EUROPEAN COMMISSION Brussels, 5.6.2019 SWD(2019) 540 final COMMISSION STAFF WORKING DOCUMENT Enhanced Surveillance update – Greece, June 2019 Accompanying the document COMMUNICATION FROM THE COMMISSION Enhanced Surveillance update – Greece, June 2019 {COM(2019) 540 final}



ADEDY: Ανώτατη Διοίκηση Ενώσεων Δημοσίων Υπαλλήλων (Civil Servants' Confederation) ADMIE: Ανεξάρτητος Διαχειριστής Μεταφοράς Ηλεκτρικής Ενέργειας (Greek Electricity Transmission System Operator) AEDIK: Corinth Canal S.A. AEO: Authorised Economic Operator AFCOS: anti-fraud coordination service AFEK: Ατομικό Φύλλο Εκκαθάρισης (personal clearance certificate) AIA: Athens International Airport AMC: Asset Management Company ANFA: Agreement on Net Financial Assets APS: Asset Protection Scheme ASEP: Ανώτατο Συμβούλιο Επιλογής Προσωπικού (Supreme Council for Civil Personnel Selection) BoG: Bank of Greece CBD: Consolidated Banking DataCCM: Central Committee of Mediation CCP: Code of Civil Procedure CDLF (ΤΠΔ): Ταμείο Παρακαταθηκών και Δανείων (Consignment Deposits and Loans Fund) CEO: Chief Executive Officer CET1: Common Equity Tier 1 CF: Cohesion Fund CIT: corporate income tax

CO2: carbon dioxide CoCo: contingent convertible bond CoEx: Committee of Experts CoS: Council of State DAPEEP: Διαχειριστής Ανανεώσιμων Πηγών Ενέργειας & Εγγυήσεων Προέλευσης (RES Market Operator) DEPA: Δημόσια Επιχείρηση Αερίου (Public Gas Corporation of Greece) DESFA: Διαχειριστής Εθνικού Συστήματος Φυσικού Αερίου (Natural Gas Transmission System Operator) DSA: debt sustainability analysis DTAs: deferred tax assets DTCs: deferred tax credits EBA: European Banking Authority EBF: Extra Budgetary Funds EBRD: European Bank for Reconstruction and Development ECB: European Central Bank EDA Attiki: Εταιρεία Διανομής Αερίου Αττικής (Natural Gas Distribution Company of Attica) EDP: excessive deficit procedure EFKA: Ενιαίος Φορέας Κοινωνικής Ασφάλισης (Unified Social Security Fund) EFSF: European Financial Stability Facility EIB: European Investment Bank EKAPY: Εθνική Κεντρική Αρχή Προμηθειών Υγείας (National Central Authority of Health Procurements)

EKAS: Επίδομα Κοινωνικής Αλληλεγγύης Συνταξιούχων (pensioners' social solidarity grant) ELA: emergency liquidity assistance ELSTAT: Ελληνική Στατιστική Αρχή (Hellenic Statistical Authority) ELTA: Ελληνικά Ταχυδρομεία (Hellenic Post) EMFF: European Maritime and Fisheries Fund EMU: Economic and Monetary Union ENFIA: Ενιαίος Φόρος Ιδιοκτησίας Ακινήτων (unified property tax) EOPYY: Εθνικός Οργανισμός Υπηρεσιών Υγείας (national health insurance body) EPA Attiki: Εταιρεία Παροχής Αερίου Αττικής (Natural Gas Supply Company of Attica) ERDF: European Regional Development Fund ERGANI: database of registered employment contracts ESA: European System of Accounts ESKAEN: Εθνικό Συμβούλιο για την Κωδικοποίηση και την Αναμόρφωση της Ελληνικής Νομοθεσίας (National Council for the Codification of Legislation) ESM: European Stability Mechanism ETAA: Ενιαίο Ταμείο Ανεξαρτήτων Απασχολούμενων (Independent professionals Social Security Fund) ETAD: Εταιρεία Ακινήτων Δημοσίου ΑΕ (Public Properties Company) ΕΤΕΑΕP: Ενιαίο Ταμείο Επικουρικής Ασφάλισης & Εφάπαξ Παροχών (Single Social Security Fund for Supplementary and Lump Sum Benefits) ETMEAR: Ειδικό Τέλος Μείωσης Εκπομπών Αερίων Ρύπων (Special Duty for Reduction of Gas Emissions) ETS: emissions trading scheme EU: European Union

EYATH A.E.: Εταιρεία Ύδρευσης και Αποχέτευσης Θεσσαλονίκης Α.Ε.(Thessaloniki Water Supply and Sewerage Company S.A.) EYDAP A.E.: Εταιρεία Ύδρευσης και Αποχέτευσης Πρωτευούσης A.E. (the Athens Water Supply and Sewerage Company S.A.) FDI: foreign direct investment FEK: Φύλλο Εφημερίδος της Κυβερνήσεως (Government Gazette Issue) GACS: Guarantee on Securitization of Bank Non Performing LoansGAIAOSE: SOE active in the fields of railway property and rolling stock exploitation, management and development GAO: General Accounting Office (part of Ministry of Finance) GDP: gross domestic product GFN: gross financing needs GGE: general government entities GLF: Greek Loan Facility GSAC: General Secretariat for Anti-corruption GSCO: General Secretariat for Coordination GSIS: General Secretariat of Information Systems HBA: Hellenic Banking Association HCA: Hellenic Court of Auditors HCAP: Hellenic Corporation of Assets and Participations HELPE: Hellenic Petroleum HFED: Hellenic Fund for Entrepreneurship and Development HFSF: Hellenic Financial Stability Fund HICP: harmonised index of consumer prices

HR: human resources IAPR: Independent Authority for Public Revenue ICT: information and communication technologies IDIKA: Ηλεκτρονική Διακυβέρνηση Κοινωνικής Ασφάλισης Α.Ε. (Government Center for Social Security Services) ILIMS: Ολοκληρωμένο Πληροφοριακό Σύστημα Άσκησης Δραστηριοτήτων και Ελέγχων (Integrated Licensing and Inspections Management System) IMD: International Institute for Management Development IMF: International Monetary Fund JMD: Joint Ministerial Decision KEAO: Κέντρο Είσπραξης Ασφαλιστικών Οφειλών (Centre for the Collection of Social Security Debt) KEK: Kεντρική Επιτροπή Κωδικοποίησης (Central Codification Committee) KEPA: Κέντρο Πιστοποίησης Αναπηρίας (Disability certification centre) KEPE: Κέντρο Προγραμματισμού και Οικονομικών Ερευνών (Centre of Planning and Economic Research) KPI: Key Performance Indicator KYSOIP: Governmental Council for Economic Policy LCR: liquidity coverage ratio LFS: labour force survey MAR: Ministry of Administrative Reform MFI: Monetary Financial Institution MoJ: Ministry of Justice, Transparency and Human Rights MoF: Ministry of Finance

MREL: minimum requirement for own funds and eligible liabilities MSS: motor service stations MTFS: Medium-Term Fiscal Strategy MTO: medium-term budgetary objective MW: megawatt MWh: megawatt hour NACAP: National Anti-corruption Action Plan NED: Non-Executive Directors NFC: non-financial corporation NOME: Nouvelle Organisation du Marché de l'Electricité (electricity auction) NPE: non-performing exposure NPL: non-performing loan NSJ: National School of Judges NSRF: National Strategic Reference Framework OAEE: Οργανισμός Ασφαλίσεων Ελεύθερων Επαγγελματιών (Self-employed Social Security Fund) OAKA: Ολυμπιακό Αθλητικό Κέντρο Αθήνας «Σπύρος Λούης (Olympic Athletic Centre of Athens) OASA: Οργανισμός Αστικών Συγκοινωνιών Αθηνών (Athens’ public transport company) OASTH: Οργανισμός Αστικών Συγκοινωνιών Θεσσαλονίκης (Thessaloniki’s public transport company) OBL: organic budget law OCC: Operational Coordination Centre

OCW: out-of-court workout mechanism OECD: Organisation for Economic Co-operation and Development OGA: Οργανισμός Γεωργικών Ασφαλίσεων (Agricultural Insurance Organization) OPEKA: Οργανισμός Προνοιακών Επιδομάτων και Κοινωνικής Αλληλεγγύης (Organization of Welfare Benefits and Social Solidarity) OPS-SEPE: Ολοκληρωμένο Πληροφοριακό Σύστημα - Σώμα Επιθεώρησης Εργασίας (Integrated Information System - Labor Inspectorate) OSDDY/PP: Ολοκληρωμένο Σύστημα Διαχείρισης Δικαστικών Υποθέσεων / Πολιτικών και Ποινικών (Integrated Management System for Judicial Cases / Civil and Penal) OTC: over-the-counter PCI: European Project of Common Interest PCR: price coupling of regions PDMA: Public Debt Management Agency PFM: public financial management PIB: public investment budget PIT: personal income tax PPC: Public Power Corporation PRP: Primary Residence Protection PSO: public service obligation RAE: Ρυθμιστική Αρχή Ενέργειας (Regulatory Agency for Energy) RAEM: Ρυθμιστική Αρχή Επιβατικών Μεταφορών (Regulatory Authority for Passenger Transport) RES: renewable energy source RFA: Relationship Framework Agreement

ROSCO: Rolling-Stock Maintenance Company SME: small and medium-sized enterprise SMP: Securities Markets Programme SOE: State-owned enterprise SPA: Single Payment Authority SPV: special purpose vehicle SRSS: Structural Reform Support Service SRSP: Structural Reform Support Programme SSI: social solidarity income SSM: Single Supervisory Mechanism SSW: Special Secretariat for Water SUP: Special Urban Planning TAIPED: Ταμείο Αξιοποίησης Ιδιωτικής Περιουσίας του Δημοσίου AE (Hellenic Republic Asset Development Fund) TEI: Τεχνολογικό Εκπαιδευτικό Ίδρυμα (technical education institutions) TEN-E Regulation: Trans-European Networks-Energy TITLOS: swap proceeds securitized in the form of a structured finance vehicle TLA: Tunnel Licencing Authority TOMY: Τοπική Μονάδα Υγείας (Primary Health Care Unit) TSA: Treasury Single Account UCoA: Unified Chart of Accounts

