EUROPEAN COMMISSION Brussels, 20.5.2020 SWD(2020) 91 final COMMISSION STAFF WORKING DOCUMENT Enhanced Surveillance Report - Greece, May 2020 Accompanying the document Communication from the Commission Enhanced Surveillance update- Greece, May 2020 {COM(2020) 529 final}



AIA: Athens International Airport ANFA: Agreement on Net Financial Assets ASEP: Supreme Council for Civil Personnel Selection DEPA: Δημόσια επιχείρηση αερίου (Public Gas Corporation) ECB: European Central Bank EFKA: Ενιαίος φορέας κοινωνικής ασφάλισης (Single Social Security Fund) EFSF: European Financial Stability Facility ENFIA: Ενιαίος φόρος ιδιοκτησίας ακινήτων (unified property tax) ESI: Economic Sentiment Indicator ESM: European Stability Mechanism ETAD: Εταιρεία ακινήτων δημοσίου ΑΕ (Public Properties Company) ETEAEP: Supplementary Pension Fund EYATH A.E.: Εταιρεία ύδρευσης και αποχέτευσης Θεσσαλονίκης Α.Ε.(Thessaloniki Water Supply and Sewerage Company) EYDAP A.E.: Εταιρεία ύδρευσης και αποχέτευσης Πρωτευούσης A.E. (Athens Water Supply and Sewerage Company) GDP: Gross Domestic Product GRECO: Group of States against Corruption HCAP: Hellenic Corporation of Assets and Participations IAPR: Independent Authority for Public Revenue ICT: Information and communication technologies

IMF: International Monetary Fund KTEL: Joint-venture of regional transport LEPETE: Λογαριασμος επικουρισης προσωπικού εθνικής τράπεζας της Ελλάδος (supplementary pension fund of the National Bank of Greece) NOME: Nouvelle organisation du marché de l’electricité (new organization of the electricity market) OASTH: Urban Transport of Thessaloniki OSDDY: Ολοκληρωμένο σύστημα διαχείρισης δικαστικών υποθέσεων (integrated management system for judicial cases) PMI: Purchasing Managers Index SMP: Securities Markets Programme SURE: Support to Mitigate Unemployment Risks in an Emergency 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, May 2020. It was prepared in the Directorate General Economic and Financial Affairs, under the direction of Maarten Verwey, Director General, Declan Costello, Deputy Director General, and the coordination of Paul Kutos, Head of Unit and Milan Lisicky, Deputy Head of Unit. Contributors: Chris Allen, Giuseppe Carone, Fotini Dionyssopoulou, Matteo Duiella, Sotirios Giannoulis, Christos Gofas, Andras Hudecz, Alexander Ioannidis, Paul Kutos, Veli Laine, Eloïse Lecouturier, Milan Lisicky, Vasileios Maroulis, Benedetta Martinelli, Vasilis Nikitas, Zoltan Petrov, Eleni Polemidiotou, Marie-Luise Rud, Alexandros Tavoutsoglou, Andreas Trokkos, Vasiliki Vasilopoulou, Irene Vlachaki, Rainer Wichern, Alkistis Zavakou. Assistance was also provided by Fotini Louka. 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. International Monetary Fund (IMF) staff participated in the context of its Post Program Monitoring framework. 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 Document 1. Introduction 2. Assessment of impacts of the coronavirus outbreak and macroeconomic developments 2.1. Outbreak of the Coronavirus and Policy Response 2.2. Macroeconomic Outlook 3. Fiscal and fiscal-structural policies 3.1. Fiscal developments and outlook 3.2. Public Investment 3.3. Tax policy 3.4. revenue administration 3.5. public finance management 4. Sovereign financing 4.1. Sovereign financing 5. Social welfare 5.1. pensions 5.2. healthcare 5.3. Social safety nets

6. Financial sector 6.1. financial sector developments 6.2. financial sector policies 6.3. hellenic financial stability fund 7. Labour and product markets 7.1. Labour market 7.2. product markets and competitiveness 8. Hellenic Corporation of Assets and Participations (HCAP) and privatisation 8.1. hellenic corporation of assets and participations 8.2. Implementation of the asset development plan 9. Public administration and justice 9.1. Public administration 9.2. justice 9.3. anti-corruption Annex LIST OF Tables 2.1. Summary of the main economic variables (%) 18 3.1. Measures to tackle the Coronavirus outbreak included in the Commission 2020 spring forecast 22 3.2. Key performance indicators of the Independent Authority for Public Revenue (first quarter of 2020) 29

6.1. Main Financial stability indicators 41 9.1. Evolution of public sector staff and wage bill (2009-2019) 86 LIST OF Graphs 3.1. General government investment execution 2014-2019 25 6.1. Bank deposits (left) and total borrowing from the Eurosystem (right) 44 6.2. Non-performing loans as a % of total customer loans (left) and changes in their stock in the fourth quarter of 2019 (right: million EUR) 45 6.3. Bank credit to non-financial corporations and households 46 6.4. Bank interest rates on new loans 47 LIST OF Boxes 6.1. Insolvency code reform 50 9.1. Digital transformation of the public sector and the Greek economy 83 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 ( ). Following its third prolongation, enhanced surveillance for Greece is currently