(2)The 2020 country report for Greece was published on 26 February 2020. It assessed Greece’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019, the follow-up given to the recommendations adopted in previous years and Greece's progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Greece is experiencing excessive macroeconomic imbalances. In particular, the imbalances identified relate to the high public debt, the high non-performing loans on banks’ balance sheets and the external sector, in a context of still low potential growth and high unemployment.

(1)On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Greece as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

(3)On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs, their incomes and companies’ business. It has delivered a major economic shock that is already having serious repercussions in the European Union. On 13 March 2020, the Commission adopted a Communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

(4)Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

(5)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause of the Stability and Growth Pact. The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn. In its Communication, the Commission shared with the Council its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the current conditions permit activation of the clause. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

(6)Continued action is required to limit and control the spread of the pandemic, strengthen the resilience of the national health systems, mitigate the socio-economic consequences through supportive measures for business and households and to ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to get back to a normal functioning of our societies and economies and to sustainable growth, integrating inter alia the green transition and the digital transformation, and drawing all lessons from the crisis.

(7)The COVID-19 crisis has highlighted the flexibility that the single market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the single market from functioning normally must be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector, which include in particular improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies. They are key elements for developing broader crisis preparedness plans.

(8)The Union legislator has already amended the relevant legislative frameworks to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash flow pressures, Member States can also benefit from a 100% co-financing rate from the Union budget in the 2020-2021 accounting year. Greece is encouraged to make full use of those possibilities to help the individuals and sectors most affected by the challenges.

(9)The socio-economic consequences of the pandemic are likely to be unevenly distributed across Greek regions due to different specialisation patterns, in particular in regions markedly relying on tourism and more generally on face-to-face business to consumers. This entails a substantial risk of widening regional and territorial disparities within Greece, aggravating the already observed trend of widening disparities between the capital city and notably the insular and mountainous regions that further intensified during the financial crisis years. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

(10)On 30 April 2020, Greece submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

(11)Greece is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

(12)In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 1,5% of GDP in 2019 to a deficit of 4,7% of GDP in 2020. The deficit is projected to decline to 0,2% of GDP in 2021. After decreasing to 176,6% of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 188,8% in 2020 according to the 2020 Stability Programme. There are country-specific risks underlying the budgetary projections, namely the pending litigation and public service obligations. The macroeconomic and fiscal outlook is affected by high uncertainty due to the COVID-19 pandemic.

(13)In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Greece has adopted budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 5,4% of GDP. Those measures include a temporary economic support to wage earners, self-employed, individual businesses and certain liberal professions affected by the pandemic, payment of repayable advances to companies with decreased turnover, payment of social security contributions for employees whose labour contracts have been suspended, deferral of taxes and social security contributions including tax instalment schemes for at least three months for all companies, self-employed and wage earners affected by the Coronavirus pandemic, an interest subsidy on loans to small and medium-sized enterprises and higher health care expenditure. In addition, Greece has announced measures that, while not having a direct budgetary impact, will contribute to support liquidity to businesses. Those measures include provision of a cash collateral to support bank lending, distributed through the Hellenic Development Bank. However, the Commission 2020 spring forecast considers all tax deferrals also as liquidity measures without a negative budgetary impact in 2020. Overall, the measures taken by Greece are in line with the guidelines set out in the Commission Communication on a coordinated economic response to the COVID-19 outbreak. The full implementation of those measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

(14)Based on the Commission 2020 spring forecast under unchanged policies, Greece’s general government deficit is forecast at 6,4% of GDP in 2020 and 2,1% in 2021. The general government debt ratio is projected to reach 196,4% of GDP in 2020 and 182,6% in 2021.

(15)On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty due to Greece’s non-compliance with the debt rule in 2019 and the planned breach of the 3% of GDP deficit threshold in 2020. Overall, the analysis suggests that the debt criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is complied with, while the deficit criterion is not fulfilled.

(16)Regarding the COVID-19 pandemic, Greece’s timely response and enforcement of restrictions seems to be an efficient course of action, judging from the rather low number of confirmed infections so far. However, the economic impact of the COVID-19 crisis is expected to be severe, as compared with other Member States Greece relies heavily on its tourism and transport sectors. In the tourism sector, Greece could lose a large portion of receipts compared to 2019. Tourism is the most important service export of the Greek economy and accounted for 45% of service exports. Furthermore, the shipping sector, which accounts for 40% of service exports, is also expected to be affected by a drop in demand as global trade slows down due to the pandemic. Because of confinement measures, lower disposable incomes, and increased unemployment, domestic demand is expected to contract significantly.

(17)Faced with the COVID-19 outbreak, Greece activated its national pandemic plan and rapidly put in place a set of unprecedented measures, including a strict quarantine and social distancing especially for those suspected of having had any contact with people carrying the virus. The authorities adopted a broad range of measures to mitigate the economic and social impact worth up to 10,5% of GDP in 2020. The measures entail 5% GDP of fiscal measures with a budgetary impact of 3,7% of GDP and an additional 1,9% GDP of temporary tax deferrals and cash collateral for commercial banks, which could provide up to 3,6% of GDP of additional fresh loans. The public health-care sector has received a one-off injection of EUR 273 million that will cover, for example, the hiring of 2,000 additional healthcare sector staff, the purchase of health-related equipment and supplies, and reinforced screening.

