EUROPEAN COMMISSION Brussels, 26.2.2020 SWD(2020) 507 final COMMISSION STAFF WORKING DOCUMENT Country Report Greece 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2020) 150 final}



Contents Executive summary 1.Economic situation and outlook 2.Progress with country specific recommendations 3.Summary of the main findings from the MIP in-depth review 4.Reform priorities 4.1.Public finances and taxation 4.2.Financial sector 4.3.Labour market, education and social policies 4.4. Competitiveness, reforms and investment 4.5.Environmental sustainability Annex a: Overview table Annex B: Commission debt sustainability analysis and fiscal risks Annex C: Standard tables Annex D: Investment Guidance on Just Transition Fund 2021-2027 for Greece Annex E: Progress towards the Sustainable Development Goals (SDGs) References LIST OF Tables

Table 1.1:Key economic indicators- Greece Table 2.1:Overall assessment of progress with 2019 CSRs Table 3.1:MIP assessment matrix — Greece 2020 Table 4.2.1:Financial stability indicators /1 Table 4.4.1:Share of high growth enterprises (1) Table C.1:Financial market indicators Table C.2:Headline Social Scoreboard indicators Table C.3:Labour market and education indicators Table C.4:Social inclusion and health indicators Table C.5:Product market performance and policy indicators Table C.6:Green growth Table E.1:Indicators measuring Greece’s progress towards the SDGs LIST OF Graphs Graph 1.1: Real GDP growth and components Graph 1.2: Current and Capital account balance and composition in % of GDP Graph 1.3: Activity, employment and unemployment rates, 2000-2018 Graph 4.1.1: State investment budget execution Graph 4.1.2: Debt Dynamic determinants (% GDP) Graph 4.3.1: Unemployment by duration (thousands of persons), 2008-2019

Graph 4.3.2: Net migration by citizenship, 2013-2017 Graph 4.3.3: Proportion of population at risk of poverty or social exclusion per age groups, 2005-2018 Graph 4.4.1: Investment as a percentage of GDP Graph 4.4.2: Trade openness and Greek goods and service exports by destination in % of GDP Graph 4.4.3: Competitiveness and dynamics of Greek export markets and Greece’s export market shares of goods. Graph 4.4.4: Share of high growth enterprises Graph 4.4.5: Economy-wide Product Market Regulation index (a lower value indicates lighter regulation) Graph 4.4.6: Ease of doing business ranking (a higher ranking denotes worse performance) Graph 4.4.7: Product Market Regulation index for retail and professional services (a lower value indicates lighter regulation) Graph 4.4.8: Real gross value added per worker (thousands € per employed) Graph 4.4.9: Distribution of public officials by age group Graph 4.4.10: Efficiency of the Greek justice system LIST OF Boxes Box 2.1: Commission Structural Reform Support Programme in Greece Box 4.3.1: Social Pillar Box 4.4.1: Export promotion and trade facilitation strategies Box 4.4.5: Investment challenges and reforms in Greece Box 4.4.6: EU funds and programmes to address structural challenges and to foster growth and competitiveness in Greece

Executive summary This is Greece’s second year of participating in the European Semester after successfully exiting the European Stability Mechanism support programme in August 2018. By reforming its economy and administration, Greece has ended 8 years of financial assistance and has been integrated into the European Semester for economic and social policy coordination. Greece is also subject to enhanced surveillance, which monitors, among other things, implementation of the post-programme policy commitments given at the Eurogroup of 22 June 2018 ( ). The recovery of the Greek economy continues. After returning to economic growth in 2017, the growth rate has stabilised at around 2%, largely backed by consumer spending and net exports. Export performance has been positive in recent years backed by cost competitiveness gains. Economic growth is expected to remain robust in 2020 with the support of a growth-friendly fiscal mix and other productivity-enhancing policies. Despite the economic upturn, large accumulated imbalances remain as a legacy of the crisis and will take some time to resolve. These imbalances concern the high public debt, the negative net international investment position, the high share of non-performing loans on banks’ balance sheets and the still high unemployment rate. While significant progress has been made in correcting flow imbalances (e.g. the government’s budget balance) amid the deep institutional and structural reforms of the last decade, stock imbalances (e.g. government debt) will take some time to resolve and will require sustained growth and implementation of reforms. Potential growth, which has suffered during the last decade, is set to improve, backed by investment-supporting policies. Persistently low investment and the continued emigration of skilled workers will continue to weigh on Greece's growth prospects for some time. Investment growth is expected to accelerate, thanks to structural reforms, including the ongoing shift towards a more investment-conducive tax framework. Greece’s international position is slightly deteriorating, amid a widening deficit in goods trade. Exports continue to grow, but more slowly than in previous years due to weakening foreign demand. Following strong growth in 2018, exports are projected to increase more slowly in 2019 and to slow down further in 2020 and 2021. Meanwhile, imports are set to pick up in response to the domestically-driven recovery, which will worsen the trade balance. Against this background and as wages and inflation start picking up, it is important that labour cost increases are matched with productivity gains so as not to hurt future competitiveness. Labour market improvements are reducing poverty and resulting in a fairer income distribution, but substantial social challenges remain. Unemployment — including long-term and youth unemployment — has continued to fall steadily, but at around 17%, it remains very high. In response to labour market developments and the strengthening of the social welfare system in recent years, poverty has been gradually decreasing. However, it is still among the highest in the EU, with children and working-age people particularly affected. Similarly, income inequality has declined although it remains higher than the EU average. Greece continues to consolidate its public finances. As Greece is currently subject to the preventive arm of the Stability and Growth Pact, it must comply with the agreed primary government balance target (i.e. excluding the interest payments on government balance) of 3.5% of GDP and with the medium-term budgetary objective from 2020 onwards. According to the Commission’s 2019 Autumn Forecast, the government’s overall budget balance is forecast to reach a surplus of 1.0% of GDP in both 2019 2020. Accordingly, its primary balance monitored under enhanced surveillance is projected to comply with the fiscal target of 3.5% of GDP in both years. Greece’s public debt-to-GDP ratio is expected to decline significantly from 181.2% in 2018 to 163.1% of GDP in 2021. The 2019 country report reviewed investment performance and identified priority areas for public and private sector investment in order to promote long-term growth and reduce regional disparities. These areas included: (i) sustainable transport and logistics, (ii) environmental protection, energy efficiency, renewable energy interconnection projects, (iii) digital technologies, (iv) research and development, (v) education, (vi) skills, (vii) employability, (viii) health, and (ix) the renewal of urban areas. Greece’s second country-specific recommendation therefore called on the authorities to use economic policy to support investment in these particular areas, while taking into account regional disparities and the need to ensure social inclusion. Greece has made some ( ) progress in addressing the 2019 country-specific recommendations. It has notably made some progress in addressing the first recommendation that reiterated the authorities’ previous commitment to continue and complete the reforms adopted under the European Stability Mechanism programme and to ensure that the objectives of these important reforms are safeguarded. Greece has taken the necessary action to meet all of its specific reform commitments for mid‑2019 and has progressed well in implementing its specific reform commitments for end-2019. The supplementary measures that are being implemented or announced by the government should allow for their completion in time for the sixth enhanced surveillance report scheduled for May 2020. This requires continuous engagement of the Greek authorities in particular in the financial sector, where significant further action is needed. Some progress has also been made in addressing the recommendation that the authorities use economic policy to support investment in the above-mentioned priority areas. Greece has improved on most indicators of the Social Scoreboard supporting the European Pillar of Social Rights, but on several fronts, challenges remain significant. On the positive side, the effectiveness of social benefits has increased, income inequality has declined and the overall social situation has improved in the wake of social welfare system reforms. On the other hand, despite steadily increasing in recent years, the employment rate remains among the lowest in the EU, and the particularly high gender gap is not narrowing. In response to the ongoing economic recovery, unemployment — including long-term unemployment — is also going down, although it is still among the highest in the EU. The high proportion of young people not in employment, education or training is a serious concern however. On progress in reaching the national Europe 2020 strategy targets, Greece is performing well on reducing the rate of early school leavers, increasing tertiary education attainment and reducing greenhouse emissions. It is on track to reach its targets on research and development, the use of renewable energy resources and energy efficiency. By contrast, the employment rate and poverty reduction fall short of the target. Greece has made substantial progress towards meeting its sustainable development goals over the past years. Significant progress has been observed as regards the environmental objectives (SDGs 7, 12, 13) with a very strong achievement in climate action goals. Also, Greece managed to bring income inequality below pre-crisis levels (SDG 10), thanks to deep social welfare reforms over the past years. On the other hand, the country is still struggling to generate sustainable employment for its population, notably the youth (SDG8) ( ). The main challenges facing Greece’s economy and society are the following: Productivity growth remains low and is coupled with high investment needs. Despite gradually recovering, the Greek economy still faces low investment, in particular by the private sector. Flagship privatisation projects and attracting foreign direct investment are crucial for increasing private investment. Other factors holding back productivity growth include: (i) low business investment, notably in research and development, (ii) a still high regulatory burden, (iii) inefficiencies in public administration and the justice system, iv) access to finance constraints, and (v) skills mismatches. The stock of non-performing loans is declining gradually but remains very large, requiring significant further action. The Greek banking sector has become more stable and resilient to shocks, as evidenced by the improvement in liquidity and the lifting of capital controls. Nonetheless, it remains burdened by a large stock of non-performing loans. The profitability outlook of banks is fragile, and their quality of capital is low and reliant on the state. The authorities are working on a range of initiatives to strengthen the non-performing loan resolution framework, to reduce debt levels more rapidly and to improve the effectiveness of the justice system. However, there is scope to accelerate implementation in certain areas. Regional disparities remain, mostly between the capital region and the rest of the country. Greece is a country with significant regional disparities, with half of the population and two thirds of its economy concentrated in the capital region. Given the sparse population and the morphology of the country, with its mountains and islands, ensuring connectivity with and opportunities for the peripheral regions requires substantial strategic planning. High-quality local planning is also needed to ensure an efficient and effective use of EU resources. The main findings of the in-depth review contained in this report and the related policy challenges are as follows: ·Macroeconomic imbalances are prevalent across sectors in Greece, but adjustment efforts are ongoing. Under the adjustment programme, the authorities adopted a wide range of measures to: (i) put public finances on a sound footing; (ii) restore the financial sector; (iii) improve the functioning of product and labour markets; and (iv) strengthen the social welfare system. Past and ongoing institutional and structural reforms require many years of sustained implementation for their impact to unfold fully. Further measures to tackle the root causes of the imbalances, such as low productivity, are crucial to set Greece on a path to strong and sustainable economic growth.