VAT: value added tax WWF: World Wide Fund for Nature This report is prepared as accompanying document to the Commission's assessment pursuant Article 3(5) of Regulation (EU) 472/3013 published as Communication from the Commission – Enhanced Surveillance – Greece, June 2019. It was prepared in the Directorate General Economic and Financial Affairs, under the direction of Marco Buti, Director General, Carlos Martínez Mongay, Deputy Director General, Declan Costello, Director and Mission Chief, and the coordination of Paul Kutos, Head of Unit and Deputy Mission Chief and Milan Lisicky, Deputy Head of Unit. Contributors: Chris Allen, Giuseppe Carone, Declan Costello, Fotini Dionyssopoulou, Matteo Duiella, Christos Gofas, András Hudecz, Alexander Ioannidis, Paul Kutos, Eloïse Lecouturier, Milan Lisicky, Vasileios Maroulis, Benedetta Martinelli, Vasilis Nikitas, Miguel Angel Otero, Elena Pavlova, Zoltán Petrov, Eleni Polemidiotou, Nevenka Tosici, Andreas Trokkos, Vasiliki Vasilopoulou, Irene Vlachaki, Rainer Wichern, Alkistis Zavakou. Assistance was also provided by Fotini Louka and Siofra Mc Donnell. The European Central Bank (ECB) Staff participated in the drafting of this report in accordance with the ECB’s competences and thus provided expertise on financial sector policies and macro-critical issues, such as headline fiscal targets and sustainability and financing needs. Staff of the European Stability Mechanism (ESM) contributed to the preparation of this report in the context of the ESM's Early Warning System and in accordance with the Memorandum of Understanding of 27 April 2018 on working relations between the European Commission and ESM. IMF staff participated in the context of its 2019 Article IV surveillance cycle. Comments on the report would be gratefully received and should be sent, by mail or e-mail to: Paul Kutos European Commission Unit ECFIN-F-2 CHAR 14/103 B-1049 Brussels e-mail: ECFIN-GREECE-REQUESTS@ec.europa.eu Commission Staff Working Document3 1.Introduction5

2.Macroeconomic developments7 3.Fiscal and fiscal-structural policies9 3.1.Fiscal policy9 3.2.Fiscal structural policies15 3.2.1.Taxation15 3.2.2.Revenue administration16 3.2.3.Public financial management18 4.Social welfare23 4.1.Pensions23 4.2.HEalth care23 4.3.Safety nets25 5.Financial sector27 5.1.financial sector developments27 5.1.1.Financial sector overview and financial stability assessment27 5.1.2.Financing of the economy29 5.2.financial sector policies31 5.3.hellenic financial stability fund36 6.Labour and product markets37 6.1.Labour market37 6.2.producT markets and competitiveness38

6.2.1.Business environment40 6.2.2.Network industries45 7.Hellenic Corporation of Assets and Participations (HCAP) and privatisation49 7.1.HCAP49 7.2.Implementation of the asset development plan51 8.Public administration and justice55 8.1.public administration55 8.1.1.Appointments of senior management positions55 8.1.2.Improving the human resource management in the public administration55 8.1.3.Better regulation and coordination56 8.1.4.Controlling the size and cost of public sector57 8.2.Justice58 9.Sovereign financing and capacity to repay61 9.1.Sovereign financing61 9.2.debt sustainability62 Annex63 LIST OF Tables 2.1.Summary of the main macroeconomic variables8 3.1.Differences in the Commission 2019 spring forecast and Greece's Stability Programme (% of GDP)10

3.2.Measures legislated in May 2019 (% of GDP)11 3.3.Policy intentions for measures to be adopted in late 2019 (% of GDP)13 3.4.KPIs of the IAPR (2018-2019)18 3.5.Arrears clearance plan (actual data until March 2019, in million EUR)20 5.1.Main financial stability indicators29 LIST OF Graphs 2.1.Real GDP and growth contributions8 4.1.Pensions and social spending23 4.2.Evolution of outpatient pharmaceuticals clawback24 5.1.Bank deposits (left panel) and total borrowing from the Eurosystem (right panel)27 5.2.Evolution of NPL ratio (left) and NPL stock (right)28 5.3.Bank credit to non-financial corporations and households30 5.4.Bank interest rates on new loans30 5.5.Cumulative number of e-auctions conducted since 29 November 201731 5.6.Submitted business applications34 5.7.Outcome of multilateral negotiations - businesses35 6.1.Share of uninsured workers found in high-risk sectors. January 2013 - April 201938 6.2.Evolution of Greece's export market share39 9.1.Greece's credit ratings and yield spreads compared to the Bund61

9.2.62 LIST OF Boxes 3.1.Under-execution of spending ceilings in 201814 3.2.The phasing out of ex ante audits performed by the HCA19 6.1.Assessment of the economic impact of selected product market reforms in pharmacies and over-the-counter (OTC) drugs42 6.2.Assessment of the economic impact of reforms affecting Sunday retail trading43 Economic developments and policies in Greece are monitored under the regular economic surveillance framework for euro-area Member States under the European Semester for economic policy co-ordination and under the enhanced surveillance framework according to Regulation (EU) No 472/2013 (). The activation of enhanced surveillance for Greece () acknowledges the fact that over the medium term, Greece needs to continue adopting measures to address the sources or potential sources of economic and financial difficulties, while implementing structural reforms to support a robust and sustainable economic growth. Greece made a general commitment at the Eurogroup of 22 June 2018 to continue and complete reforms adopted under the ESM programme and to ensure that the objectives of the important reforms adopted under the financial assistance programmes are safeguarded. In addition, Greece made specific commitments to complete key structural reforms started under the programme 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 (). Greece reiterated these commitments given to European partners in the Eurogroup statement of 5 April 2019 (). In this context, 15 specific commitments were made with a deadline of mid-2019, progress on which is assessed in this report. This report is based on the findings of a mission to Athens between 6 and 8 May 2019 and regular dialogue with the authorities (). The mission was conducted by the Commission in liaison with the ECB (); the IMF participated in the context of its 2019 Article IV surveillance cycle, while the ESM participated in the context of its Early Warning System and in line with the Memorandum of Understanding of 27 April 2018 on working relations between the European Commission and ESM. Enhanced surveillance provides a comprehensive framework for monitoring economic developments and the pursuit of policies needed to ensure a sustainable economic recovery. To this end, this report includes an assessment of economic conditions in Greece (chapter 2); an assessment of implementation of reform commitments given by Greece to the European partners (chapters 3-8); and an update on sovereign financing conditions and debt repayment capacity (chapter 9). This report is issued alongside the 2019 spring Semester package that includes an assessment of Greece’s Stability Programme and the Commission Recommendation for country-specific recommendations to Greece.