in place for six months as from 21 February 2020 ( ). The implementation of enhanced surveillance for Greece acknowledges the fact that Greece needs to continue implementing 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 European Stability Mechanism 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 ( ). In this context, ten specific commitments are assessed in this report alongside follow-up actions to previous commitments. This report is based on the findings of a mission held remotely on 8 and 23 April 2020 and regular dialogue with the authorities. The mission was conducted by the European Commission in liaison with the European Central Bank ( ); the International Monetary Fund participated in the context of its Post Program Monitoring framework, while the European Stability Mechanism 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 European Stability Mechanism.

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 and 5-9); and an update on sovereign financing conditions (chapter 4). This report is issued alongside the Commission assessment of the Stability Programme for Greece, prepared in the context of the European Semester of economic and social policy coordination. 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 instalment 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 transfer of these income equivalent amounts would be made available to Greece in semi-annual tranches of €644 million up to mid-2022. The waiver of the step-up interest rate margin, for part of the loans extended by the European Financial Stability Facility, would reduce interest payments by about €104 million every half year. It would be waived on a semi-annual basis until 2022 and permanently after 2022. The second tranche of policy-contingent debt measures was released following the Eurogroup on 4 December 2019, inter alia based on the assessment of the implementation of Greece’s commitments for mid-2019 included in the enhanced surveillance report adopted by the Commission on 20 November 2019 ( ). The current report assesses the implementation of Greece’s specific reform completion commitments for end-2019, the continuous commitments and its general reform continuity commitment. It thereby provides a basis for the Eurogroup to discuss the release of the next tranche of policy-contingent debt measures, amounting to €748 million. 2.1. Outbreak of the Coronavirus and Policy Response The outbreak of the Coronavirus has fundamentally altered the social and economic reality in Greece, as in most other Member States. The Greek government started implementing measures aimed at containing the spread of the Coronavirus already at the end of February by increasing the intensity of the containment measures: Following the initial localised measures, all education institutions were closed on 11 March. On 13 March, the operation of cafes, bars, museums, shopping malls, sports facilities and restaurants was suspended and as of March 18, all retail businesses as well as church services have been closed, followed by the closure of hotels on 19 March. On 23 March, Greece went into the strictest phase of containment measures, banning all non-essential movement, with only business deemed essential remaining open such as supermarkets, bakeries pharmacies and private health services. These relatively swift and compared to other euro area countries strict measures seem to have slowed down the spread of the Coronavirus pandemic in Greece. Greece registered 2,744 cases and 152 deaths until 12 May 2020. This has also limited the strain on the Greek healthcare system so far, where Intensive Care Unit capacities and ventilators have been increased where possible. The containment measures are being slowly lifted since early May according to a stepwise plan, with gatherings of people and the operation of restaurants, cafes and bars remaining restricted for longer. Travel restrictions are expected to remain in place until the end of June or early July. The containment measures have severely affected economic activity with a third of private sector employment directly affected in March and April. The latest Economic Sentiment Indicator (ESI), registered a drop from 113.2 index points in February before the start of the containment measures to 99.3 in April and the Purchasing Managers Index (PMI) declined from 56.4 in February to 29.5 in April. New hiring dropped by 53% in March compared to February 2020 and 83% compared to April 2019, but at the same time redundancies also decreased by 71% compared to March and by 81% compared to April 2019 indicating a freeze in the labour market. The authorities promptly adopted a set of income support and liquidity measures of a large scale. To mitigate the economic and social impact, a broad range of budgetary measures were undertaken aiming to support households and businesses while additional measures were adopted to