(18)To effectively deal with the COVID-19 pandemic, the healthcare system’s capacity, accessibility and resilience needs to be improved. Direct payments for private health services, and informal payments - which are closely linked to inefficient hospital management - are still high. This leads to inequalities. Access is still an issue, and self-reported unmet healthcare needs are among the highest in the EU, with large differences by income groups and employment status. Co-payments have not been sufficiently means-tested to protect vulnerable groups. This is exacerbated by the oversupply and hence the overconsumption of often excessively expensive drugs. To tackle this, Greece is implementing an ambitious primary care reform to provide access to essential quality services in the short term, and a comprehensive gatekeeping-based system for the whole population in the longer term. Early indications suggest that this is proving to be key to protect citizens and limit the spread of the virus, ensuring the full capacity of the system can be employed to treat patients according to their needs. A sustainable solution for health spending is yet to be found, as fiscal sustainability is mostly ensured by a clawback system increasingly under pressure because of insufficient structural measures. Despite some encouraging actions taken recently, centralised procurement is still weak. In 2018, public spending on health was below the EU average, even including the value of the clawback, adding about 1% of GDP. Increased efficiency along with additional financial resources are needed to improve effectiveness, accessibility and overall resilience of the health system.

(19)Measures are needed to mitigate the impact of the COVID-19 crisis on workers and businesses. According to the Commission forecast, unemployment is expected to rise to 19,9% in 2020 and recover to 16,8% in 2021. Greece has already introduced a temporary scheme alleviating the cost of labour for businesses whose operation has been suspended or severely affected, while protecting employment contracts and providing income support to the affected workers. However, implementation of a comprehensive short-time work scheme would provide a more sustainable and flexible solution and authorities have taken steps in that direction. Such a scheme would allow businesses to apply a reduction of working hours in a modulated manner, corresponding to the degree in which their activities have been restricted, while preserving operation of the industries, and preventing temporary layoffs from becoming structural. Expanding flexible working arrangements, such as teleworking, which have been so far limited in Greece compared to other Member States, would also help preserve economic activity and jobs during confinement and social distancing.

(20)The COVID-19 crisis risks exacerbating once again the social situation of large parts of the population and increasing income inequality. Before the pandemic outbreak, the share of the Greek population at risk of poverty or social exclusion was still one of the highest in the EU, with children and working-age people at greater risk than older people. In-work poverty, access to affordable housing and energy poverty have also been significant concerns. To mitigate the impact of the crisis, the provision of adequate income replacement to all affected workers and the self-employed, including those facing gaps in access to social protection, will be crucial. It will also be important to support the most vulnerable people, including those inactive and undeclared workers, by strengthening social safety nets. With more people likely to fall back on the basic safety nets, it will be important to improve the adequacy of the minimum income support. Comprehensive access to social services is necessary for the most deprived and vulnerable groups, including people with disabilities, refugees and asylum seekers. In addition, long-term care services are not sufficiently developed. Greece should also further promote access to affordable housing, especially for households at risk of poverty, for example by introducing a scheme to assist vulnerable homeowners with a mortgage.

(21)The COVID-19 crisis has halted the positive labour market developments observed in the past years, and unemployment is once again set to rise. To support a robust recovery of employment in the post-crisis period, Greece needs to complete reforms to increase the effectiveness of policies to get people into work, in particular training programmes. Increasing the public employment service’s capacity to provide continuous and individualised support to jobseekers will be key. Greece needs to pay particular attention to young people and women, who are more affected by a lack of employment opportunities. There is also scope for improving social dialogue, by supporting social partners’ active and meaningful involvement in policy-making, including in the design and implementation of measures to address the impacts of the COVID-19 crisis. The government should focus its efforts on improving basic skills for all. Addressing poor educational outcomes, upgrading vocational education and training, and scaling up adult learning will be essential. To reduce skills mismatches and speed up labour market recovery, it is vital to increase quality and labour market relevance of education and training.

(22)Providing sustainable liquidity support, including working capital, to affected businesses – particularly small- and medium-sized enterprises (SMEs) and micro firms, notably through loans and guarantees, has rightly been a government priority since the start of its response to the COVID-19 outbreak. Under the State aid temporary framework, Greece has introduced three schemes to increase capital liquidity of businesses, namely: (i) scheme covering repayable advance payments; (ii) a cash collateral scheme to cover bank loans; and (iii) an interest subsidy scheme for current loans. It is important that in this process, the banking sector fulfils - with the support of the authorities –its intermediary role to maintain the necessary flow of credit, on the basis of appropriate credit risk assessment and prudent credit standards, while accurately reporting any deterioration in asset quality. Supporting the banking sector’s capacity to offer sustainable debt restructuring solutions to viable borrowers affected by the crisis will be crucial to safeguard asset quality while bolstering economic recovery.