The Eurogroup on 22 June 2018 agreed that the package of debt relief measures for Greece should include incentives to ensure a strong and continuous implementation of the reform measures agreed in the programme. To this end, the implementation of some of the agreed debt measures (the abolition of the step-up interest rate margin related to the debt buy-back tranche of the European Financial Stability Facility (EFSF) programme as of 2018 and the restoration of the transfer of equivalent amounts to the income earned by euro-area national central banks on Greek government bonds held under the Agreement on Net Financial Assets (ANFA) and the Securities Market Programme (SMP) will be made available to Greece subject to compliance with its commitments on reform continuity and completion, based on positive reports under enhanced surveillance. The return of SMP-ANFA income equivalent amounts would be made available to Greece in semi-annual tranches of some EUR 640 million up to mid-2022. The waiver of the step-up interest rate margin, for part of the EFSF loans, would reduce interest payments by some EUR 220 million annually. It would be waived on a semi-annual basis until 2022 and permanently after 2022. Following the Eurogroup on 5 April 2019, the first tranche of policy-contingent debt measures has been completed, inter alia based on the assessment of the implementation of Greece’s commitments for end-2018 in an updated enhanced surveillance report adopted by the Commission on 3 April 2019 (). Given that last year’s full amount and half of this year’s instalments of the interest step-up margin were eligible for a waiver, the policy-contingent debt measures exceptionally amounted to some EUR 970 million (). Greece’s economic recovery is expected to continue in 2019 (). Although the last quarter of 2018 showed some deceleration in economic activity, with real GDP decreasing at 0.1% quarter-on-quarter (seasonally and working-day adjusted), this slight decrease came after strong growth in the third quarter. The annual growth rate in 2018 came in at 1.9%, which confirms that the recovery is gaining some momentum. Real GDP growth is forecast to reach 2.2% in both 2019 and 2020, supported primarily by domestic demand. This forecast does not take into account the possible effects of the fiscal measures announced in May, which will be assessed in the next fully fledged forecast in the autumn. Private consumption is forecast to perform well in 2019. Private consumption has been a steady contributor to growth in both 2017 and 2018. The consumer sentiment indicator has been on a steady rise since mid-2018 and in the first five months of 2019 reached levels not seen since beginning of the crisis. The increase in the statutory minimum wage and the abolishment of the sub-minimum wage is expected to provide an additional boost to private spending in the short term. An increase in public consumption may support growth this year. A decrease of 2.5% in real public consumption put a drag on growth in 2018. This was the result of continued and large under-spending in intermediate consumption compared to the budgeted targets. The rule-based forecast for 2019 assumes that the budget targets will be respected and achieved in 2019, therefore public consumption is expected to rebound and grow by 3.1% in real terms this year: In practice, and as outlined in chapter 3.1, there are risks that intermediate consumption may once again fall short of budget targets in 2019, an outcome that would act as a drag on growth. Investment is expected to rebound in 2019, but only if the public investment budget is executed in full, which is not assured. Real gross fixed capital formation declined by 12.2% in 2018, performing well below expectations. A large part of this decrease was due to the continued large under-execution of the public investment budget. Public investment in 2018 declined close to 29% in nominal terms. This had a negative multiplier effect on corporate investment as well, as many private investment projects are related to public investments. On a technical note, it is important to highlight that gross capital formation declined much less than gross fixed capital formation, i.e. the accumulation of inventories was substantial in 2018 whereas inventories declined in 2017. For 2019, the Commission projects double-digit growth in investment based on the assumption that the public investment budget will be executed fully and will support real investment activity: in practice, however, there are considerable risks that the structural bottlenecks to design and implement public investment projects of adequate quality will materialise again in 2019 notwithstanding the technical assistance provided by the European Commission to strengthen the project pipeline. The recovery of residential construction is also expected to strengthen, while corporate investments may gain momentum once there is more clarity in public policy intentions after the national parliamentary elections. Exports may decelerate amid an external slowdown. The main success story in the macroeconomic picture of 2018 was the buoyant performance of the export sector. Exports of goods recorded 8.4% real growth, while exports of services increased by 9.3%. Export performance is expected to moderate in 2019 as the slowdown of the external environment curbs down foreign demand of goods, and the capacity reserves left for the volume of tourism to increase further are limited. At the same time, exports of goods and services are still expected to increase by close to 5% in 2019 and close to 4% in 2020 in real terms. The labour market shows further improvements, although the decline in unemployment halted since October 2018. Unemployment has been declining from 20.9% in December 2017 to 18.6% in October 2018, and has been hovering around that level until February 2019. Employment grew by 1.7% in 2018 according to the national accounts definition, and by 2% according to the labour force survey. Employment still showed year-on-year growth of 2.4% in February, though this reflects earlier gains in employment rather than recent improvements, as the actual level of employment has been on a mildly decreasing path since mid-2018, as reported in the labour force survey. Detailed monitoring is foreseen to assess the impact of the recent increase of the minimum wage and the abolition of the sub-minimum wage on the pace of the recovery in the labour market. Graph 2.1:Real GDP and growth contributions Source: European Commission Annual inflation reached 0.9% on average in the first four months of 2019. Price increases are expected to remain muted throughout the year. Inflation was driven primarily by non-core items, while core inflation (HICP excluding energy and unprocessed food) remained at 0.6% for this period. Energy inflation is expected to moderate in the rest of the year, while core inflation is set to increase mildly, partly due to the ongoing economic recovery and partly due to the inflationary effect of the minimum wage increase. Inflation is expected to pick up considerably only in the outer years, as the output gap closes. Downside risks dominate the forecast in the short and medium term. The forecast is heavily reliant on technical assumptions regarding the execution of the general government budget ceilings for investment and ordinary spending. Should this assumption not hold, both public consumption and investment may turn out to be significantly lower. Also, the forecast assumes no reform reversals that may affect business sentiment. While expansionary fiscal measures adopted in May could provide an additional boost to domestic demand in the near term, there are also risks on the downside. Investment financing through the banking system may face challenges, should the level of non-performing loans remain high. Increased labour costs may weigh on firms’ profit margins more than currently expected, which would further limit business investment. The marked slowdown in foreign demand is currently expected to have a moderate effect on Greece’s export performance. In case of an even more pronounced deterioration in the external environment, or a stronger pass-through to Greece, the recovery may prove to be more sluggish. Table 2.1:Summary of the main macroeconomic variables Source: European Commission 3.1.Fiscal policy Greece overachieved the agreed primary surplus target of 3.5% of GDP in 2018. The general government headline balance reached 1.1% of GDP in 2018, recording a surplus for the third year in a row. The primary balance, as per the definition monitored under enhanced surveillance, reached 4.3% of GDP, i.e. 0.8% above the fiscal target of 3.5% of GDP, after taking into account two large payments that made use of the fiscal space in 2018: refunds of wages to uniformed personnel and other public officials following a decision of the Council of State (materialisation of fiscal risks), and a payment of a means-tested cash transfer to low-income households (‘social dividend’), neither of which was envisaged in the initial budget for 2018. The primary balance would have reached 5.2% of GDP in absence of these payments. A large proportion of the overachievement is due to continued under-execution of spending ceilings, notably on public investment. As analysed in Box 3.1, the main drivers of the over-performance were lower-than-expected investment expenditure, consumption and social expenditure. For the most part, the under-execution of expenditure arises due to budget ceilings being set above the actual spending capacity of individual budgetary units and underlines the need for realistic estimates of costs of new policies and proper assessments of the state of play on major spending projects underpinning the ceilings. These issues have occurred for a number of years. The European institutions are supporting the authorities to address the reasons for the underspending by further improving the budget preparation process, enhancing the capacity of the General Accounting Office to properly scrutinise budget proposals of the main general government entities, and to establish a unified approach to budgetary planning by transferring responsibility for the setting of investment spending targets to the General Accounting Office. Given the underlying causes, the over-achievement of the primary surplus target in 2018 is not carried over to 2019 in the fiscal projections of the European institutions. In line with standard practices applied to all Member States, the fiscal projections prepared by the European institutions traditionally assume full execution of the budget ceilings, for a number of reasons. As mentioned above, the underspending recorded in the past years is largely due to an overstatement of budget ceilings, rather than objective reasons outside the control of the authorities. Secondly, anticipating underspending and the resulting fiscal space in the projections could lead to double booking of expenditure. Such practice would decrease the transparency of the budgetary framework and pose risks to reaching the fiscal targets either because the initial budget ceilings are used fully or because the authorities adopt additional one-off or permanent fiscal measures throughout the year. For the reasons outlined above, and also given the need to take a balanced view of downside risks (see below), the projection of the European institutions is based on the assumption that budget ceilings are fully executed, with the risk of underspending treated as an upside ‘risk’ to the forecast. The Commission 2019 spring forecast, published before Greece’s adoption of a new package of fiscal measures on 15 May 2019, indicated that the primary surplus target of 3.5% of GDP is met throughout the forecast horizon. The projection included measures adopted in the context of the 2019 Budget, most notably the reduction in the ENFIA property tax in 2019; a reduction in social security contributions for the self-employed, independent professionals and farmers; a gradual decrease in the corporate income tax rate by 1 percentage point each year in 2020-2023; and the introduction of a new housing benefit. It also incorporated the cost of the subsidy for the protection of primary residences, which the authorities project at EUR 150 million in 2019 and EUR 200 million in 2020. The actual cost of the subsidy may turn out significantly lower both in view of the delays with initiating the scheme and the possible overestimation of its cost by the authorities. The projection also took into account the expiry of the current claw-back arrangement in 2022 (on current legislation), which constrains healthcare spending ensuring that it stays within the agreed ceiling. In terms of the underpinning measures, the Commission 2019 spring forecast and the fiscal projection presented by the Greek authorities in their 2019 Stability Programme have similar assumptions. Nevertheless, the primary surplus projected by the Commission in its 2019 spring forecast was considerably lower than that of the Greek authorities in their Stability Programme sent to the Commission at the end of April 2019 (). In their Stability Programme, the authorities forecast a primary surplus reaching 4.1% of GDP in 2019 and 3.9% of GDP 2020, rising to 4.6% of GDP in 2022. As shown in Table 3.1, one third of the difference between the projections of the authorities and the European institutions in 2020 is due to a more favourable forecast of the macroeconomic environment by the authorities, and another 40% is due to a recent re-allocation of part of the public investment budget from entities outside general government to financial grants to state-owned enterprises (see below). Other differences are of smaller magnitude in 2020 and concern mainly the modelling of Greece’s contributions to the EU budget, which is currently under assessment.