provide liquidity to companies affected by the Coronavirus outbreak. According to the estimates of the European institutions, the overall size of the measures is 10.5% of GDP. These measures consist of 5% of GDP of budgetary measures and 1.9% of GDP of liquidity measures of which 0.6% of GDP are tax deferrals and 1.3% of GDP are other measures aiming to provide households and businesses with temporary liquidity support. The latter set of measures is expected to provide up to 3.6% of GDP of additional loans. These amounts correspond to the measures announced by the authorities until end of April and cover the period until end-May. A detailed presentation of the measures follows in section 2.2 and section 3. Greece will also benefit from the recent policy measures announced by the European Central Bank. On 18 March, the European Central Bank announced the Pandemic Emergency Purchase Programme, with an overall envelope of €750 billion. Purchases will be conducted until the end of 2020 and will include all the asset categories eligible under the existing asset purchase program as well as Greek sovereign bonds. On 7 April, the European Central Bank announced a temporary easing of the collateral requirements for the Eurosystem credit operations, with the aim of facilitating participation in liquidity providing operations and supporting credit to the economy. It also introduced a waiver of the minimum credit quality requirement for collateral consisting of Greek sovereign bonds. The European Central Bank banking supervision has further temporarily lowered capital requirements for banks to ensure the continuing financing of the real economy. Greece is benefitting from a number of Commission initiatives to counteract the economic impact of the pandemic and the guarantee fund set up by the European Investment Bank. The Commission has started an initiative to frontload and make the best use of the European Structural and Investment Funds for addressing the pandemic. This initiative gives a maximum of flexibility in transferring funds between regions and funds, while lifting limits on spending per policy objectives and co-financing requirements. The Greek authorities have introduced a number of requests for funding through the Coronavirus Response Investment Initiative, with an indicative total cost of the nominated projects of €5.8 billion, part of which will be covered by European Structural and Investment Funds, part from the national Public Investment Budget and part from the regular budget. The exact distribution of these sources cannot be defined at this stage, but a first calculation of the available EU funds suggests that within the 2014-2020 European Structural and Investment Fund programmes an amount up to €2 billion could be made available through reallocations. Support to mitigate the effect on employment in Greece could be available through the Commission proposal for a temporary Support to mitigate Unemployment Risks in an Emergency (SURE), which once adopted by the Council, will make up to €100 billion in loans available across EU member states to finance unemployment support and short-term work schemes. Greece could qualify for support under the SURE scheme for both the special lump sum allowance of €800 (already introduced and covering a period of 45 days) and the new, broader short-time work scheme to be introduced (please see section 7). Financial support to Greek companies will also be available via a pan-European guarantee fund set up by the European Investment Bank that is a aiming at mobilising €200 billion in loans to small and medium sized enterprises in the EU. In addition to that, the European Investment Bank group is also increasing funding under the already existing support schemes, aiming at supporting small and medium sized enterprises. 2.2. Macroeconomic Outlook The economic impact of the social distancing and containment measures affects Greece through multiple channels. With the closure of all non-essential businesses, domestic demand is strongly affected as well as supply of goods and services. Due to the strong restrictions regarding travel and the severe disruption of global supply chains as well as the drop in demand due to social distancing measures in other countries affected by the Coronavirus outbreak, the external sector is also affected trough a strong decline in external demand. Increased uncertainty as well as lower liquidity and provision of credit has a negative effect on investments. The projections presented in this report are based on the assumption that the containment measures are gradually lifted in May and phased out until end of June. The general economic shock is assumed to be of a relatively short transitory nature with a recovery starting towards the end of 2020 and gaining momentum in 2021. Containment measures and reduced incomes are expected to compress domestic consumption. Rising