following measures by the end of
September 2012:

(a)        a
draft budget for 2013 in line with the primary surplus target established in
Article 1(2);

(b)        rules
and procedures for centralised purchasing/framework contracts for frequently
purchased supplies or services at central government level with the obligation
for ministries and central government bodies to source via these contracts and
optional use for regional entities.

(11)      Greece shall adopt
the following measures by the end of December 2012:

(a)        the
final adoption of the budget for 2013 in line with the primary surplus target
established in Article 1(2);

(b)        legislation
streamlining the procedure for submission and approval of supplementary budgets.'

Article 2

This Decision shall take effect on the day
of its notification.

Article 3

This Decision is addressed to the Hellenic
Republic.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 145, 11.6.2010, p. 6.

[2]               OJ L 296, 15.11.2011, p. 38.