Table 3.1:Differences in the Commission 2019 spring forecast and Greece's Stability Programme (% of GDP) Source: European Commission The Greek authorities incorporate the underspending observed in previous years in their fiscal projections with balance-improving effects of 0.3% and 0.2% of GDP in 2019 and 2020, respectively. In operational terms, this change was implemented through a re-assignment of part of the expenditure previously foreseen for investment outside general government to grants to state-owned enterprises, without adjusting the spending ceilings of the investment budget. Since the authorities assume these grants will not be used by the state-owned enterprises for additional investment, this accounting operation has a balance-improving effect in their projections. The European institutions have not received adequate information neither on the nature nor on the specific recipients of the additional grants, and have therefore not reflected this in their projection. In their Stability Programme, the Greek authorities announced their intention not to implement the pre-legislated income tax credit package, which was set to enter into force in January 2020. This means not proceeding with measures that broaden the tax base and create fiscal space of 1% of GDP for growth-enhancing reforms of the tax system (). In line with standard practice for all Member States, the announcement was reflected in the Commission 2019 spring forecast, even if the changes to the respective tax laws are not yet legislated. As the income tax credit package was fiscally broadly neutral, the announcement has only a strictly limited impact in the forecast. Table 3.2:Measures legislated in May 2019 (% of GDP) Source: European Commission On 15 May 2019, and thus after the submission of the Stability Programme, the authorities adopted a package of permanent fiscal measures, which the European institutions estimate will have a fiscal cost of more than 1% of GDP in 2019 and beyond. The measures include new instalment schemes for debts on taxes and to social security funds and municipalities, reductions in selected VAT rates, introduction of a 13th pension and a reversal of an earlier reform of survivors’ pensions. The European institutions’ estimates of the fiscal cost of these measures vary depending on the take up of the new instalment schemes and their impact on the existing ones and are higher than that of the Greek authorities (see Table 3.2). No estimate of the potential fiscal impact of the new instalment scheme for taxes and local government revenues has been provided to the Greek Parliament. Given that the Commission 2019 spring forecast points to a primary balance of close to 3.5% of GDP up to 2021, the adoption of measures with a fiscal impact of this magnitude poses a risk for the achievement of the agreed primary surplus target. Moreover, and as outlined in the assessment of the Greek Stability Programme, the measures also raise concerns on the achievement of the medium-term budgetary objective (MTO) of a surplus of 0.25% of GDP in structural terms in 2020. A re-assessment of compliance with the requirements of the preventive arm of the Stability and Growth Pact will be carried out in autumn 2019, including a revision of the applicable benchmark for net expenditure growth in 2020. The quality of the fiscal measures adopted on 15 May 2019 is of concern given the objective to make public finances more growth-friendly and to direct a higher share of social spending towards groups who face the highest incidence of poverty. The permanent fiscal cost of these measures also absorbs a considerable amount of fiscal space that was envisaged in legislation adopted in 2017 for growth-enhancing reductions in labour and corporate tax rates. In more detail, the adopted measures are as follows: ·New instalment schemes to settle debts on taxes, social security contributions and payments to local governments (estimated fiscal cost ranging from 0.3-0.6% of GDP in 2019). These schemes contrast a key reform enacted in 2013, which replaced all former settlement schemes by a single ‘basic’ scheme used for tax debt collection as well as for social security debt collection. The basic scheme is accessible only to viable and liquidity constrained taxpayers, with eligibility assessed prior to entering the scheme. For big debtors, the basic scheme requires a third party assessment of the viability of the debt schedule and collateral. It offers no reduction of past surcharges. The new schemes will provide the possibility to clear debts in up to 120 monthly instalments, instead of only 12 in the basic scheme, and largely without an assessment of the ability to pay. The opening of new schemes six years after the basic scheme was put in place creates legitimate expectations that new schemes will be opened again in the future, and thus raises critical concerns about payment discipline (). The European institutions’ estimates are based upon the impact of previous instalment schemes; they take into account upfront losses expected due to a large proportion of persons and legal entities moving from existing instalment schemes to the new and more generous one, which are likely to be larger than the revenue generated by the inflow of persons and entities that have not started to clear their debts to the government yet. See section 3.2.2 for further analysis. ·Lower VAT rates for food products, restaurants and food services, electricity and gas (estimated fiscal cost of 0.4% of GDP). This measure alters an important reform of the VAT system adopted in July 2015 to secure the agreement on the ESM stability support programme for Greece. The reform aimed to reduce the VAT gap by eliminating VAT exemptions and limiting the application of reduced rates. The newly adopted measure leaves in place the very high 24% standard rate (5th highest in the EU) while further expanding the scope of the reduced rates. This will increase the VAT gap, which is already the 2nd highest in the EU. See section 3.2.1 for further analysis. ·Introduction of a permanent 13th pension and relaxation of eligibility criteria for survivors’ pensions (estimated fiscal cost of 0.5% of GDP). These measures partially alter measures adopted in November 2012 and in 2016 respectively. The new 13th pension will be paid once a year at a level of 30%-100% of current pensions (the highest percentage for pensions below EUR 500 per month and the lowest for pensions above EUR 1 000 per month). Regarding the survivors’ pensions, the reform increases the generosity of the pension to 70% (up from 50%) and eliminates the time limit for drawing on the pension (currently 3 years for persons below 50 years of age). Furthermore, the number of married years for eligibility is reduced from 5 to 3. See section 4.1 for further analysis. Overall, this reform will increase public spending on pensions – which is already the highest in the EU as a share of GDP – and is in contrast to measures adopted in the 2019 budget which direct a higher share of spending on social benefits towards young people and the working-age population who face much higher risks of poverty (). In addition to the measures outlined above, the Greek authorities announced their intention to adopt a set of additional measures for 2020. These are policy intentions to be enacted in autumn 2019 in the context of the 2020 budget and will not be legislated now. These include reductions in tax rates, as well as the introduction of a series of exemptions and tax expenditures (see Table 3.3). The authorities have provided only a partial estimate of the fiscal impact of these measures, totalling EUR 1.2 billion or 0.6% of GDP. An assessment on the quality of the measures and their impact on the achievement of the agreed fiscal targets would only be carried out if detailed proposals are actually tabled. The Greek authorities have also announced their intention to revisit the agreement reached with European partners in June 2018 as regards the annual primary surplus targets of 3.5% of GDP up to 2022. Linked to this, the authorities are considering transferring part of the cash reserves generated by the 2016-2018 fiscal over-performance to an escrow account. Any proposal that alters the agreement reached with European partners in June 2018 would need to be discussed at the Eurogroup in the context of an updated debt sustainability analysis. Table 3.3:Policy intentions for measures to be adopted in late 2019 (% of GDP) Source: European Commission Greece’s public finances continue to face important fiscal risks with respect to ongoing court cases. The Council of State, Greece’s highest court, is yet to issue final decisions on the constitutionality of the past pension reforms and the elimination of seasonal bonuses to civil servants. No new information on the pending case on pensions has become available since the publication of the second enhanced surveillance report, and the ruling by the Council of State on the constitutionality of the cuts in seasonal bonuses is yet to be published. The refunds of wage cuts to uniformed personnel made in 2018 following an earlier decision of the Council of State were covered by a reallocation of resources from unused expenditure appropriations at the end of 2018, once it was possible to quantify the expected size of underspending. Should risks materialise, covering them from under-executed spending ceilings will likely become difficult this year in view of the likely slippage against the fiscal target. In the event of court rulings overturning key structural elements of reforms agreed under the financial assistance programmes, the recurrent fiscal implications of such rulings should be largely addressed by actions within the same policy area. Risks related to the broadening of the scope of exemptions from the unified wage grid have partly materialised and remain a source of concern. Following the decision in October 2018 to exempt certain officials at the Ministry of Finance from the unified wage grid, the exemption was extended to the Ministry of Economy and Development in March 2019, with a retroactive application from September 2018. While the cost of this measure is relatively contained, it increases the likelihood of legal challenges by other groups of public officials on reason of equal treatment and/or of a unilateral decision of other general government entities to extend these exemptions on an ad hoc basis. Establishing a unified wage grid was one of the key reforms implemented under the financial assistance programmes. It thus forms part of the commitment to safeguard the objectives of such reforms that the authorities made to their European partners in June 2018. See section 8.1.4 for further analysis. (Continued on the next page) Box (continued) 3.2.Fiscal structural policies 3.2.1.Taxation Whilst Greece has made progress in the reform of ENFIA property tax valuation, though preparations for a mid-2019 realignment of property values have not yet been completed. The valuation reform aims at fully aligning property tax zonal values with market prices by 2020, thus widening the tax base and improving the efficiency and fairness of the tax. Considerable progress has been made in staffing the newly set up valuation unit and in developing the tools for valuations. Two key IT projects have been initiated to map electronically zonal boundaries and to systemise the collection of real estate data. The legal framework for the new system of property valuation by professional real estate values was established by an amendment in Law 4587/2018. Following an independent quality assessment exercise of the results of the last year's nationwide valuation exercise, it was agreed that a new nationwide valuation exercise by valuers was not needed in 2019. However, the results of the independent exercise highlighted the need to extend the market valuation system beyond the existing property value zones and also the need to improve the valuation of commercial properties.