unemployment, reduced need for hiring seasonal workers and lower wages due to involuntary part-time work and unpaid leave, will lead to a decline in disposable incomes. This, together with drastically reduced consumption opportunities during the closure period of non-essential businesses will lead to a strong decline in domestic consumption. While some consumption can be postponed to after the end of the containment measures, most consumption of services such as restaurants, hotels, bars etc. will not profit from a significant increase in demand compared to the pre-pandemic levels, due to the nature of their services. This means that over the year, losses in consumption can only partially be recovered. Combined with the lower disposable incomes, a significant drop in consumption is to be expected. The Greek government has implemented a support scheme targeted at workers on unpaid leave, which supports incomes with a lump sum of €800 per month from mid-March to mid-June. This income support is expected to cushion the negative impact on incomes to some extent, but given that the average net monthly wage is around €1,300, the negative impact on incomes will still be sizeable. Tourism and shipping services – two very important sectors for Greece’s economy – are expected to be hit particularly hard. Tourism will inevitably suffer from the travel restrictions and social distancing measures and with the main tourism season concentrated in the months June to September (73% of tourism receipts are made in these months) the effect of the pandemic is expected to be more persistent than in other sectors. Depending on the length of the social distancing measures and travel restrictions in Greece and other EU countries as well as the United Kingdom, Greece could lose most of its tourism receipts for 2020. Even in a very positive scenario, where normal tourism activity would be possible again starting from July, the impact could be large, due to income effects in the partner countries, disruptions in air traffic and lower booking numbers due to higher uncertainty, making losses of well above 50% in tourism receipts likely. In recent years, Greece has also established a sizable professional tourism sector mainly concentrated in Athens and Thessaloniki, which may suffer from longer lasting restrictions compared to the individual tourism and aggravate losses. The other important export industry is shipping, which will be strongly affected by containment measures and closure of ports globally as well as the decline in global trade that is expected in 2020 as a result of the pandemic. Heightened uncertainty, triggered by the sudden drop in demand and tightened financing constraints, is expected to weigh on investment. Due to the lower revenues and earnings during the containment measures as well as the high uncertainty regarding the length and severity of the pandemic, the counter measures and their economic impact, investment projects will likely be postponed or reconsidered; apart for a small subset of investment in IT infrastructure that enables companies to remain active during the phase of containment measures (web shops and remote working IT environments). Other determining factors will be the availability of financing and liquidity as well as uncertainty, in particular about a recurrence of the pandemic and the economic recovery in general. Government guarantees and the support from the European Investment Bank target the availability of financing and liquidity in order to soften the impact on investment. These measures will be of particular importance once the containment measures have been relaxed and can significantly speed up the recovery of investment activity and enhance the recovery. Other measures such as the possibility to put employees on unpaid leave and tax deferrals are important to help businesses to bridge the gap created by the sudden drop in demand and revenues due to the containment measures. The drop in external demand and the effects of the travel restrictions is expected to lead to a strong decline in goods and service exports, while lower domestic demand and the disruption of global supply chains puts downward pressure on imports. The pandemic is spread across the world and is strongly affecting global supply chains. With the main export markets for Greek goods and services exports among the strongly affected countries, exports are expected to contract sharply. While the lower elasticity of Greek goods exports might cushion the effect somewhat, the size of the impact is still forecast to be substantial. In particular, the large share of service exports (55% of total exports in 2019) and the importance of tourism and transport for Greek service exports is leading to a strong negative impulse from service exports in 2020. Unemployment is expected to increase in 2020. Due to the complete lock down of entire industries