·The accumulated imbalances will require further reform efforts in the coming years. Given the high stock imbalances, positive developments in flow indicators in recent years have had only a limited effect in helping Greece reach the benchmarks under the macroeconomic imbalance procedure. Policies that support economic growth and labour market recovery are expected to create an environment where imbalances can be reduced at a faster rate, also with the help of further reforms and the implementation of existing reforms. ·The further normalisation of the financial sector is a key ingredient for sustained growth. Thanks to continued efforts to strengthen the legal framework, the Greek banking sector has become more stable and resilient to shocks. Although non-performing loans have been decreasing significantly from their end-2016 peak, they remain very high and weigh considerably on the banking system’s performance, while constraining its capacity to finance growth. The pace of implementation of ongoing initiatives to streamline the insolvency legislation and ensure appropriate enforcement of all collateral, coupled with the recently voted ‘Hercules’ asset protection scheme, will be critical for banks to further accelerate further their non-performing loan reduction strategies. The creation of a fully-fledged central credit registry could also further reduce information gaps between lenders and borrowers. ·Action is being taken to improve the functioning of the labour market. Greece is in the process of reforming the active labour market policy system and improving the capacity of the public employment service to assist jobseekers. The fight against undeclared work continues, with increased focus on preventing the abusive use of part-time work. Wage developments need to be monitored to avoid any adverse effects on competitiveness and employment. There is room to strengthen social dialogue, including by promoting a meaningful involvement of social partners in national policy-making. ·Despite an overall improvement, the country still faces problems with social exclusion. The risk of poverty or social exclusion is still one of the highest in the EU. In-work poverty is still above the EU average. Children and working-age people continue to be more at risk of poverty or social exclusion than older people, and the partial roll-back of past pension reforms risks decreasing again the relative share of social benefits spent on younger generations. Access to affordable housing and energy poverty are still significant concerns. The integration of third-country nationals has become more challenging with the increased inflow of asylum seekers. In particular, access to basic services, such as education, health and housing, for these groups remains an issue. ·Greece’s fiscal outlook has improved but its government debt remains high. Achieving a more balanced current account can help it enhance its international investment position. Although Greece’s government balance has improved and the country has exceeded its annual fiscal targets since 2016, government debt — at over 180% of GDP at the end of 2018 (one of the highest in the EU) — needs to be further reduced. In order to reduce the debt-to-GDP ratio, it is important that reforms agreed under the enhanced surveillance framework, in particular pension and healthcare reforms as well as improvements in the budgetary process, continue to be implemented. Reducing the debt-to-GDP ratio will also require sustained economic growth. Improving the deeply negative net international investment position will require further adjustments to the current account balance. Although business environment, public administration and justice reforms are under way, the policy agenda needs to be more ambitious. Since 2010, Greece has undertaken an extensive legislative reform to: (i) reduce barriers to competition; (ii) simplify administrative procedures for starting a business; and (iii) streamline the legal framework of regulated professions. Yet, Greece lags considerably behind its EU peers in ‘ease of doing business’. Further reforms are needed to improve the business environment and enable the creation and expansion of competitive firms, while attracting domestic and foreign productive investments. The most problematic areas include registering property, enforcing contracts and accessing credit. Sector-specific product market reforms have progressed but public administration inefficiencies, including a very limited provision of digital public services and red tape, continue to be obstacles for firms. The successful uptake of digital public services requires high-speed networks throughout the country. Efficiency in public spending would benefit from addressing systemic deficiencies, such as excessively low tenders in public procurement procedures. Inefficiencies in the justice system also negatively affect the investment climate and limit the provision of credit to the real economy. The Greek health-care system has persistent weaknesses leading to both inefficient spending and high-unmet medical needs. The increasingly ageing population will be an additional challenge to the medium and long-term sustainability of the healthcare system. To respond to this upcoming demographic challenge, and to ensure the viability of Greece’s healthcare and long-term care systems, it will be essential to: (i) optimise healthcare spending by discouraging the overuse of products — especially pharmaceuticals, and services; (ii) improve hospital management and public procurement procedures; and (iii) improve governance. The recently initiated primary healthcare system reform should be completed in order to improve efficiency and ensure equitable access to healthcare. Establishing a framework in which environmental sustainability goes hand in hand with economic growth and institutional reforms is key. Partly due to the economic crisis, progress in promoting environmental sustainability has been limited and Greece now faces specific challenges in the fields of energy, transport and protection against natural disasters. Greece plans to introduce fundamental changes to improve sustainability, the social impact of which will need to be closely monitored. Supporting sustainable growth and modernising the Greek economy will require skilled workers. Greece needs to address poor educational outcomes, continue to upgrade vocational education and invest in lifelong learning. For this, it will need to find ways to make the education system more relevant to the labour market, especially at post-secondary level. Skills — including digital skills — and competences need to be improved. Overall, the low and inefficient funding of education and a general lack of accountability in the system remain major challenges. Identifying investment needs for green technologies and sustainable solutions, and securing adequate funding, will be key to deliver on the climate and energy objectives and shape a new growth model. Investment is needed for sustainable growth, particularly in the energy sector. Greece is highly dependent on imports of key primary energy sources, such as oil and gas, with the former having relatively high use in electricity generation compared to the EU average. The sector also faces market distortions, a lack of competition, and slow development of renewable energy sources in recent years. Thanks to its geographical location, Greece has the potential to become an energy hub — both for gas and electricity — for Southeast Europe, but for this it would need to develop major infrastructure projects with neighbouring countries. The transport sector is responsible for the largest share of total final energy consumption in Greece. Its external costs to society (i.e. costs related to accidents, air pollution, etc.) are estimated at around 6% of the country’s GDP. Greece faces multiple and severe natural and environmental risks, in particular floods and wildfires. An adequate response is often hampered by a lack of structures, coordination, planning and prioritization, as well as the absence of early warning systems. The transition to a greener economy will entail severe socio-economic impacts and will necessitate significant environmental rehabilitation efforts in Greece’s lignite mining regions. The government recently announced an accelerated plan to decommission Greece’s lignite-based generation plants by 2028. The Commission’s proposal for a Just Transition Mechanism under the next multiannual financial framework for 2021-2027 will help ensure that the transition towards EU climate neutrality is fair by helping Greece’s most affected regions address the social and economic consequences. It includes a Just Transition Fund, a dedicated just transition scheme under InvestEU, and a new public sector loan facility with the European Investment Bank. Key priorities for support by the Just Transition Fund, set up as part of the Just Transition Mechanism, are identified in Annex D, building on the analysis of the transition challenges outlined in this report 1. Economic situation and outlook GDP growth The recovery of the Greek economy continues. The Commission’s 2020 winter forecast projected real GDP growth in 2019 to reach 2.2%, mainly driven by exports, while consumption growth remained weak in the first three quarters of 2019. In 2020, growth is forecast to rise to 2.4%, but this is still well above potential growth and will therefore help to close the output gap. Graph 1.1:Real GDP growth and components Source: European Commission Private consumption is expected to accelerate. In 2020 and 2021, private consumption is expected to be one of the main drivers of economic growth. The tax measures adopted in 2019 should have a positive effect on private consumption in 2020 and 2021, as they aim to lower the taxation of earnings from labour (the ‘tax wedge’) at lower incomes and decrease the tax burden on labour and capital in general. The saving rate remains negative. Since 2012, the gross saving rate of households has been negative, implying that households run down savings to finance consumption. Despite recent improvements, it is not expected to become positive within the next years. Coupled with still high unemployment, moderate income growth and high public debt, and given the projection that fewer people of working age will need to support more people of retirement age, the negative savings ratio points to a continued low debt servicing capacity of households in the future. Investment is expected to accelerate, though from a low level. Supported by positive expectations and the shift towards a more investment-conducive tax framework with the 2020 tax package, investment is expected to grow by more than 10% in 2020, making it the second main driver for growth. This will help to reduce, albeit very gradually, Greece’s large investment gap compared with its EU peers, which reflects persistently low levels of investment as a legacy of the crisis years. In 2018, investment stood at 11.1% of GDP, which is less than half of its pre-crisis average level and the lowest in the EU. The decline during the crisis was due to the decrease in private investment, although public investment also decreased substantially.