As an intermediate step towards full alignment of property tax values with market prices in 2020, the authorities have been working towards a partial realignment in 2019. The aim would be to align property tax values by 50% of the remaining difference from market prices this year, in the context of a two-step approach. To this end, the authorities would still need to prepare the detailed timetable for the update to take place and the associated fiscal analysis of the realignment exercise that would allow the setting of revenue neutral tax rates and thresholds. The next ENFIA property tax bills will need to be sent out in July 2019. The changes to VAT rates adopted in May 2019 alter ESM programme reforms of 2015 aimed at reducing the VAT gap by limiting the application of the reduced rates. The newly adopted measure leaves in place the very high 24% standard rate (5th highest in the EU) while further expanding the scope of the reduced and super-reduced rates. This will likely increase the VAT gap, which is already the 2nd highest in the EU. In addition, the parallel lower VAT rate structure still remains in force in a limited number of Aegean islands. Progress is underway on other smaller tax policy reforms. With the help of technical support, reviews are currently underway of the system of Stamp Duty and of the potential individual liability of corporate managers for tax offences. 3.2.2.Revenue administration The hiring of staff to the Independent Authority for Public Revenue (IAPR) remains slow, with only a marginal increase observed during the first quarter of 2019 (from 11 487 to 11 534) and significantly lower than the specific commitment for the end of 2019 (12 500). A positive development during this reporting period was the publication by the Supreme Council for Civil Personnel Selection (ASEP) of the final list with successful candidates for the recruitment of tax/customs officials (546 posts). Further, the complementary measures adopted in the context of the last enhanced surveillance round included legal provisions to facilitate the transfer of staff to the IAPR from the mobility scheme, which is expected to have a positive impact for the ongoing and future mobility cycles. The most recent hiring plan submitted by the IAPR expects that the staffing will have reached 12 396 by end of 2019, which would require a significant acceleration compared to the hiring trend of the previous 12 months. A number of complementary measures were adopted earlier in the year to ensure the continued strengthening of the IAPR's capacity, and specific follow-up actions on these measures are expected to be completed during the next months. First, as concerns the reform of Human Resources, the IAPR is expected to submit a request the Legal Council of State on the planned supplementary wage grid and to adopt the secondary legislation required to establish a supplementary grading scale. Second, the IAPR is to establish an Executive Committee to oversee the implementation of the various actions/projects that are part of the IAPR's strategy document ("Blueprint", 2019-2022). Third, as concerns the 'IT envelope' agreement between the General Secretariat of Information Systems and the IAPR, while the budget has been established, the funds are yet to be secured. Progress on other commitments and reform items is mixed. On customs, continued progress has been made in delivering on the anti-smuggling strategy and the fuel tank action plan, including proceeding with the preparations for the tender on fuel markers with the Expression of Interest published in May 2019. As concerns the Operational Coordination Centre that aims to coordinate the services involved in the fight of smuggling of excise goods, a law amendment relating to the Centre's internal rules (e.g. duration of secondment from the various services) would need to be adopted without delay, in order not to risk reducing its operational capacity. Continued progress is being made in promoting electronic payments, with the action plan being updated to include specific milestones to be achieved until mid-2020. On the other hand, the asset registry, a commitment included under Greece's growth strategy and expected to be adopted by end of 2018, has not been completed. Finally, a recently adopted law amendment () extending the General Secretariat of Information Systems' mandate to develop and manage IT systems relating amongst other to traceability of tobacco products raises potential overlaps of responsibilities with the IAPR. It is therefore essential that a cooperation framework is agreed to ensure that the IAPR has full and easy access to the needed information. The results for the first quarter of 2019 on tax collection and other key performance indicators (KPIs) set by the IAPR presents a mixed picture. Overall the tax collection target has not been fully met, as EUR 923 million were collected compared to a target of EUR 970 million. Although the target for collection of debts by the Large Debtor Unit has been met (EUR 200 million collected compared to a target of EUR 185 million), actual collection during the same quarter of 2018 had been close to 15% higher (EUR 235.2 million). Possible reasons for the weaker than expected tax collection could include an extension granted by the Ministry of Finance concerning withheld income tax and the announcements of new instalment schemes adopted on 15 May 2019. On the other hand, KPIs in most other areas, including collection after audits, are being met, although, as concerns audits, improvements are needed to meet the target on the share of the so-called "fresh" tax audit cases, which is expected to increase in comparison to the overall number of audits carried out (see Table 3.4). The single centre for the collection of social security debt (KEAO) continues to meet its targets for the collection of social security debt. The targets set for 2019 are more ambitious than for the preceding year and rather close to the actual collection achieved during 2018. For the first quarter of 2019, the target was an overall collection of EUR 299 million and the actual collection exceeded this target as EUR 312 million were collected. However, it is noteworthy that the debt collection in April 2019 was significantly lower than the corresponding month in 2018 (13.17%) and a plausible reason could be the announcement of a new instalment scheme concerning social security contribution debt. As concerns the strengthening of joint actions between the IAPR and the KEAO, secondary legislation that will allow the KEAO to consider directly applying the IAPR’s classification of the persons/entities considered to have 'uncollectable' debt remains pending and should be adopted without delays. Further, the KEAO is undertaking a re-organisation, mainly consolidating its regional offices, and is also taking steps to fill the vacant posts (currently 450 out of 700 posts are filled), in order to further enhance its capacity. Finally, the KEAO is currently reviewing the collection tools available, in particular how to more efficiently target strategic defaulters, in order to present concrete suggestions during the next months. Finally, the authorities adopted three new instalment schemes for tax, social security and municipal debts with up to 120 monthly instalment schemes (). The scope of the social security debt () was more targeted as its main focus was on the self-employed and also linked future contributions to amount paid. In contrast, the instalment scheme on taxation () did not include any specific prioritisation for the physical persons with outstanding debt as of end of 2018 (e.g. include a maximum threshold for assets and/or differentiate number of instalments depending on type of debt owed). Also participation is not conditional on any viability assessment. The potential fiscal impact of the adopted schemes is analysed in section 3.1. Table 3.4:KPIs of the IAPR (2018-2019) Source: IAPR 3.2.3.Public financial management Arrears The Greek authorities have committed to clear the stock of arrears, to avoid the accumulation of new arrears (continuous action) and to complete the implementation of reforms identified by the Hellenic Court of Auditors (HCA) by mid-2019. Despite the fact that the net stock of arrears has decreased since the end of the programme, the pace of reduction has significantly slowed and new arrears continue to be created in some sectors. The remaining stock of arrears as of end-March 2019 still needs to be cleared. The arrears clearance process saw only limited progress since end-August 2018. The end-March 2019 () stock of net arrears stood at EUR 1.4 billion; and while it is EUR 0.3 billion lower than the end of programme (August 2018), it is the same level as at end-December 2018. This indicates that despite the efforts to tackle structural weaknesses in the public financial management, new arrears continue to be created. Programme financing and own resources continue being used to clear arrears. Of the total EUR 7 billion disbursed for arrears clearance during the programme, EUR 0.1 billion remain unused by end-April 2019. In the same period, the authorities have used more than four times the disbursed amount to clear arrears from own resources, much of this amount allocated to the clearance of new arrears, which have continued to be created. (Continued on the next page) Box (continued) The authorities are currently implementing structural measures to address the bottlenecks of arrears management. The measures are based on the recommendations issued by the Hellenic Court of Auditors (HCA) following its audit on arrears in May 2018, which are of a structural nature. To this end, two action plans were prepared, in the fields of responsibility of GAO and the IAPR respectively. According to the latest available information, around one third of the measures mentioned in the IAPR action plan are fully completed and about another one third are very close to be completed. Some of the actions mentioned in GAO’s action plan are completed while some are under development or in the very first phase of implementation. The overall implementation of the reforms in both action plans will be assessed in mid-2019 in the context of a follow-up audit by the HCA. The authorities committed to provide a full arrears clearance plan with complementary actions targeting the structural sources of arrears creation. The plan shows that the authorities would clear on average EUR 185 million per month between April and August 2019, leaving arrears of slightly below EUR 0.5 billion one year after the end of the ESM programme. The majority of the remaining arrears belong to social security funds, pension claims and local governments. Even though the remaining stock in August 2019 would be substantially lower, the authorities will need to continue clearance and avoid the creation of new arrears.

Table 3.5:Arrears clearance plan (actual data until March 2019, in million EUR) Source: European Commission To further streamline payment processes and facilitate arrears clearance, the authorities are also working on the following measures: ·Although consignments can be opened at the Consignment Deposits these are not recognized by standing Organic Budgetary Law (OBL) provisions as a means of payment. An amendment will allow entities to open consignments for obligations they cannot repay for reasons beyond their powers (e.g. because the beneficiary has not responded to the entity’s notifications) and delete these obligations from their books. It would indeed allow entities to pay their obligations while protecting the beneficiaries’ interests. As a result, large amounts of obligations will be deleted from the stock of arrears, hence allowing the entities to focus on the management of their remaining obligations. The authorities plan to issue primary and secondary legislation by September 2019, with the provisions implemented by November 2019. ·The provision of specific instructions to entities in order to clarify the process and the requirements for issuing settlement vouchers for cases where the amount corresponding to some obligation has already been seized from the entity’s bank account as a result of a court ruling. The OBL already provides for such a treatment, but this possibility is rarely used by entities. The authorities plan to issue the relevant Ministerial Decisions following discussion with the entities by the end of the year, with the provisions implemented as of January 2020. ·A legal amendment whereby the mandatory upload of commitments’ revocation and re-assumption in the “Diavgeia” website in the beginning of each fiscal year will be made en masse in order to streamline procedures and reduce the excessive administrative burden that leads to a slowdown in normal clearance and payment of obligations in the first months of the year. Currently, both processes have to take place for every single commitment, significantly increasing the administrative workload. The authorities plan to amend the Presidential Decree by September 2019, with the first implementation of the new provisions as of January 2020. ·A decision has been signed by the Governor of the IAPR to eliminate the need for a separate administrative process performed by a tax refund beneficiary before legal entities can clear arrears related to tax refund. This arrangement created additional administrative burden to the IAPR, while it also directly led to creation of arrears in cases where the beneficiaries would delay to submit their application. ·In order to address the administrative capacity problem in the clearance plan for lump sums (ETEAEP), the Ministry of Labour is going to amend the legal framework in the coming weeks in order to allow for the swift payment of arrears in the form of temporary lump sums, along the lines of the procedure that is already in place for pensions. This arrangement will allow for a fast reduction of ETEAEP’s obligations. A legal provision is currently prepared by the Ministry of Labour and is expected to be submitted in the Parliament in the coming weeks, since its implementation is a necessary condition for reaching the reduction targets set out in the plan. Treasury Single Account The Greek authorities are moving forward with implementing a Treasury Single Account (TSA) at the Bank of Greece to achieve an end-2019 specific commitment. The main objective of this reform is to allow the Hellenic Republic to access liquidity held throughout the general government sector and to benefit from a more effective liquidity management. Some progress has been made in the first months of 2019 though the most important measures still remain to be taken. Two Ministerial Decisions were issued regarding the general cash planning framework for general government entities. By 31 July 2019, general government entities are required to open a cash management account in the Bank of Greece and to transfer their surplus cash from the commercial banking system to the cash management accounts in Bank of Greece (). As of mid-May, 588 general government entities (i.e. approximately one third of the total) had a cash management account in the Bank of Greece. A 15 days liquidity buffer can be held in the commercial bank with an exception targeted for financial stability purpose. Besides, a new Directorate in the Ministry of Finance is on the point of being created and will have to monitor general government entities’ cash flows projections based on their approved annual budget. The General Accounting Office will launch a pilot phase with the participation of 29 general government entities when the Ministerial Decision enters into force in July. Other steps to be undertaken quickly as they are lagging behind at this stage are the elaboration on the general government entities’ 15 days liquidity buffer calculation and assessment as well as the mandatory payment of their wages and pensions through the cash management accounts. On the Bank of Greece side, after some technical difficulties earlier in the year, the central bank is now able to provide the service of electronic transfer of funds between cash management accounts and commercial bank accounts. The pilot phase for the use of the web platform run by the Bank of Greece as well as the seminar organized by the central bank for General Government entities are on track. Chart of Accounts The Unified Chart of Accounts (UCoA) is one of the key elements of the public financial management reforms in Greece, as it is a necessary step forward for improvements in fiscal analysis, decisions and reporting, and a crucial element for transparency and reliability of fiscal data. The Greek authorities committed to fully implement the UCoA in all General Government entities by 2023. Though limited to some entities () and to a rather simple economical classification structure, a major step forward was undertaken for the 2019 Budget with the rollout of an UCoA in the State. The 2019 Budget preparation indeed took place under the new UCoA and transactions were recorded against these new rules on January 2019. The authorities are processing with ELSTAT to tackle remaining issues on the new economic and administrative accounting classifications. The crucial compliance of the Public Investment Budget with the budget and accounting classifications, which is one of the objectives of a January Presidential Decree (), remains under discussion between the General Accounting Office and the Ministry of Economy. Besides, acting as a precondition for further accounting reforms, it would be warranted to reinforce the governance structure with the appointment of an ad hoc Steering Committee fully dedicated to the UCoA reform. By mid-2020, Greece will need to complete the UCoA rules with deeper economical and administrative classifications and with other segments such as the functional one. Deepening the reform by broadening the scope to include all general government entities will also be a step forward as the medium-term goals are, on the one hand, the implementation of the new UCoA to the whole general government and, on the other hand, the migration to accrual accounting by January 2023. These objectives were enshrined in a Presidential Decree (9) in June 2018. The implementation of the UCoA and accounting reforms are closely linked with other public financial management reforms such as the development of the Treasury Single Account and the avoidance of the creation of new arrears. Incorporating the recording of all workflows will facilitate accrual accounting and will allow for a better monitoring of accounts and consequently, arrears. 4.1.Pensions The authorities have recently passed legislation that repeals important elements of the pension reforms adopted in 2012 and 2016 and leads to an increase in spending on pensions as a share of GDP. In May 2019, the authorities have repealed the 2016 reform of the survivors’ pensions that had modernised and aligned the pension entitlements to standard practices of other EU Member States. In particular, the measure has increased the amount of pension bringing it back to 70% (from 50%); eliminated the limitation on duration (previously 3 years for those below 55 years of age) for those of active age, who can now receive a survivor pension of 50% even if employed; and reduced the number years of marriage needed to trigger eligibility (from 5 to 3). The changes to the rules on survivors’ pensions risk to negatively affect female labour participation, which is already low in Greece (activity rate of 64.8% in 2018 compared to 72.4% for the EU). Furthermore, the authorities have reinstated a permanent 13th pension, which had been eliminated in 2012. It will be paid once a year at a level of 30%-100% of current pensions (the highest percentage for pensions below EUR 500 per month and the lowest for pensions above EUR 1 000 per month) and will cost as much as EUR 0.8 billion. These measures will decrease the relative share of social benefits spent on the young and working age population where the risk of poverty is much higher. See section 3.1 for the overall assessment of the fiscal cost. As regards the implementation of the action plan for the completion of the setup of the unified main pension fund EFKA, which is a mid-2020 commitment, the authorities are making good progress, with the technical support from the Commission. The launching of the public tender for new EFKA information and innovation technology services is still pending. The authorities have continued publishing detailed statistical information on pensions (monthly Helios reports).