during the containment measures against the Coronavirus outbreak, the unemployment rate is expected to increase to around 20% compared to 17.3% in 2019. Measures incentivising labour hoarding and the relaxation of employment regulation allowing companies to place employees on unpaid leave for the duration of the containment measures, will help to limit the employment impact. Nevertheless, the impact in particular in the hospitality sector and in the tourism industry is expected to be significant, as a large share of the seasonal workers employed in tourism-related industries may ultimately remain out of work. The effect on non-seasonal employment is expected to be moderate, as labour hoarding can be successful to bridge a relatively short-lived gap in business activity. However, longer drops in economic activity may lead to a permanent destruction of economic fabric, leading to the bankruptcy of less resilient firms and therefore leading to an increase in unemployment. With the gradual lifting of containment measures in May and a relatively short fading out of social distancing measures until mid-June, the impact on employment is estimated to be contained around 20% in 2020 compared to 17.3% in 2019. The economic downturn may reverse the recent improvements in poverty rates. At 31%, the share of people at risk of poverty and social exclusion was already high before the start of the pandemic compared to the euro area average of 21% in 2019, but had been on a declining trend. While households can withstand a relatively short period of containment measures, especially when most employees are receiving income support, the effect of a prolonged phase of containment measures can potentially be devastating. The particularly large share of small and micro enterprises that have just recovered from the impact of the global financial crisis, and the share of seasonal workers in tourism related fields means that many households do not have significant savings to bridge a longer impact. The high share of non-performing loans and the still ongoing deleveraging means that households in general have only limited funds to sustain themselves during a longer period of no or reduced incomes. Large job losses and declines in disposable incomes could significant increase the share of people at risk of poverty or social exclusion in 2020 and beyond.

The authorities bolstered of liquidity measures in the private sector by 1.9% of GDP which are expected to mobilize 3.6% of GDP additional loans. These measures include tax deferrals and other liquidity measures which are expected to have a sizable positive impact as well due to the mitigating effects regarding liquidity constraints for the corporate sector and the support for investment after the relaxation of containment measures. The announced liquidity measures are: A provision of €2 billion in cash collaterals from the Hellenic Development Bank (total expected leverage of up to €8 billion). A reallocation of additional €250 million towards the disbursement of new corporate loans, with full-interest subsidy coverage for 2 years under the existing TEPIX II scheme from the Hellenic Development Bank. A number of deferrals for tax and value added tax obligations and social security contributions (including tax settlement schemes). These measures offer at least 3 months extension of the respective obligations. The measures taken by the authorities will be instrumental in safeguarding businesses and allowing a swift ‘restart’ of the economy after the phase of containment measures. While the containment measures are necessary to mitigate and manage the spread of the Coronavirus, they will have a negative effect on the economy. While the speed of the medical recovery from the pandemic will determine how long the containment measures need to stay in place, expansionary fiscal measures can cushion the immediate effects of losses in income and revenues. However, these measures will also be a key factor in determining the speed and shape of the economic recovery afterwards. By allowing and incentivising firms to keep their employees while suspending their pay for the duration of the containment measures, the fiscal package aims at preventing a large increase in unemployment and at enabling firms to start production at full capacity swiftly afterwards. Measures supporting incomes of employees who are on unpaid leave ensure that they are able to stay available for the companies and support their consumption expenditure. This will also support domestic demand once non-essential business will be opened again. Measures providing liquidity to firms help to bridge paying fixed costs such as rent while revenues are very limited. They also aim to help firms to restart investment activity shortly after the containment measures have been lifted, adding further to domestic demand and supporting growth. Extremely low oil prices