Household debt remains well above prudential thresholds despite active deleveraging in 2018. At 56.8% of GDP the debt of private households is well above the prudential- and fundamentals-based benchmarks for household debts in Greece (36.1% and 21.6% respectively in 2018) ( ). Households have been actively deleveraging but the debt absorption capacity of Greek households remains too low to bring household debt down to prudential levels in the near future, due to high unemployment and reduced income levels. This goes hand in hand with the high non-performing loan ratio of private households in Greece (see Section 4.2 for further details). Non-financial corporations are actively deleveraging but the stock of private debt and particularly non-performing debt remains high. At 59% of GDP in 2018, the debt stock of the non-financial corporate sector remains above the fundamentals-based benchmark of 40%, but below the prudential threshold of 67%, due to the recent deleveraging efforts. Credit growth in the corporate sector has turned positive in 2019 but remains concentrated towards large corporations (see Chapter 4.2). Exports continue to grow, but more slowly than in previous years amid weakening foreign demand. Following strong growth in 2018 and 2019, exports are projected to increase more slowly in 2020 and 2021. Despite export market gains during the last couple of years, the economy remains relatively closed. At some 36% of GDP in 2018, exports of goods and services are substantially lower than the euro area average of 48%. As economic growth slows down in the main export markets, Greek exports are expected to be affected as well, though due to their structure, Greek exports are somewhat cushioned from a slowdown in destination markets. Facilitating a shift in the economic structure towards tradable goods and services could open up further growth potential for the Greek economy (see Box 4.4.1. on export promotion strategies for further details). Imports are set to increase due to increased consumption and investment, leading to a deterioration in the trade balance. During the crisis, the trade balance improved significantly, from -12.6% of GDP in 2008 to -0.2% of GDP in 2018, on the back of substantially lower investment and consumption activity in a recessionary environment, which in turn led to a reduction in imports. In the years ahead, with the domestically driven recovery expected to drive up imports, and lower growth of exports due to the external environment, the trade balance of goods is expected to deteriorate again. Potential growth Total factor productivity ( ) increased in 2018 but remains substantially below pre-crisis levels. Total factor productivity growth in Greece reached around 1.5% in 2018, almost three times higher than the euro area average, but is still far below pre-crisis levels (in 2018 total factor productivity was still 14.4% below the 2008 level). In the lead up to the crisis (2000-2008) annual total productivity growth was on average 1.6%, whereas during the crisis years (2008-2016) the average dropped into negative territory at ‑2.2%. This indicates that current growth rates are not enough to foster substantial real convergence with the EU average. The recent increase in total factor productivity was driven by increases in the productivity of the capital share. This indicates that while employment is recovering, capital accumulation has been negative in the last few years. Increasing investment and replacing the diminished capital stock could therefore unlock further growth potential. The decline in labour productivity (output per person employed) since the start of the crisis ended in 2017. In 2018, increasing employment drove the growth in value added and although labour productivity increased only marginally (0.2% growth in 2018) the prolonged period of decline since the start of the crisis in Greece came to an end. This was in line with developments in the euro area, where the labour share in total factor productivity also stagnated in 2018. However, certain sectors such as manufacturing and services had higher labour productivity growth rates (3.4% and 0.6% in 2018). Low investment in research and development, high regulatory burden and skills mismatches weigh on productivity growth. By a variety of metrics, Greece is one of the countries with the lowest business dynamism in the EU. High regulatory burden, and inefficiencies in the public administration and the justice system hinder productivity growth. Low business investment in research development and innovation, the relatively low labour market relevance of education, and increasing skills mismatches also point to weak growth prospects in the future. Reform efforts in the last years are slowly bearing fruit, as visible in the mildly positive total productivity developments in the past year. Competitiveness Cost competitiveness improved during the crisis, which will be key for wage increases to be matched by productivity gains in the future. During the crisis, nominal and real unit labour costs decreased — mainly due to wage decreases and subdued inflation — and cost competitiveness recovered. As wages and inflation started picking up during the economic recovery in 2018 and 2019, unit labour costs started to increase, but less than those of the country’s main trading partners. As a result, Greece’s competitiveness was resilient and export market shares recorded sizeable gains. However, in the coming years, low productivity growth will be a risk for competitiveness. With growing wages and domestically driven economic growth, Greece cannot rely on subdued wage growth to maintain competitiveness. Supporting productivity growth will therefore be of key importance. External position The external position is slightly deteriorating, amid a widening deficit in goods trade. The current account balance has adjusted substantially from its unsustainable pre-crisis levels, but it is expected to remain negative at -2.5% of GDP in 2019 and -2.9 in 2020. A positive trade balance of services and a smaller negative balance of goods have helped the large current account balance to improve to levels above -2% in 2017. However, as investment and consumption pick up in 2020 and 2021, the contribution of trade in goods to the current account is expected to decrease again, due to the high import content of domestic demand (see Box 4.4.1). The net international investment position remains strongly negative, mostly due to public debt. At -143.3% of GDP in 2018, net external liabilities remain large. The composition of mostly public debt to official creditors mitigates the direct risk, but the country remains vulnerable to external shocks nevertheless. The current account needed to stabilise the net international investment position above -35% of GDP within the next 20 years is calculated to be 1%, which can only be reached with further reform efforts, substantial productivity growth and investment over the medium term (see Chapter 4.4 on investment and productivity). Inflation Inflation is expected to remain low in the short term but to increase in the medium term. The growth rate of the harmonised index of consumer prices, which is used to measure headline inflation, declined to 0.5% in 2019 partly due to a decrease in energy prices. In addition to lower energy prices, a reduction of value added tax in the second quarter of 2019 contained inflation for that year. Inflation is expected to remain broadly stable at 0.7% during 2020 and to increase slightly to just below 1% in 2021 as the output gap closes. Graph 1.2:Current and Capital account balance and composition in % of GDP Source: European Commission Labour market The labour market continues to improve, but major challenges remain. Responding to the ongoing economic recovery and labour market reforms, the employment rate grew from 59.7% in the third quarter of 2018 to 61.2% in the third quarter of 2019. Nevertheless, it remains the lowest in the EU, and far below the EU average of 73.8% in the third quarter of 2019. Furthermore, while the employment rate of men stood at 71.3% it was only 51.3% for women, one of the lowest among EU Member States and significantly below the EU average of 68.2%. Employment is forecast to grow by 2.2% in 2019 and 2020. Unemployment has continued to decrease steadily, but is still the highest in the EU. The unemployment rate decreased to 16.6% in October 2019, down from 18.5% in October 2018, and is forecast to reach 15.4% in 2020.. Despite steadily decreasing since October 2013, unemployment in Greece remains among the highest in the EU, both in aggregate terms and among the various population groups. Youth unemployment declined from 37.8% in the third quarter of 2018 to 34.2% in the third quarter of 2019, but remained significantly above the EU average of 14.4%. The long-term unemployment rate decreased from 15.6% in 2017 to 13.6% in 2018, but was still far above the EU average (2.9%). Graph 1.3:Activity, employment and unemployment rates, 2000-2018 Source: Eurostat