Graph 4.1:Pensions and social spending Source: 2018 Ageing Report, Greek National Actuarial Authority, Eurostat

4.2.HEalth care The pace of collection of the clawbacks has seen a recent improvement, and collection of the clawback for 2018 is currently ongoing (specific commitment for mid-2019). The Greek authorities committed to the Eurogroup to complete the full offsetting and collection of the clawback (i.e. the excess public spending beyond the legislated ceilings that providers need to pay back into the public purse), by June every year for the previous calendar year. Based on reports obtained during the May post-programme mission, the procedure for the collection/offsetting of the clawback has already started for 2018. In brief: ·approximately one third of the outpatient pharmaceutical clawback has been recovered by May 2019; ·a similar rate applies to the collection of the clawback for drugs circulated through pharmacies affiliated with the national health insurance body, EOPYY; ·as for privately provided services reimbursed by EOPYY, the amount to be paid back for 2018 has not been quantified yet. Prior to the start of the collection, the authorities need to complete the quantification and inform providers of the due amount. The necessary documents and communications have not been shared by the authorities so far. There are still some backlogs in the clawbacks for previous years, especially for private providers, for whom more than half of the clawback of 2017 has not yet been collected. Some backlog applies to pharmaceuticals too, although at this stage only one fifth of the total amount remains to be collected. In general, residual clawback amounts still date back to 2012 for pharmaceuticals and to 2013 for providers (and to 2016 for EOPYY pharmacies clawback), but these mostly do not represent large amounts. Despite improvements in collection, the generation of new clawbacks is quite high and has been increasing over time to levels, which may soon become not sustainable. The pace of collection of clawbacks has seen an improvement in the last years, however recent measures to dilute the repayment by providers (increase in the maximum number of instalments to repay the clawback from 24 to 48) raise concerns as to the future evolution of clawback collection and thus the liquidity of EOPYY and the deterrent to providers of facing high repayments. Indeed, Greece still faces significant challenges in containing the creation of new clawbacks. The clawback for pharmaceuticals, especially outpatient, has been continuously increasing year by year, with the level in 2018 exceeding 550 million, from 79 million in 2012, which is also increasingly linked to the reimbursement of high-cost drugs. Graph 4.2:Evolution of outpatient pharmaceuticals clawback Source: European Commission The size of the excess spending through the clawback underlines the need for more sustained efforts to implement structural measures designed to curb supply-induced demand, and indeed some recent measures may exacerbate the situation. The need for more sustained and effective implementation applies in many areas including therapeutic protocols, negotiating committee, centralised procurement, patient registers for high cost drugs, monitoring and control of prescription patterns by doctors and dispensing by pharmacists. The recent modification of the pricing procedure for pharmaceuticals, replacing the previous well-established one that so far was amongst the most successful tools to contain pharmaceutical spending, contains several features that do not support the reduction of the clawbacks, amongst which the introduction of price floors and the transition to a euro area (as opposed to EU) basket of comparators for reference pricing. These and other features () will likely result in an increase in pharmaceutical expenditure in 2019. Enforcing existing measures to rationalise spending and adopting new ones will be necessary given the level of the current and future expenditure ceilings. The emerging increasing trend in spending, which may be aggravated by the future incoming wave of high-cost drugs, can also be indicative of an underlying distortion of incentives. Unless the clawback mechanism is reviewed to ensure that its incentive structure limits moral hazard also on the public payer’s side and improves the balance of burden sharing between the public sector and private companies, this distortion might contribute to delaying the implementation of structural measures. The roll-out of primary health care is proceeding but at a slow pace and with marked disparities across the territory. The authorities fulfilled the commitment of opening at least 120 TOMYs (primary health care units), and have meanwhile exceeded the target with 124 openings thus far, with the support of the European Social Fund. However, based on the latest reports a rather static picture emerges concerning progress with the broader roll-out of primary health care. The registered population so far only counts around 2 million people. Notably, the obstacles with the recruitment of general practitioners persist, which may constitute a bottleneck in view of opening additional TOMYs, due to the minimum staffing requirements to ensure proper functioning. In order to meet the Eurogroup commitment of opening 240 TOMYs by mid-2020, the roll-out pace of the network should gain greater momentum. This is paired with a currently uneven distribution of TOMYs over the territory. To this date, less than thirty TOMYs are available in the area of Attica, which includes 50 municipalities and around half of the Greek population, i.e. 5 million. Progress on centralised health procurement continues at a slow pace, with staff constraints translating into still limited capacity to launch new tenders. The newly established health care centralised procurement body EKAPY is not yet fully staffed: the appointment of the permanent board has not yet been completed, which may result in future disruptions in operations; recruitment of regular staff is also still slow, with less than half of the available positions currently filled (including both permanent and temporary staff). With a view to acquiring the autonomy to launch new tenders, recruitment of staff with legal background is of the essence and it is thus far proving challenging. This is de facto constraining activity mostly to the completion of tenders launched in the past. Reaching the necessary minimum staffing level will be a key determinant of the capability of EKAPY to operate effectively and systematically to realise the potential savings coming from central procurement. 4.3.Safety nets A new housing benefit for renters has been introduced, further enhancing the effectiveness of the Greek social welfare system. The scheme addresses housing cost overburden by providing a means-tested subsidy to low-income households for paying the rent on their primary residence. The amount of the monthly benefit ranges from EUR 70 to EUR 210, depending on the household size, which corresponds to 30-50% of average rental costs in Greece. As of 30 April 2019, 272 179 applications had been submitted, and 237 701 of these had been accepted (87% approval rate), corresponding to 633 888 individuals (about 5.8% of the Greek population), a result in line with initial expectations. The vast majority of applications (92%) have been submitted through the on-line platform and eligibility is verified automatically thanks to the inter-linkage between different administrative databases providing the necessary information (such as income, rental contract, etc.). The reform of the system of disability benefits is advancing but with significant delays. One element of this reform process is the upgrading and simplification of the administrative processes to determine disability status. After having been successfully piloted, these new procedures are being gradually introduced throughout the country. The second element of this reform is the adoption of a new approach to determine disability status based on both medical and functional assessment (specific commitment for mid-2019). The new methodology for a functional assessment of disability (which would complement the current purely medical assessment) is to be developed on the basis of the evaluation of the results of a completed pilot project that received technical support of the World Bank. Originally, the evaluation of the pilot project should have been completed by end-2018. However, a slower-than-expected processing of applications due to bottlenecks in the administrative procedures severely delayed the initial data collection phase. As a consequence, the evaluation of the pilot is only set to begin in September 2019, to be completed by the end of the year. The authorities are therefore not in a position to endorse and formally adopt a new methodology for disability assessment before 2020. A revised timeline detailing the intermediate steps and a final deadline for adoption should be defined. The Social Solidarity Income (SSI) scheme is reaching its maturity. It guarantees a minimum level of income to households with very low disposable incomes, and has become a well-established element of the Greek social welfare system. In the first four months of 2019, the scheme reached about 270 000 households (corresponding to about 500 000 individuals), for an annual expenditure of around EUR 680 million. This is a lower number of beneficiaries compared to the previous year, where the scheme had about 300 000 beneficiary households (corresponding to more than 600 000 individuals), for an annual expenditure of around EUR 750 million. The reduction can be attributed partly to improvements in the system of automatic eligibility checks and intensification of controls, and partly to the general improvement of the economic and social situation, with a reduction in the number of potential beneficiaries. The implementation of the social inclusion and labour market (re-)integration elements of the SSI, to be achieved by end-2019 (specific commitment), is progressing. Since its inception, the SSI scheme has been designed around three pillars, which are being built progressively: (i) income support; (ii) social inclusion; and, (iii) labour market reintegration. With respect to the second pillar, a network of Community Centres has been established throughout the country with the support of the European Social Fund, expanding the provision of social services at local level in a coordinated way. The third pillar relies on the provision of active labour market services to help SSI recipients (re-)enter the labour market. To achieve this, the authorities are shifting from an ad-hoc and irregular to a more systematic approach to the design and management of active labour market programmes. Concretely, this entails: i) a shift to a new delivery model for active labour market programmes, whereby a menu of options and programmes is continuously made available to the unemployed; ii) a strengthened provision of counselling services; and, iii) a better mapping of the needs of the labour market which in turn informs the design of new programmes. The new system is currently being tested – so far successfully – in a pilot project launched in June 2018 in one local office of the public employment service (Elefsina) covering three municipalities (with a population of about 10 000 registered unemployed), and is going to be gradually expanded to the entire country by the end of 2019. The authorities committed to review the system of subsidies for local public transport (specific commitment end-2019). Different categories of people such as students, persons over 65, the unemployed, the disabled and members of large families, currently benefit from subsidised fares for local public transport. Thanks to the recent introduction of electronic ticketing on the public transport network of Athens, data on actual transport usage by each category of beneficiaries has become available, allowing a more precise costing of these policies in the Attica region. The Greek authorities are expected to carry out a study to assess the appropriateness of the current system of subsidised fares for local public transport across Greece. The study should be concluded by June 2019 and contain recommendations for possible improvements to the system.