Social developments Poverty has been gradually decreasing, but remains among the highest in the EU, with children and working-age people being particularly affected. Between 2017 and 2018, the share of people at risk of poverty or social exclusion dropped from 34.8% to 31.8% (against an EU average of 21.9% in 2018). Similarly, severe material deprivation affected 16.7% of the population in 2018 down from 21.1% in 2017 (EU average is 5.9%). These positive trends reflect the ongoing labour market recovery, as well as the strengthening of the social welfare system that took place in recent years. Children and working-age people continue to be more affected by poverty (with the share of people at risk of poverty or social exclusion reaching 33.3% and 35% respectively) than the elderly (21.3%), despite having a greater improvement than the latter group. Income inequality has declined but remains higher than in the EU as a whole. While in 2017 the disposable income of the richest 20% of the population was 6.1 times that of the poorest 20% (vs 5.2% in the EU), this ratio dropped to 5.5 in 2018, implying a reduction in income inequality. This reduction was also evidenced by an increase in the income share of the poorest households, a decrease in the income share of the top 20%, and a relatively stable middle-income share. This income redistribution has also been partly due to the social benefits system, whose corrective power has increased following recent reforms, although it remains well below the EU average. Public finances Greece is expected to achieve a general government surplus in 2019 and 2020. According to the Commission’s 2019 autumn forecast, which incorporates both the measures adopted in May worth 0.7% of GDP and the balance-neutral package of measures worth 0.6% of GDP for 2020, the headline fiscal balance is forecast to reach a surplus of 1.3% of GDP in 2019 and 1.0% of GDP in 2020. Accordingly, the primary government balance monitored under enhanced surveillance is projected to reach 3.8% of GDP in 2019 and 3.5% of GDP in 2020, i.e. meeting the target of 3.5% in both years. Greece’s public debt to GDP ratio is expected to fall significantly from 181.2% in 2018 to 163.1% of GDP in 2021. Meanwhile, inequality of opportunities for children remains high (see section 4.3.2) Financial sector Non-performing loans, as a ratio of total loan exposures, remain the highest in the EU, despite a marked acceleration in their reduction. The stock of non-performing loans of Greek banks has declined more rapidly since the end of 2017, boosted by accelerating non-performing loan sales. By the end of June 2019, the stock of these loans had gone down by almost 30% from its peak in March 2016. However, as a share of total loan exposures, the reduction in non-performing loans has been less pronounced given the resulting deleveraging effect. Multiple systems for dealing with bankruptcy and insolvency as well as a backlog of household insolvencies is hindering a more efficient reduction of non-performing loans (for further analysis see Chapter 4.2). Systemic initiatives, like the recently adopted ‘Hercules’ asset protection scheme (see Section 4.2), are expected to accelerate the pace of non-performing loans reduction in the future. The still high non-performing loan ratio leaves little room for a sizeable and sustainable rebound of credit provision to the real economy, including households and non-financial corporations, thereby hindering domestic investment. Regional disparities Regional disparities, notably between the capital region and the rest of the country, increased during the crisis years and remain large. In 2017, only the capital region of Attica had a GDP per capita of more than 75% of the EU average. Most other regions were well below that threshold. The region of Eastern Macedonia and Trace had the lowest GDP per capita among all Greek regions, corresponding to 46% of the EU average, while in three other regions, GDP per capita was also lower than 50% of the EU average. Disparities with the capital region increased during the crisis years, notably in the case of the three Macedonia regions and the three Aegean island regions. The large disparities in GDP per capita are due to a number of regional disparities in areas such as labour productivity, labour market conditions, investment, research and development activity, innovation and competitiveness (see section 4.4.4). Greece has made substantial progress towards meeting its Sustainable Development Goals (SDGs) over the past years. All of the calculated headline indicators have achieved at least a moderate progress, with a very strong mass of indicators having highly positive figures. More precisely, significant progress has been achieved as regards the environmental objectives (SDGs 7, 12, 13) with a very strong achievement in climate action goals, while the economic recovery is also depicted on the majority of the related goals (SDGs 1, 2, 8, 9), due to the significant progress towards poverty reduction. On the other hand but still under a positive sign, the country seems to progress towards improving other social aspects such as the reduction of inequalities (SDGs 5, 10). Table 1.1:Key economic indicators- Greece Source: Eurostat and ECB as of 4-2-2020, where available; European Commission for forecast figures (Winter forecast 2020 for real GDP and HICP, Autumn forecast 2019 otherwise) 2. Progress with country specific recommendations Greece successfully exited the European Stability Mechanism support programme on 21 August 2018, marking the beginning of a new era for the country. Since then, Greece has been subject to enhanced surveillance, in line with the post-programme policy commitments given at the Eurogroup of 22 June 2018 ( ), and participates in the European Semester in line with Regulation (EU) No 472/2013. Greece received its first country-specific recommendations under the European Semester in July 2019. The Council issued no such country-specific recommendation (CSR) to Greece before 2019 because — pursuant to Article 12 of Regulation (EU) No 472/2013 ( ) — Greece was exempt from this type of EU-wide monitoring and assessment since it was under EU-supported economic adjustment programmes. To ensure full consistency between Greece’s post-programme policy commitments and the European Semester, Greece received a CSR to continue and complete the reforms in line with its post-programme commitments to European partners. Greece committed to the Eurogroup of 22 June 2018 to continue and complete reforms adopted under the European Stability Mechanism programme and to safeguard the objectives of the important reforms adopted under the financial assistance programmes. These commitments are monitored as part of the post-programme enhanced surveillance framework. Specifically, progress with key structural reforms that started under the programme is measured in six key areas by agreed deadlines up to mid-2022, namely: (i) fiscal and fiscal-structural policies; (ii) social welfare, (iii) financial stability; (iv) labour and product markets; (v) privatisation; and (vi) the modernisation of public administration. The first CSR to Greece under the European Semester in July 2019 called on the authorities to continue and complete reforms in line with these post-programme commitments that are key to achieve a sustainable economic recovery and to tackle the underlying macroeconomic imbalances. Greece has taken the necessary action to implement policy elements of the first CSR due for mid-2019, while efforts to meet end‑2019 commitments are ongoing. Progress on implementing this recommendation was monitored under the enhanced surveillance framework. The fourth enhanced surveillance report ( ) of November 2019 monitored the implementation of the specific mid‑2019 commitments, while taking into account the efforts of the new administration in the months following the July 2019 general election. The Eurogroup of 4 December 2019 welcomed the conclusion of the report and agreed to disburse the second tranche of policy-contingent debt measures ( ). The fifth enhanced surveillance report ( ) is issued together with this country report and monitors the progress of the specific end-2019 commitments. Overall, Greece has made some progress with meeting its first country-specific recommendation. Overall, Greece has made some progress with addressing the second country-specific recommendation. The assessment of this CSR is made both quantitatively, based on a comparative analysis of recent developments in private and public investment spending, and qualitatively, notably by reviewing sectoral and cross-cutting policies with a potential positive impact on investment. In terms of broader investment-conducive economic policies, Greece has taken important steps. The government has adopted several pieces of legislation to support the transition to a ‘digital state’ and to promote private investment, notably through the Development Law of October 2019. The latter paves the way for a streamlining of the investment licensing procedures and introduces changes in spatial planning to accelerate major investment projects. It also aims to increase clarity and transparency on land use rules for investors by introducing a ‘Single Digital Map’. Meanwhile, land use reforms are advancing, with the completion of forest maps for nearly 95% of the country and continued work in cadastral mapping. Efforts to fight corruption are ongoing under the coordination of a new agency and the reforms made in the past years have resulted in an improvement of business perceptions compared to previous years. The authorities have also initiated a more coordinated approach to promoting the outward orientation of the Greek economy and attracting foreign investment, and have significantly increased momentum in the privatisation process, which could have a positive impact on investment in the future. However, progress made on justice reforms has been slow overall.

In quantitative terms, investment appears to be slowly recovering following a long period of contraction. During the first half of 2019, investment increased by a mere 0.7%, as compared to an average of 4.7% in the euro area. In the second quarter of 2019, it remained broadly flat (-0.1%) compared to the same period in the previous year. Previously, investment (as a share of GDP) had fallen sharply during the crisis years 2007-2014 and bottomed out in 2015, rebounding somewhat to reach 11.1% of GDP in 2018. The following analysis reviews public investment trends for the priority areas identified in the second CSR. Greece has made limited progress in promoting investment in sustainable transport and logistics. Greece scores poorly in international rankings of transport and logistics infrastructures. Its inland transport system is heavily road-based and, despite sizeable EU financing, the country’s main railway axis remains incomplete. Although it is slowly recovering, investment in transport infrastructures remains relatively low. With the support of the European Commission and the European Investment Bank, the authorities have prepared, a National Transport Master Plan that, among others, sets the framework for investments in transport infrastructure. Meanwhile, a number of large investment projects are delayed, including the construction of the Thessaloniki metro system, the expansion of the Athens metro system, and the completion of railway sections. Some progress has been made in promoting investment in environmental protection, energy efficiency, renewable energy and interconnection projects. Investment in environmental protection is relatively low and Greece runs the risk of not meeting the EU-wide recycling target (50%) by 2020. A number of investment projects, co-financed by the EU, are underway to improve wastewater treatment in Western Attica and in the municipality of Marathonas and to improve waste management in Peloponnese. Meanwhile, law 4643/2019 introduced amendments regarding the development of installations for electric vehicles. An inter-ministerial committee has been set up to design and implement a strategic plan for the development of electro-mobility in Greece, which is expected to be ready by June 2020.On energy-related investments (energy efficiency, renewable energy and interconnection projects), some progress has been made. In December 2019, the authorities submitted the revised 2021-2030 National Energy and Climate Plan that sets out long-term goals and strategies in these areas and provides the basis for further investment. On energy efficiency, Greece is on track to meet its 2020 goals and, by 2019, investments co-financed by the EU had improved energy efficiency for 19,100 households. Programmes such as the ‘Energy saving at home’ and ‘Electra’ will further improve energy efficiency for household and public buildings (law 4643/2019). On renewables, law 4643/2019 introduced amendments to facilitate large investment projects, including the construction of hybrid plants in non-interconnected islands, while the government has announced further measures to streamline the investment-licensing framework in the area of renewable energy sources. On interconnection projects, the National Energy and Climate Plan provides a timeline for non-interconnected islands. The first phase of a major project connecting Crete to the mainland electricity transmission grid is underway, the construction of the Crete-Peloponnese interconnection is expected to be completed in 2020, and the interconnection of West Cyclades islands is scheduled for 2023. There has been some progress in promoting investment in digital technologies. Greece has one of the least advanced digital economies in the EU. Investments in information communication technology (as a share of total investment) increased with some fluctuations in the first two quarters of 2019 compared to the same quarters of 2017, but rose slightly as a share of GDP. In terms of policies, the authorities are working on a new national strategy (‘Digital Bible’) that, among others, will include a pipeline of IT investment projects for the entire public administration. Meanwhile, the authorities are taking steps as regards important projects (creation of a unified platform for electronic services, introducing digital identity cards for all citizens, developing the infrastructure on 5G networks and increasing ultrafast broadband coverage). Some progress has been made in promoting investment in research and development. Total spending on research and development, as a share of GDP, has been steadily increasing since 2010, reaching 1.18% in 2018, but is still lagging significantly behind the EU average (2.11%). In December 2019, the authorities completed the evaluation of 2,912 proposals submitted in the context of the flagship call “Research-Create-Innovate”. Overall, the budget of all announced calls regarding research and development has reached € 877 million. Progress in promoting investment in education, skills and employability has been limited. Public expenditure on education accounted for 3.9% of GDP in 2017, among the lowest in the EU (EU average: 4.6%), including for life-long learning Expenditure on training was €15.5 million in 2017, down from €27.8 million in 2016. Nevertheless, with the help of the European Social Fund, a number of investment projects have taken place in recent years, among others, to reduce early school leaving, expand early childhood education, upgrade the vocational education and training system, expand dual learning, and reform higher education. Meanwhile, the share of companies (10 persons employed or more) that provide training and vocational programmes to develop and/or upgrade the information and communication technology skills of their personnel increased slightly in 2019 (from 14% to 15%), but remains well below the euro area average (25%). In term of policy developments, law 4653/2020 allowed for increased independence of the Hellenic Authority of Higher Education and it helped standardise university evaluations, which could, in turn, facilitate performance-based funding, and increase efficiency. There has been limited progress in investment in the health sector and in social inclusion. In 2017, investment in the health sector was among the lowest in the euro area (0.1% of GDP as opposed to 0.2% of GDP in the euro area). In recent years, EU financing though the European Social Fund has contributed to the reform of primary health care and the rolling out of a network of local healthcare units (TOMYs) to strengthen access to primary healthcare. Around 130 units were in operation by the end of 2019. Nevertheless, a long-term strategic investment plan to steer such investments remain necessary. Limited progress has been made in facilitating investment for promoting the renewal of urban areas. Some investments have been made or are planned to promote equal opportunities and facilitate social inclusion of marginalized groups in disadvantages urban areas. Overall, Greece has made some progress with implementing its 2019 CSRs, and in several policy areas, it has benefited from EU-financed technical support. Since 2015, the Commission has financed more than 150 projects in Greece to support the implementation of structural reforms (see also Box 2.1 for projects implemented). Table 2.1:Overall assessment of progress with 2019 CSRs Greece Overall assessment of progress with 2019 CSRs: Some progress(1) CSR 1: Achieve a sustainable economic recovery and tackle the excessive macroeconomic imbalances by continuing and completing reforms in line with the post-programme commitments given at the Eurogroup of 22 June 2018. ·Greece has made some progress in addressing CSR1. ·Implementation of the specific post-programme policy commitments that are due by end-2019 and embedded in the first country specific recommendation is monitored under quarterly enhanced surveillance reports. The Commission considers that Greece has taken the necessary actions to achieve all specific reform commitments for mid‑2019 and that the authorities have taken important steps towards meeting the end‑2019 commitments. CSR 2: Focus investment-related economic policy on sustainable transport and logistics, environmental protection, energy efficiency, renewable energy and interconnection projects, digital technologies, research and development, education, skills, employability, health, and the renewal of urban areas, taking into account regional disparities and the need to ensure social inclusion. ·Greece has made some progress in addressing CSR2. ·Limited progress in focusing investment-related economic policy on sustainable transport and logistics. ·Some progress in focusing investment-related economic policy on environmental protection, energy efficiency, as well as on renewable energy, and interconnection projects. ·Some progress in focusing investment-related economic policy on digital technologies. ·Some progress in focusing investment-related economic policy on research and development. ·Limited progress in focusing investment-related economic policy on education, skills, and employability. ·Limited progress in focusing investment-related economic policy on health. ·Limited progress in focusing investment-related economic policy on the renewal of urban areas taking into account regional disparities and the need to ensure social inclusion. Source: European Commission (1) The assessment of CSR3 does not take into account the contribution of the EU 2021-2027 cohesion policy funds. The regulatory framework underpinning the programming of the 2021-2027 EU cohesion policy funds has not yet been adopted by the co-legislators, pending inter alia an agreement on the multiannual financial framework (MFF).



Box 2.1: Commission Structural Reform Support Programme in Greece Upon a Member State’s request the Commission can provide tailor-made expertise via its Structural Reform Support Programme to help the country design and implement growth-enhancing reforms. Such support has been provided to Greece since 2015 at the request of the Greek authorities. To date, support has been provided for more than 150 projects. While Greece still needs to comply with its commitments under the enhanced surveillance process, the implementation and completion of key reforms are showing measurable results. In 2019, several projects in various policy areas were successfully implemented. The Commission continues to assist Greece in the area of governance and public administration, to digitise and modernise the Greek public sector at both central and local levels. This includes support for: (i) the human resources department (to modernise and depoliticise the civil service in particular); (ii) the judicial sector (with a focus on digitalisation and reducing backlogs); (iii) the fight against corruption (notably to implement the national strategy); (iv) better law making (with a focus on evidence-based law making and improved coordination); and (v) support to local authorities (notably in the area of inter-municipal cooperation). In addition, support focusses on the digital transformation of the public administration and the wider deployment of e-services. In 2019, the Commission supported Greece to strengthen its crisis management and response systems, including in the area of migration — by increasing the administrative and operational capacity to receive asylum seekers. On growth and the business environment, the Commission has helped Greece to build a strong and green economy, and boost competitiveness and innovation. For example, the Commission has provided Greece with support to: (i) further develop its electricity distribution network, and its electricity systems and markets, taking into account geographical and regional disparities; (ii) develop a national transport plan; and (iii) complete the mapping of the national cadastre and set up cadastre offices. New initiatives were launched in 2019 to further tackle energy and environmental issues, including investment projects on effective waste management, and on clean energy to increase competitiveness in the renewable energy sector. Other projects focus on capacity building for Public Private Partnerships, the reform of business inspections, and process simplification for businesses. Support has been provided to improve labour market and pension, social welfare, health and education systems. The Commission is helping Greece to: (i) implement its action plan for tackling undeclared work; (ii) reform its single social security agency; (iii) strengthen the capacity of its centralised health procurement agency; and (iv) improve universal access to quality health services. In 2019, support focused on: (i) reforming the quality and delivery of Greece’s active labour market programmes; (ii) modernising its disability assessment system; (iii) promoting inclusive education; and (iv) facilitating the deinstitutionalisation reform. In the area of healthcare, the Commission is also helping Greece establish a diagnosis-related groups system. Greece has been receiving support for revenue administration, tax policy and public financial management, to further simplify and increase the efficiency of its tax framework. Central to this is the modernisation of the stamp duty system and the revision of the legal framework on the liability of natural persons. In 2019, new projects began on building information technology capacity for the Ministry of Finance and the Independent Authority for Public revenue, and supporting the setting up of a Model Collection Office. On finance and access to finance, the Commission is helping Greece to ensure an efficient allocation of capital and improve access to finance for companies. A feasibility study on the setting up of the Hellenic Development Bank was completed and its implementation is under way. The aim is to improve companies’ access to finance and increase investment opportunities. Greece received support in 2019 to design and implement a comprehensive national strategy on reducing non-performing loans in the banking sector. 3. Summary of the main findings from the MIP in-depth review Introduction The 2020 Alert Mechanism Report concluded that Greece should have a new in-depth review to examine whether any imbalances persist (European Commission, 2019c). The 2019 in-depth review concluded that Greece faces excessive imbalances that should be addressed through structural reforms. This chapter summarises the analyses of the in-depth review of the macroeconomic imbalance procedure contained in various sections in this report ( ). Imbalances and their gravity Greece’s large debt stock is starting to decrease slowly. A high level of non-performing loans in the banking system together with high public and external debt remain a risk for the economy as it exposes the country to adverse shocks. The recovery started in 2017 but has not been strong enough to support a faster deleveraging in the private and public sector. The high stock of public debt is slowly decreasing. In 2019, general government gross debt reached 175.2% of GDP. That is 6 percentage points less than in 2018, but remains the highest in the EU. Government debt is expected to slowly decrease in the coming years, supported by planned primary surpluses, the economic recovery and the debt relief measures agreed with European partners. However, refinancing or debt-servicing risks are expected to remain limited over the medium term, due to the special repayment terms agreed with the creditors. The stock of external liabilities remains the second largest in the EU, although it is largely due to public debt held by creditors at highly concessional terms. The net international investment position stood at -143.3% of GDP in 2018. It is composed mainly of debt instruments and related to the high levels of public debt. High external debt exposes the Greek economy to external shocks and market sentiment shifts. The external position remains weak. The current account balance stood at -2.8% of GDP in 2018 as opposed to -1.9% in 2017. The cyclically adjusted current account balance ( ) stood at ‑5.1% of GDP in 2018, which points to a structural imbalance even when taking out cyclical components. In contrast, the current account balance that would be necessary to stabilise the net international investment position at the macroeconomic imbalance procedure threshold level of -35% of GDP was estimated at 1.8% in 2018.