5.1.financial sector developments 5.1.1.Financial sector overview and financial stability assessment The situation of the financial sector continues to be challenging with improvements at a very slow pace; significant vulnerabilities remain, such as the high volumes of non-performing loans (NPLs) and the strong sovereign-bank nexus. On a positive note, the liquidity situation of Greek banks has further improved. Greek banks continue relying primarily on their internal capacity to generate capital, which has been further weakened by their low profitability due to their poor asset quality. Banks’ private sector deposits have slightly increased since the end of the ESM programme and reliance on central bank funding has significantly decreased (see graph 5.1) with all banks having completely repaid emergency liquidity assistance (ELA). The improving liquidity situation of Greek banks and increased confidence of depositors gave room for a further loosening of capital controls as of 1 October 2018. If financial stability considerations allow, only one or two final steps of capital control relaxation are needed to put an end to the restrictions still in place. This would normalise the functioning of the Greek economy within the Economic and Monetary Union (EMU) and would reduce the economic costs attached to it. Graph 5.1:Bank deposits (left panel) and total borrowing from the Eurosystem (right panel) Source: Bank of Greece Although broadly adequate, the capital position of the banking system slightly deteriorated during 2018 in a context of low profitability and weak asset quality, while deferred tax credits (DTCs) continue to account for a sizeable part of CET1 capital. According to Bank of Greece data as of the end of 2018, the Greek banking system had a Common Equity Tier 1 (CET1) of 15.3% on a consolidated basis, which is comparable with the EU average. Data from the European Banking Authority (EBA) indicate a similar capital position for December 2018 (15.3%), though the data also point to a fully loaded CET 1 ratio below the EU average (12.1% vs. 14.4%). In addition, the high level of DTCs in CET1 raises concerns regarding capital quality and contributes to the strong sovereign-bank nexus in Greece. The share of DTCs in the banks’ capital has increased over 2018 due to the decrease in total capital and exceeded 60% of the CET1 capital on average for the four systemic banks as of end 2018 (). Another aspect that warrants further monitoring in the medium term is the need of Greek banks to issue bail-inable debt in the following years in order to meet the minimum requirement for own funds and eligible liabilities (MREL) () as per the EU legislation. Profitability remains a source of concern for the Greek banking sector. During the first nine months of 2018, operating profits declined and the proportion taken up by provisions reached 95%. Despite the gradual improvement of the economic situation in Greece, the 2018 financial results of the four systemic banks indicate lower profitability in 2018 compared to 2017 and, overall, the Greek banking system closed the financial year 2018 with minor net losses. Going forward, the still high level of NPLs coupled with the decline in pre-provisioning profits creates challenges for Greek banks especially due to the need to swiftly reduce NPL levels and comply with the forthcoming provisioning calendar, in line with the ECB Banking Supervision Guidance and also in view of the application of the prudential backstop in the coming years (). NPL resolution continues to be the most important challenge for the banking sector in Greece. NPLs have been gradually decreasing, but remain elevated, amounting to EUR 81.8 billion at end-2018 in comparison with the peak of EUR 107.2 billion of March 2016. This translates into a NPL ratio of 45.4%, which is 1.8 pps lower than the previous year and 0.7 pps below the previous quarter (see graph 5.2), indicating an accelerated rate of NPL reduction in the last quarter. During the fourth quarter of 2018, the reduction in NPLs has been mainly led by cured loans and write-offs (circa EUR 1.6 billion each), followed by sale of loans, collections and liquidations (circa EUR 0.5 billion each) (see graph 5.3). The latter could gain more relevance in the upcoming quarters once e-auctions and other initiatives show more clearly their results. By segments, the share of non-performing residential loans increased during 2018 by 1 percentage point, while consumer credit and business loans saw a reduction in their respective NPL ratios in the same period (). According to EBA data, the NPL ratio in Greece on a consolidated basis for the four systemic banks remained the highest in the EU at end-2018, being more than twelve times bigger than the EU average (41.2% vs. 3.2%). Despite the progress made to date, these figures show that further major efforts are required to achieve a faster NPL reduction. Graph 5.2:Evolution of NPL ratio (left) and NPL stock (right) Source: Bank of Greece Substantial further efforts to reduce the level of NPLs in the Greek banking system are essential in order to ensure stability of the Greek banking sector and to safeguard reform momentum. This will underpin credibility over the medium term and reassure markets and interested stakeholders that sound financial practices will be sustained. To this end, the various important reforms enacted to facilitate NPL resolution should be implemented in a determined manner. This relates to the insolvency framework for households and corporations, the enforceability of collateral through electronic auctions, the out-of-court debt workout mechanism, as well as an active secondary market for non-performing loans as further discussed in Section 5.1.2. Reforms should be supportive of reducing the legacy NPLs, but also improve the incentive system to limit the inflow of new NPLs. In addition to enacted reforms, NPL resolution could be supported by well-designed systemic initiatives. While some analysis and preparations have taken place with the support of the Bank of Greece and HFSF in late 2018, it would be advisable that the Greek authorities increase their efforts to scrutinize all available policy options that could support a swift NPL reduction. The Greek authorities sent a draft proposal to the Commission services for a type of asset protection scheme (APS), based on the initiative and preparations of the HFSF, which are being assessed from a State aid perspective. This initiative would consist of the granting of state guarantees on NPL securitization transactions in order to facilitate the removal of NPLs from banks’ balance sheets, similarly to the scheme already introduced in Italy (GACS). At the same time, there has been no progress in exploring whether an APS can be complemented by establishing an Asset Management Company (AMC), based on the initiative and preparations of the Bank of Greece. The proposal would entail a transfer of NPLs currently held by Greek banks along with part of their DTCs to a special purpose vehicle, thus addressing the main weaknesses of the Greek banks. Such initiatives could be helpful additions to the NPL resolution toolkit, provided they are designed to benefit the whole banking system and are based on thorough technical preparation, inter alia on scope, regulatory and supervisory treatment, governance, funding, compatibility with EU competition and State aid rules and impact on bank and sovereign balance sheets. In January 2019, the Ministry of Finance announced that it established a working group with the Bank of Greece and the HFSF, which is supporting the coordinated assessment of the respective schemes, including through improved cooperation. However, the lack of deliverables raises the question whether the working group is fully operational. It is important that the preparations of the respective schemes progress in an expedited manner, in order to allow for the swift implementation of the schemes, which may benefit from elements of state support subject to State aid and other regulatory approval and taking into account relevant supervisory considerations. Table 5.1:Main financial stability indicators Source: ECB - CBD2 - Consolidated Banking data; own calculations 5.1.2.Financing of the economy In the first quarter of 2019, bank lending to non-financial corporations turned slightly positive, while credit to households continued to contract. From 2011 until late 2018, the annual growth rate of loans extended to non-financial corporations either hovered in negative territory, or was close to zero (Graph 5.3). Most recently, the gradual recovery in lending to non-financial corporations that started in December 2018 has picked up further. Credit to non-financial corporations recorded four consecutive months of positive growth and reached 1.6% year-on-year in February and March 2019, a growth rate last observed in early 2011. The growth rate of loans to households has been very slowly recovering since July 2016, but as of the end of the first quarter of 2019 remained in clearly negative territory and even decreased slightly further. Growth in consumer loans has remained broadly unchanged since late 2016 at close to zero. In the second half of 2018, some temporary easing in credit standards for all types of loans took place for the first time in many years; however, credit standards remained unchanged thereafter. Survey data suggests that demand has been growing for all categories of credit throughout 2018 and in the first quarter of 2019. In particular, demand for housing loans benefits from better housing market prospects, while demand for consumer loans is supported by improved consumer confidence and by increasing expenditures for consumer durables. Increased demand for corporate credit has been motivated by fixed investment and debt restructuring needs. Graph 5.3:Bank credit to non-financial corporations and households Source: Bank of Greece Lending rates to non-financial corporations have broadly stabilised, while interest rates for credit to households continue to rise (Graph 5.4). The bank lending rate for non-financial corporations has been on a downward trend since the end of 2011 and has stabilised at around 4% in recent months, reflecting diminished risk perceptions. By contrast, lending rates to households generally followed an upward trend during the past four years. In the first quarter of 2019, the average lending rate for households were around 100 basis points above the corresponding rate for corporations, mainly reflecting credit risk developments, as the NPL ratio for consumer loans is particularly high and the NPL ratio for mortgage loans has been deteriorating recently as compared to other loan categories. In this context, any government policies (e.g. aimed at supporting vulnerable or other groups in society) affecting the banks’ loan portfolios imply a cost to the banks that cannot seize the collateral and have to agree to loan restructurings and therefore could be expected to exert upward pressure on average lending rates in the economy. Graph 5.4:Bank interest rates on new loans Source: Bank of Greece Small and medium-size enterprises (SMEs) in Greece continue to be adversely affected by constraints to access to finance. The demand for external financing in Greece continues to be strong. Surveys show that there has been an ongoing improvement in the willingness of banks to provide credit in Greece since the beginning of 2017, but overall SMEs are still disproportionately affected by limited access to bank financing. This is also reflected in the spread between the interest rate on small bank loans (up to EUR 250,000) and on larger bank loans (above EUR 1 million) to non-financial corporations, which has been widening since mid-2014. 5.2.financial sector policies