High levels of non-performing loans constrain the lending capacity of the banking sector. In September 2019, 42.1% of loans were considered non-performing, according to the Bank of Greece. This affects the lending capacity of the banking sector, limiting the supply of credit to the real economy. While the private debt stocks are contained, the economic situation with high unemployment, high ageing and age-dependency ratios and high public debt, coupled with a low household saving rate, indicates a low debt repayment capacity of households and non-financial corporations. The severe and prolonged crisis has had lasting effects on potential growth, though it is slowly recovering. During the crisis, in which Greece’s economy shrunk by 25% of GDP, potential output declined substantially. The productive capacity of the economy has suffered due to the large outward migration of skilled workers and the depletion of the capital stock. Total factor productivity grew by 1.5% in 2018, faster than in other EU countries, but coming from a low level. The labour market is gradually recovering, but unemployment is still very high compared to other EU countries or pre-crisis levels. Employment increases in recent years have not offset yet the negative impact of the crisis. The unemployment rate remains the highest in the EU, as does the long-term unemployment rate. Youth unemployment rate is still at around 35%, prompting young people to look for employment abroad and thereby limiting future potential growth. Furthermore, Greece has one of the highest qualification mismatches among EU countries and one of the highest over-qualification rates among tertiary graduates, while skill shortages exist in energy and technology sectors. Evolution and prospects The current account balance is expected to remain negative as domestic demand picks up. After reaching -1.9% of GDP in 2017, the current account balance widened to -2.8% in 2018 and is expected to remain below -2% for the coming years. Due to its high import content, increasing domestic demand is expected to lead to higher imports. Against this background, measures to reduce the current account deficit include: (i) increasing productivity and competitiveness; (ii) rebalancing the economy with a stronger focus on tradable sectors and better framework conditions; and (iii) introducing incentives for firms to export. The net international investment position is strongly negative, remaining well below the fundamental benchmark and the prudential threshold ( ). The composition of the net external liabilities with the overwhelmingly large share of public debt mitigates the risk of a sudden capital outflow. Nevertheless, the international investment position should be adjusted to levels that are more prudential in the medium and long term. Following their strong rebound in 2017 and 2018, exports are expected to continue to grow albeit more slowly. High export growth in both goods and services supported the economic recovery in Greece in 2017 and 2018. In addition to profiting from the favourable economic outlook of its main EU trade partners, Greece increased its export market shares during that period. As the economic situation in most EU countries is cooling down, Greek exports are expected to continue to grow, but at a lower rate in the coming years, while export market shares will continue to expand building on the competitiveness gains of recent years. Diversifying service exports beyond tourism could make service exports less vulnerable to external shocks. The tourism sector, one of the main service export sectors has benefited from the unstable geopolitical situation in main competitor countries in recent years. As the number of tourists seems to have reached a plateau, growth appears to mainly be due to longer stays and higher expenditure per tourist. The concentration of service exports in tourism and transport makes Greece vulnerable to the situation in tourists’ countries of origin and the situation in competitor countries. Other sectors such as information technology services, research and development, and other business services could help to diversify service exports (see Box 4.4.1). The still high public debt is expected to drop as a share of GDP in 2019 due to a consolidation of real GDP growth, expected primary surpluses and incoming privatisation proceeds. This is in line with the overall trend recorded in the last years, apart from a one-off spike in 2018, explained by the use of a large part of the last programme disbursement to increase treasury cash buffers that are now covering more than 2 years of expected debt servicing. To mitigate risks and increase the resilience of Greece’s public finances, prudent fiscal policy remains necessary. This will entail primary surpluses, appropriate cash buffers and a proactive debt management policy. Despite slowly decreasing, the high level of non-performing loans remains a weakness for the financial system. The share of non-performing loans in total loans has been declining slowly since 2016. Nevertheless, it remains the highest in the EU and puts pressure on the banking sector. To accelerate the reduction of non-performing loans, banks and the authorities need to make additional efforts to clean out banks’ balance sheets. Creating a foreclosure and insolvency framework that is conducive to deleveraging is a key way to swiftly reduce non-performing loans (see Chapter 4.2). Economic recovery with the support of new lending can only take place when a significant number of borrowers has found sustainable solutions to their over-indebtedness. Investment growth is expected to increase productivity and potential economic growth. The ongoing economic recovery and the 2020 tax package are expected to stimulate investment and domestic consumption. This in turn can start a virtuous cycle, improving the old and depreciated capital stock, and increasing productivity and potential growth. Higher productivity could sustain increases in labour cost since 2017 and build the foundation for further increases in domestic demand. The labour market situation is improving but employment is still lower than pre-crisis levels. In July 2019, total employment stood at 3.9 million, which is a substantial increase compared with the lowest point during the crisis (3.5 million in 2013), but still lower than the pre-crisis levels of 4.5 million. Employment is expected to recover further in the coming years, in line with economic growth. Despite the substantial wage increase brought about by scrapping the exemption from the general minimum wage that had been applied to young workers, the rate of youth unemployment declined in the second quarter of 2019. Nevertheless, the unemployment rate among people below the age of 25 is still the highest in the EU. Wages increased moderately during the period 2017-2019, but any wage growth that strongly outpaces productivity growth could harm competitiveness. Wage growth was in line with unemployment, inflation and productivity over the last three years. However, with low productivity growth and inflation well below 1%, there remains little room for further wage increases without detrimental effects to unit labour costs and competitiveness. Against this background, rising investment and updating and renewing the productive capital are key in order for labour productivity developments to exceed wage growth. Overall assessment Macroeconomic imbalances are prevalent across sectors in Greece, but adjustment efforts are under way. Greece has made progress in adjusting the current account deficit, labour market, external competitiveness and the banking sector. The net international investment position has improved, but very slowly. Progress has also been slow in productivity, as the economy is still affected by the loss of human and physical capital during the crisis. The accumulated imbalances will require further reform efforts in the coming years. Given the high stock imbalances, positive flow developments in recent years have had only a limited effect in reaching the macroeconomic imbalance procedure benchmarks. Policies that support economic growth and labour market recovery are expected to accelerate the reduction of imbalances, helped along by current and future reforms. During the programme period, the authorities adopted a wide range of measures to put public finances on a sound footing, restore the financial sector, and improve the functioning of product and labour markets, while strengthening the social welfare system. These deep institutional and structural reforms require many years of sustained implementation for their impact to unfold fully. Further measures to tackle low productivity and other imbalances could set Greece on a path to sustainable economic growth. Table 3.1:MIP assessment matrix — Greece 2020 (Continued on the next page) Table (continued) Source: European Commission 4. Reform priorities

4.1.Public finances and taxation 4.1.1.FISCAL POLICY AND FISCAL fRAMEWORK The public debt ratio is expected to decrease in the future thanks to solid growth, expected primary surpluses and relatively low interest payments. This is in line with the overall trend recorded in recent years (apart from the 2018 spike explained by the last programme disbursement). Public debt reached 178.5% of GDP in 2016 and decreased to 176.2% of GDP in 2017. Upon Greece’s exit from the programme in June 2018, the Eurogroup agreed to disburse €15 billion (8.1% of GDP) for debt servicing and building up a large cash buffer estimated to cover almost 2 years of debt servicing at the end of 2019. This disbursement, included in the stock flow adjustment ( ), was a loan and therefore part of Greece’s debt, which climbed to 181.2% of GDP in 2018. Net of the last disbursement, debt would have continued falling to about 173.1% of GDP in 2018. Graph 4.1.2 shows the drivers of public debt developments from 2016 onwards. Achieving the fiscal target in 2020 and beyond will depend on a growth-friendly tax shift from distortionary to less distortionary taxes. The authorities reduced taxes on labour and capital (lowering production cost) significantly as of 2020 (see Chapter 4.1.2). These cuts are compensated by increases in revenues from the unified property tax (Enfia), value added tax, and municipal charges. This growth-friendly tax shift is expected to provide a substantial boost to growth in 2020. The future achievement of the targets is likely to be underpinned by a solid growth in households’ income, which would help tax collection, and policies that limit expenditure growth, particularly the public wage bill and healthcare spending policies. In recent years, Greece has consistently exceeded its fiscal targets. Greece’s fiscal policy framework is anchored by the nominal primary surplus target of 3.5% of GDP ( ) and requirements of the preventive arm of the Stability and Growth Pact. The primary surplus targets were exceeded in all years of the European Stability Mechanism programme — by a substantial margin for some years. Graph 4.1.1:State investment budget execution Source: European Commission The recurrent over performance was mainly due to underspending on the initial budget ceilings, for both the ordinary and — most importantly — the investment budget. On average, only 61% of the public investment budget ceilings allocated to ministries were actually spent in 2017-2018 compared to an average of 94% in 2015-2016. This is problematic because the country’s investment needs are still large and investment in sectors such as healthcare remains significantly below the euro area average. To address the recurrent underspending, the authorities designed an action plan to improve the forecasting for and monitoring of the public investment budget. The plan includes a better and more frequent exchange of data between the responsible ministries, an increase in the frequency of revenue forecasts, and some technical adjustments to facilitate the preparation of the budget. The authorities have also adopted legislation on the development, management, financing, and implementation of the national component of the public investment budget. This part of the public investment budget will be programmed through a medium-term development plan, the ‘National Development Plan’, mirroring to a certain extent the management system of the EU co-financed part of the investment budget. Graph 4.1.2:Debt Dynamic determinants (% GDP) Source: European Commission The authorities also took steps to address the sources of underspending in the ordinary budget. The General Accounting Office revised the budget preparation guidelines, which allowed — for the 2020 budget — to take into account the actual execution of expenditure (rather than starting with the previous year’s budget plan) and imposed a requirement to assess and scrutinise the reasons for the past underspending. This will mitigate the risk of underspending in the future. Over the past years, Greece has established a rules-based fiscal governance framework, in line with the EU legislation. These reforms extended the budgetary scope from the state to the general government, strengthened top-down budgeting, and introduced a medium-term budgetary framework, commitment registries and monitoring mechanisms in all spending entities. The Organic Budget Law of 2014 also set a fiscal balance rule and a public debt rule, as well as an automatic correction mechanism. The primary surplus target monitored under enhanced surveillance ensures that these rules are complied with. Additional reforms were introduced to increase accountability, transparency and enforce fiscal discipline, including potential sanctions for spending ministries should they violate legal provisions. From an institutional perspective, the roles of the General Accounting Office and line ministries were clarified and a fiscal council was created in 2015. The council endorses the government’s macroeconomic scenario that underpins fiscal planning, and issues semi-annual reports including on compliance with domestic numerical rules.

Important reforms are currently being implemented in areas such as accounting, performance budgeting, cash management and expenditure prioritisation. These reforms are expected to improve outcomes and increase resilience to any future public finance shocks in Greece. Chapter 4.1.4 provides further details. 4.1.2.tAXATION The structure of the Greek tax system reflects the major reforms implemented under the financial adjustment programme. This includes a modernised personal and corporate income tax system, the unified property tax (Enfia), and a simplified value added tax system. The overall tax-to-GDP ratio in Greece significantly increased during the crisis and has converged with the euro area average of 40.6%. The share of taxes and social contributions in GDP in Greece stood at 38.9% in 2018, a substantial increase from the pre-crisis level of 30.8% in 2009. The tax and social security system places a high tax burden on corporations and on low-income earners and households with children in particular. The shares of indirect taxes, corporate income taxes, taxes on the stock of capital, and property taxes are relatively high compared to other EU Member States (European Commission, 2020). The 2020 budget represents a major start in reducing corporate and personal tax rates. Since 2019 (tax year), the corporate tax rate has decreased from 29% to 24%, while the dividends tax rate has decreased from 15% to 10% for incomes acquired since 1 January 2019 and from 10% to 5%, for incomes acquired since 1 January 2020. Since 2018, the corporate tax rate has gone down from 29% to 24% and dividends tax from 15% to 5%. These reductions should assist the recovery of investment that is currently at a historically low level of 11% of GDP. The 2020 budget also includes a reduction in the personal tax rate on incomes of up to €10 000 from 22% to 9%, and increases the tax-free threshold for taxpayers with children. In addition, social security contributions will be reduced by one percentage point for full-time salaried persons.

The value added tax was simplified under the programme with a standard rate of 24% and two reduced rates of 6% and 13%. The value added tax reform adopted in 2015-2016 considerably broadened the tax base by limiting the scope of reduced rates and exemptions. It also reduced market distortions and stabilised compliance rates. Greece’s value added tax gap, however, was among the highest in the EU at 33.6% in 2017, but is expected to fall back in 2018. The special value added tax system for five Aegean islands has been extended and its elimination is contingent on the reduction of migration flows. Measures to increase the minimum qualifying expenses that taxpayers should incur via electronic payments are expected to help improve value added tax collection. A major reform of property tax zonal values is under way to widen the tax base and align tax values with market prices by mid-2020. This will considerable increase the tax base of property taxes and improve the efficiency and fairness of the unified property tax. On the other hand, the reform of stamp duty remains pending. 4.1.3.TAX ADMINISTRATION AND COMPLIANCE Combating tax evasion, and encouraging voluntary compliance and payment discipline remain a significant challenge. A study carried out in 2016 (DiaNeosis, 2016) estimated the scale of tax evasion in Greece at 6-9% of GDP, mainly stemming from personal income tax evasion and value added tax fraud. Increasing collection rates remain a great challenge since most they are rather low (between 80 and 90%).Greece has, however, continued modernising the tax administration by introducing more advanced and targeted tax collection methods. Their positive results are starting to become evident.

The independence and capacity of the Independent Authority of Public Revenue are continuously being strengthened. The Governor of the Authority was reappointed by the new government, following his first term that ended in that year. This was a major positive step that signals that efforts to strengthen the independence of the Authority have started to bear fruit, and that tax collection and debt targets are being met and actually surpassed. A number of important reforms are under way, including a new supplementary grading and wage grid for the Agency’s staff, and the ‘model tax collection office’, which began its work in 2019 with technical support by the Commission. The model collection office will introduce a comprehensive approach to tax debt, including: (i) streamlining enforcement processes; (ii) consolidating the debts of a single debtor; and (iii) measuring office performance on a systematic basis. This pilot office is intended to serve as the model for all of the country’s tax offices. The Commission has also provided technical support for business process improvement, focusing on the Authority’s core IT processes. The Authority also plans an overall upgrade of its core information technology system (TAXIS), whose design is considered obsolete. Efforts to improve payment discipline suffered a setback in 2019, when an ad hoc instalment scheme with up to 120 monthly instalments was introduced. Such schemes have a corrosive effect on voluntary compliance and payment discipline, as they allow tax obligations to be settled at favourable terms compared with standard rules, which lowers incentives to pay taxes on time. They also create an expectation that similar schemes will be available in future. The new government has committed not to create similar ad hoc schemes, making the only option for settlement of debts the revised basic instalment scheme, included in the tax law adopted in December 2019. The revised scheme allows up to 48 instalments, while linking the number of instalments with payment capacity and providing disincentives to dropping out of the scheme. The Independent Public Revenue Authority initiated the ‘myDATA’ project in 2019 to provide legal entities with a digital platform for electronic bookkeeping. This platform should become operational in 2020, allowing users to automatically file their tax returns. It will also enable a more efficient selection of companies for a tax audit, which should further reduce tax evasion and smuggling. The platform will also include an e-bookkeeping component, which once completed, will enable electronic invoicing between businesses, further decreasing their administrative burden. Waiving debts below €10 should increase efficiency. The Authority plans to write-off aggregate debt for amounts up to €10, which should reduce the number of tax debtors by around 14% ( ). This should increase economic efficiency considering the administrative costs of collecting these minor outstanding debts. To improve the coordination, a new centralised customs structure — the Special Customs Service ( ) — has been established. This structure is mandated to coordinate the operational control units (9) and the customs audit offices (2). This reform is expected to improve the ex-post control audits and strengthen the operational capacity to respond swiftly to significant cases by assigning the needed resources. 4.1.4.PUBLIC FINANCIAL MANAGEMENT AND PUBLIC PROCUREMENT While public finance management reforms initiated since the beginning of the crisis are under way, Greece’s post-programme reform strategy now also focuses on the quality of public expenditure. The first set of public finance management reforms aimed to introduce a new budgetary and accounting framework, ensuring the clearance of arrears, streamlining the payment chain and improving the liquidity management (see enhanced surveillance reports. Section public finance management). More recently, Greece has taken some initial steps towards a more performance-oriented public finance management framework, namely through a new performance budgeting project and by regularising spending reviews across the general government. Spending reviews are among the new administration’s priorities. Greece undertook a spending review to save on costs by streamlining ministerial utilities. For 2018, a targeted spending review was initiated in three ministries and the entities they supervise. The review continued in 2019, also through technical support. A major step, planned for the 2021 budget, will be to scale up the exercise to encompass all ministries. However, the process has so far only addressed inputs and costs while outputs and outcomes have not been challenged. Greece carried out extensive reforms to improve the efficiency of its public procurement, but there are still a number of deficiencies in its public procurement procedures, especially in the health sector. The authorities adopted a set of measures on: (i) consolidating and simplifying the legislation in place; (ii) improving the efficiency of prejudicial remedies system; (iii) making electronic procurement the norm; and (iv) promoting centralised procurement. The country also adopted a national strategy in 2017 on public procurement. While such measures should, over time, make public procurement more efficient, rationalise public spending and boost growth, the country’s procurement market still has a number of deficiencies ( ). These include: (i) limited competition or market openness with a high number of single bid procedures (i.e. 34% in 2018, compared with 16% 10 years ago); (ii) lengthy award procedures (236 days, compared with an EU average of 86 days); and (iii) a very limited use of quality-based criteria (90% of contracts were awarded exclusively based on the lowest price in 2018, compared with 47% at EU level), which often results in excessively high discounts. Focusing on the specific measures most likely to address these deficiencies would contribute to a more sustainable and efficient use of public resources. Such measures could include: (i) improving electronic procurement and e-invoicing; (ii) increasing administrative capacity and professionalising procurement staff, including at regional and local level; and (iii) promoting central purchasing, so as to achieve economies of scale. Promoting the use of quality criteria for awarding contracts and systematically addressing the problem of excessively low bids could also reinforce the quality and the sustainability of public purchases. The authorities have planned some measures to address deficiencies in health sector public procurement, but they still need to be implemented. A number of challenges persist, including: (i) a lack of resources and specialised staff in several contracting authorities; (ii) an inefficient organisation of purchases leading to many last-minute direct awards; and (iii) unnecessary over-specification in tender documents that limits competition. According to Tenders Electronic Daily data ( ), Greece has one of the lowest publication rates in the EU in health procurement as a percentage of GDP (0.1% in 2017 against an EU average of 0.56%). In 2017, the authorities set up a central purchasing authority for the health sector (EKAPY). In order to fully operationalize the central procurement framework, the authorities envisage to redesign it in the course of 2020. In the meantime, with a view to phasing the setback, a temporary and centralised scheme that would involve the seven regional authorities is under drafting. According to the authorities, it would enable them to reach the post programme target of 30% central purchases in mid-2020 and 40% in mid-2022. 4.2. Financial sector 4.2.1.Financial sector overview and financial stability assessment ( ) While the liquidity situation of Greek banks is improving and the large stock of non-performing loans decreasing, legacy risks and challenges remain high. Greek banks’ profitability has rebounded but is constrained by poor asset quality, a business model dependent on lending growth and the low interest rate environment. Capital controls were fully lifted as of September 2019 and banks have fully repaid the emergency liquidity assistance, but still not all of them can fulfil minimum liquidity regulatory requirements. Access to long-term unsecured funding is being re-established only slowly and still at a high cost. As a result, Greek banks continue to rely primarily on their internal capacity to generate capital. In the future, the Greek banking sector must boost its resilience and accelerate non-performing loans reduction, while improving its ability to finance growth based on a sustainable and sound credit provisioning policy. The capital ratios of banks are above the capital requirements, but their capacity to generate capital internally remains limited. Banks’ average common equity tier 1 ratio on a consolidated basis was at 15.6% at the end of June 2019, about the same as the previous year. This is broadly comparable with the EU average and well above minimum capital requirements (see Table 4.2.1). The common equity tier 1 ratio increased in the first half of 2019 due to a combination of a strong performance of the marked-to-market sovereign portfolio, and the reduction of risk-weighted assets due to loan sales. The banks’ capital position, however, remains constrained by low recurring profitability and the still high level of impairments. Moreover, the banks’ business model is exposed to the current low-rate environment due to their heavy reliance on net interest income. Net interest income is also negatively impacted by the deleveraging of non-performing loans, given the high amounts of interest income from these loans. Banks are therefore trying to realign their business strategy to boost non-interest income generation from its current low levels, while continuing efforts to contain operating expenses, which have resulted in an average cost-to-income ratio below the EU average. The quality of Greek banks’ capital remains weak and dependent on the state. In the first half of 2019, the amount of deferred tax credits decreased only marginally to €15.5 billion and still exceeded 57% of the systemic banks’ common equity tier 1 capital. Consequently, the necessary gradual phasing out of beneficial transitional prudential arrangements will pose a further challenge for Greek banks. These include the transition to the new international accounting standard on impairments of financial assets ( ) and the forthcoming implementation of new rules leading banks to quickly write down non-performing exposures ( ), in order to prevent a build-up of non-performing loans in the future. In addition, in the coming years, banks will need to issue bail-inable debt in order to meet the minimum requirement for own funds and eligible liabilities set by the resolution authorities, including any subordination requirement imposed. Another piece of evidence of the systemic banks’ dependence on the state is that the Hellenic Financial Stability Fund continues to hold a stake in each of the four systemic banks, ranging from 1.4% to 40.4%. After fully lifting capital controls, banks are expected to further improve their liquidity situation to meet regulatory targets. The improving liquidity situation of Greek banks and increased depositor confidence allowed a complete lifting of capital controls as of September 2019. Moreover, all four banks plan to comply with the liquidity coverage ratio requirement by the first half of 2020 and the net stable funding ratio by 2021, when it becomes binding. Furthermore, during the summer of 2019, Greek banks tapped for the first time since 2015 the long-term unsecured funding market with two Tier-II bond issuances, albeit at a sizeable cost. Furthermore, in the summer of 2019 and in February 2020, Greek banks tapped, for the first time since 2015, the long-term unsecured funding market with Tier-II bond issuances, at a sizeable but decreasing cost.