Work is ongoing on a range of initiatives to strengthen the NPL resolution framework, but the pace of implementation remains uneven, and additional efforts are warranted. The implementation of the actions outlined below is monitored and assessed under enhanced surveillance as part of the continuous specific commitment to “continue to implement reforms aimed at restoring the health of the banking system, including NPL resolution efforts”. Electronic auctions The conduct of electronic auctions is proceeding across the territory, though at a somewhat slowing pace. Still, a large share of auctions (approximately two-thirds in the first quarter of 2019 according to data provided by the Greek authorities) is cancelled, suspended or is unsuccessful. Graph 5.5:Cumulative number of e-auctions conducted since 29 November 2017 Source: Ministry of Justice One identified impediment seems to derive from procedural abuses, which are currently under assessment. The Greek authorities shared the latest progress report on e-auctions detailing developments up to the end of the first quarter or 2019, showing a downward trend in the number of auctions launched on the initiative of creditors; otherwise, the mechanism continues to operate across the territory of Greece (with the exception of Corfu, where the local notarial association continues to abstain from the conduct of e-auctions). The main impediments identified by the Hellenic Banking Association relate to the strategic behaviour of debtors to resort to filings under the household insolvency law after the launch of enforcement proceedings and shortly before the conduct of the auction in an effort to block the process and from the submission of petitions by the debtor to revise the minimum bid prices upward with a similar motivation. The Hellenic Banking Association presented supporting data on these two impediments during the 3rd enhanced surveillance mission. No action has been taken so far to address these issues. The Greek authorities, together with the Hellenic Banking Association, established a working group, which is currently still assessing the data, in order to define and take the necessary mitigating actions soon as indicated in the context of the second enhanced surveillance report, including in the context of the ongoing review of the implementation of the Greek Code of Civil Procedure. The working group will prepare a report by September 2019. Clearing of the household insolvency backlog The process of the gradual elimination of the backlog of pending cases in the context of the household insolvency framework is significantly behind schedule. A revised action plan by the authorities is expected to be prepared by end-June 2019, while the impact of the new mechanism for the protection of primary residences (which is yet uncertain) could be factored in later in the year. The Greek authorities reported that they are in the process of collecting data from magistrate courts and optimizing the processing procedure, including the use of new improved templates covering variants not available in past reports, aiming at the provision of more reliable, standardized and granular court statistics. The European institutions received the preliminary aggregated data for 2018 and the first quarter of 2019 on 17 May 2019. Based on the data received, the number of pending cases remained broadly stable in 2018 and increased again in December 2018 and up to end-February 2019, due to the projected (end-December 2018) expiry of the foregoing primary residence protection framework () and its subsequent extension until end-February 2019. The level of processed cases remained broadly stable in the first quarter of 2019. Overall, the number of pending cases at the end of the first quarter of 2019 (89,498 pending cases against a target of 85,130) is above the trajectory which would lead to the elimination of the backlog of cases by 2021. Since the elimination of the backlog is a specific commitment undertaken by the Greek authorities to the Eurogroup () it seems to be necessary to increase the processing capacity to achieve the elimination of the backlog by 2021. At the same time, the level of processed cases over the same period exceeded the targets set by the June 2018 action plan in conjunction with its “statistical update” by the Greek authorities in March 2019, with an average monthly processing rate of 3,504 cases against a target of 2,580 cases. Going forward, it will be important to include in the monitoring the implementation data pertaining to the newly adopted primary residence protection scheme, taking account of reschedulings achieved either under the electronic platform procedure or pursuant to litigation resulting from non-productive platform procedures. Primary residence protection Following the adoption of primary legislation establishing a new system for the protection of eligible primary residences in support of the restructuring of non-performing loans (), the Greek authorities proceeded to the adoption of the requisite secondary legislation and the technical work for the electronic platform for its implementation is ongoing. Due to a number of delays, the law could not be implemented by 30 April 2019 as envisaged and the platform may be fully operating no sooner than end-July 2019. More specifically: ·The adopted secondary legislation consists of three Joint Ministerial Decisions laying down the specifications of the electronic platform (), the procedure for the provision of the state subsidy () and the manner of valuation of certain assets included in the wealth criteria pertaining to the eligibility assessment (). ·Regarding the technical work, the authorities set up a steering committee to supervise the creation and functioning of the electronic platform (); the committee is composed of state agencies, stakeholders and a technical advisor. Work on the platform started immediately upon enactment of the primary legislation and is progressing but, according to the Greek authorities, the complexity of the tasks involved and technical challenges encountered so far have led to a revision of the initial time frame for the completion of the project (end-April 2019), with the platform now scheduled to be fully operational by end-July 2019, including the interconnection between the module that will be added for that purpose to the Social Security Electronic Governance e-platform of the Greek Single Social Security Entity that is required for the provision of the state subsidy. Until then, no applications can be filed by borrowers. This should not affect its planned expiry at the end of 2019 however it might adversely affect the enforcement procedure in the second and third quarter of 2019. With respect to the required State aid approval of the protective framework by the Commission, the Greek authorities intend to submit the official request shortly. An important pending issue regarding the effectiveness of the new framework in the context of NPL resolution is the required enactment of a provision extending the tax treatment of write-offs that expired at the end of 2018 (), which should be undertaken in a timely manner. The tax regime in question stipulated that the amount of the write-off is not considered as an income of the debtor or a donation by the bank. Therefore, following the expiry of said regime at the end of 2018, write-offs are currently subject to income tax, which represents a disincentive to restructurings. The extension should be enacted prior to the end of 2019 so as to cover debt restructurings under the law. Harmonisation of the personal insolvency framework The Greek authorities committed in the context of the second enhanced surveillance report to harmonize and improve in the coming months in a holistic fashion the bankruptcy and insolvency regimes. The multiplicity of frameworks makes their monitoring harder and increases the risk of either an erroneous choice of framework or even procedural abuse, by means of parallel or consecutive recourse to several mechanisms. Having expressly stated their intent to establish a single personal insolvency framework in the near future, the Greek authorities proposed to address the issue either through a law-drafting committee or by means of a working group. While no proposal has been received so far, they committed to reverting on the issue with a more concrete proposal shortly. Evaluation of the implementation record of the reformed Code of Civil Procedure Following the formation of a working group in February 2019 () and the dispatch of an initial round of questionnaires to stakeholders, work on the evaluation of the implementation record of the reformed Code of Civil Procedure is ongoing, and advancing towards completion of the data-gathering phase. The completion of that phase will allow for the conduct of a comprehensive evaluation of the reform, the quantification of its influence on the achievement of targets and the elaboration of new proposals. The working group consists of judges, academics, legal professionals such as lawyers, notaries, bailiffs and representatives of stakeholders. The current work concentrates on refining the contents of questionnaires. In parallel to this work stream, the working group is engaged in the collection and assessment of relevant legal precedent that will inform the final stage of its work, i.e. the formulation of proposals for potentially needed legislative amendments. The completion of the first draft of the report has been tentatively set by the Greek authorities on mid-October 2019, contingent upon observance of intermediate timelines by the above-mentioned third parties. Training of judges and appointment of court clerks The authorities reported further progress in the provision of financial training to judges, notably in the area of household insolvency (a specific end-2018 commitment). Two draft Presidential Decrees have been drafted by the Ministry of Justice, Transparency and Human Rights and should shortly be submitted to the Council of State for a constitutionality assessment (), regarding: (a) the setting up of a section within the National School of Judges for the formation of magistrate’s court judges, who will be henceforth enrolled in the School and (b) the syllabus that will include courses on financial and accounting matters and on the methodology of judicial work. Regarding the appointment of clerical court staff, the authorities have also continued with the appointment of successful candidates of recently completed Supreme Council for Civil Personnel Selection competitions ().More specifically, since the publication of the February 2019 Enhanced Surveillance Report, 107 successful candidates were appointed as clerks in courts and court services throughout the territory of Greece (). Also, the Greek authorities reported that a replacement procedure has been engaged by Supreme Council for Civil Personnel Selection with respect to 72 vacant IT posts.

Out-of-court workout framework While the use of the out-of-court workout mechanism recorded modest increases up to the first quarter of 2019, recently adopted legislative amendments to the framework are of concern. Successful multilateral business negotiations score low, while bilateral business negotiations and restructurings of self-employed professionals’ and farmers’ debt fare markedly better; some recent legislative initiatives raise concerns. Based on the latest data provided by the Greek authorities and extending to the end of the first quarter of 2019, the previously noted continuous increase in the number of submitted applications (from 497 to 6,077 in 2018) seems to be levelling off, with 6,733 submitted applications submitted up to end-March 2019. Graph 5.6:Submitted business applications Source: Special Secretariat for Private Debt Management Ministry of Justice The number of successfully resolved business cases involving multilateral negotiations remains small: approximately 83.8% of multilateral negotiations are reported as pending (total debt amount EUR 845.4 million), with 3.3% of them successfully resolved (total debt amount EUR 7.0 million) and the rest rejected. Graph 5.7:Outcome of multilateral negotiations - businesses Source: Special Secretariat for Private Debt Management Governmental council for private debt management The situation looks better regarding bilateral negotiations, with 46.0% pending (total debt amount EUR 186.4 million), 26.8% of them successful (total debt amount EUR 53.2 million) and the rest rejected. With respect to restructurings in cases involving self-employed professionals and farmers, the percentage of successful outcomes is higher (33.8% and 45.6% respectively), while pending proceedings account for 28.8% and 21.3% respectively and unsuccessful negotiations for 37.4% and 33.1% respectively. It should be noted that the distinction between bi- and multilateral negotiations is not material regarding the self-employed individuals and farmers, given that in 97.2% of all cases the creditor is the public