Table 4.2.1:Financial stability indicators /1 Source: European Central Bank’s Consolidated Banking data; own calculations. Non-performing loan reduction accelerated in 2019 but levels continue to remain very high. From the peak of €107.2 billion in March 2016, the stock of non-performing loans declined to €75.4 billion by the end of June 2019, representing a ratio of 39.6% of total loans. Yet, the Greek banking sector’s non-performing loan ratio is still 13 times larger than the EU average and remains the highest in the EU ( ). The proportion of non-performing loans saw a steeper decrease in the consumer and business loans category in the past year, but the situation has only slightly improved for residential loans. The majority of non-performing loans are not expected to become performing in the near future, as half of such loans have been terminated by the banks as non-viable and are considered ‘denounced’, while re-default rates are still high even in loans with renegotiated terms. Moreover, 15% of non-performing loans are protected from enforcement by a law prohibiting foreclosure on borrowers’ primary residences. This constrains the banks’ efforts to improve the quality of their mortgage loan portfolio and adversely affects the overall availability and cost of credit for mortgages. Primary residence protection has been extended repeatedly but is now finally scheduled to expire in April 2020. The high stock of non-performing loans requires high provisioning, which constrains banks’ lending capacity. The coverage of non-performing exposures by provisions in the four systemic banks decreased year-on-year by 2.5 percentage points to 46.3%, highlighting the difficulties in maintaining a high coverage ratio while undertaking aggressive deleveraging efforts. The coverage by collateral is at 54.5%, 1.1 percentage points higher than at the end of 2018, while the ongoing rebound in house prices since 2018, after nine consecutive years of falling prices, is a first sign of improving collateral values. Yet, the average house price as of June 2019 was still 37% less than its 2008 level ( ). The secondary market for non-performing loans is continuously developing. According to the Bank of Greece, in the first half of 2019, banks managed to sell bad loans of €3.6 billion. From November 2019 to 2021, such sales are expected to significantly increase as the four systemic banks plan to de-consolidate non-performing loans of more than €30 billion either via outright sales or via securitisations. After sales, write-offs remained an important driver of the reduction of non-performing loans followed by liquidations and collections, while the default rate of performing loans has dropped marginally below the ‘cure’ rate of non-performing loans, i.e. the rate of loans for which repayments have restarted. However, ‘cured’ loans frequently become non-performing again, implying that banks are still struggling to put in place viable long-term restructuring solutions. Systemic initiatives, like the ‘Hercules’ asset protection scheme, can help speed up the reduction of non-performing exposures. Under the no-state-aid scheme ( ), banks may transfer non-performing loans to individually managed, private securitisation vehicles, which will finance the transactions by issuing various notes. The State will provide a guarantee for the senior, less risky notes of the securitisation vehicle under strict conditions and against remuneration at market terms. The scheme will run over an 18-month period, with a planned budget consisting of maximum €12 billion of guarantees and voluntary participation by all Greek banks. The success of the scheme will, depend on the balance of regulatory capital gains, guarantee related expenses and losses stemming from the sale of notes to the investors among other factors. However, the current range of tools and policies may not be sufficient to remove non-performing loans from banks’ balance sheets and settle private and public debt in the near term. To shrink non-performing loan ratios rapidly, the toolkit for reducing non-performing loans could be broadened, as it has been in other EU countries, both through systemic solutions consistent with EU rules and bank-specific ‘organic’ internal loan workout activities, which performed below expectations in past years. Strategic defaulters and moral hazard represent additional challenges that for many years have adversely affected the payment discipline in Greece. Resolving households and businesses’ over-indebtedness in a swift and sustainable manner will be instrumental for accelerating the economic recovery. To tackle this challenge, the authorities are preparing to streamline the multiple frameworks for bankruptcy and insolvency, while taking steps to address the backlog of household insolvency cases. The authorities therefore committed to put in place a consistent and unified framework for settling corporate and household debt, aiming to limit procedural abuse by debtors, which prevents banks from seizing collateral in case of defaults. This new framework will transpose Directive 1023/2019 ( ) and replace the existing out-of-court workout mechanism, which attracted relatively low interest from debtors. A related challenge is the clearance of the backlog of household insolvency cases at courts, which the authorities aim to speed up by providing specialised training to judges and increasing the number of clerical staff at courthouses. The performance of e-auctions by banks to liquidate their collateral has fallen short of expectations. Electronic auctions started in November 2017 but have had so far limited impact in reducing non-performing loans. In the first half of 2019, about 40% of scheduled auctions were suspended or cancelled, due to procedural issues and filings under the household insolvency law. Moreover, more than 60% of the executed auctions did not attract any bidders, while in 75% of the successful ones the banks ended up purchasing the collateral themselves. The authorities are investigating possible improvements to the framework. The governance of the systemic banks continued to improve gradually, with the active support of the Hellenic Financial Stability Fund. The Fund regularly evaluates the performance of the banks’ Boards of Directors and their governance arrangements. As a result, by October 2019, these banks have mostly implemented the Fund’s recommendations from the 2017 board performance and governance review that focused primarily on the banks’ risk management culture, compliance and internal control frameworks. The authorities have put in place an action plan to clear the backlog of claims linked to state guarantees issued to individuals and businesses. The action plan intends to streamline the bureaucratic burden of processing claims and to reinforce the department staff that manage state guarantees. The authorities are seeking ways, supported by credible measures, to accelerate the payment profile of called guarantees in question. Greek insurance companies are adequately capitalised but their exposure to risks did not materially change in 2018. Insurer’s total assets represented only 9% of GDP as of the end of 2018. The solvency position of Greek insurers is adequate. At the end of 2018, government bonds accounted for 61% of the total investment for which risk is borne by Greek insurance companies. This is twice the EU average and entails a significant home bias. A paradigm shift has taken place in Greece in the area of card payments since mid-2015. Card payments have increased sharply since 2015, as a side effect of the imposition of capital controls. This tendency was further reinforced by the mandatory introduction of ‘point of sale’ devices for most merchants, and linking customers’ use of electronic payments to their tax-free income. As a result, the number of point of sale terminals increased significantly from less than 200,000 in 2014 to 565,000 in 2018, the number of payment cards increased from 12.1 million in 2014 to 15.6 million in 2018, and the value of card payments with cards issued in Greece more than tripled. However, data for the first half of 2019 suggest that this trend may be losing momentum. Despite this impressive growth, card transactions per person and the penetration rate of plastic cards in Greece remain well below the EU average. 4.2.2.access to finance Following years of contraction, bank lending remains subdued for households but shows signs of improvement for companies. From 2011 until late 2018, the growth rate of loans extended to non-financial corporations was either negative or close to zero. However, since December 2018, growth in credit to non-financial corporations turned positive and reached rates last observed in mid-2010, supported by a decline in credit risk and the average cost of financing. Yet, most of the renewed credit growth is due to large corporations in the energy, transport and tourism sectors. Loans to households continue to contract, although survey data suggest that demand has been growing for all categories of household credit since 2018. A divergence in trends is also evident in terms of lending r