and the downward pressure on wages will weigh on inflation. The recent drop in oil prices and the low oil price developments expected for 2020 and 2021 will negatively affect producer prices. Further downward pressure is expected from wages as the Coronavirus outbreak particularly affects the service sector. Lower demand, domestic and external is expected to put downward pressure on the industrial component of the inflation index. Only processed and unprocessed food are expected to put a limited upward pressure on prices due to the disruption international trade and food production. Depending on the length and gravity of the economic impact of the Coronavirus pandemic, consumer price growth is expected to reach negative territory in 2020. With the economic recovery expected for 2021, inflation is expected to turn positive again. The decrease in price growth is expected to be lower than what could be expected from the contraction of economic activity and from the large output gap on the back of price rigidities in the Greek economy. The uncertainty regarding the economic impact as well as the development of the pandemic itself is large and downside risks prevail. Due to the containment measures necessary to fight the pandemic, the economy is currently at a minimum activity and almost at a standstill in a large number of sectors. Since the length and severity of the pandemic determines to a large extent for how long the containment measures are necessary, it also determines to a large extent the impact on the economy. Regarding the economic impact, a few weeks of extended containment measures, even if only in the main trading partner countries can potentially mean a loss of several percentage points in GDP growth. Due to the scientific and epidemiological uncertainty surrounding the completely new pandemic, any economic forecast is necessarily based on a large number of assumptions. With the containment measures being gradually lifted in May, as assumed in the current projection, the decline in GDP could likely be contained in the high negative single digits. Should travel restrictions remain in place well into the second half of the year the strong impact on the tourism is considered a strong downside risk. Any medical solution to the pandemic (treatment or cure) could be considered an upside risk if it can significantly shorten the containment measures, in particular travel restrictions. The speed of the recovery is also surrounded by large uncertainties and downside risks, as it is a function of the length and severity of the negative economic shock, of the effect of the shock on potential output, household savings and banks’ asset quality, and the effectiveness of the containment measures in Greece but also in its main trading partners. Table 2.1: Summary of the main economic variables (%) Source: European Commission 3.1. Fiscal developments and outlook Greece has entered this crisis in a relatively favourable fiscal position, with substantial cash reserves, a strong primary surplus, and low medium-term re-financing needs on its high public debt. The extraordinary fiscal adjustment implemented during and following the programmes has made Greece better equipped to weather the Coronavirus outbreak compared to the situation a decade ago, ahead of the global financial crisis. The budget has been delivering high structural surpluses for several years while meeting or outperforming the fiscal targets. Greece also enjoys cash reserves close to €34 billion, which is an important asset in view of the fallout of revenues and extraordinary spending to tackle the pandemic. These efforts were reflected in 2019 and early-2020 in the financial markets and Greece’s credit ratings, which had been improving steadily. The yield spreads on Greece’s long term bonds had declined to historical lows earlier this year. Greece reached its primary surplus target of 3.5% in 2019. This is somewhat lower compared with the projections in previous reports, given that a large share of the expected over-achievement covered the cost of a merger of the private supplementary pension fund LEPETE with the public supplementary pension fund worth 0.3% of GDP in accrual terms. The headline balance reached 1.5% of GDP, significantly higher compared to the euro area average of -0.8% GDP. The outcome of 2019 was supported by solid economic growth and contained expenditure growth but remained below the 4.2% of GDP programme primary surplus reached in 2018 on account of a large amount of expansionary fiscal measures adopted in May 2019 by the previous government. The fiscal impact of that package reached around 0.8% GDP for 2019. The authorities have reacted swiftly to the deteriorating macroeconomic outlook and, in line with the co-ordinated response agreed by the Eurogroup on 16 March to protect the euro area economy, allowed automatic stabilisers to function fully so as to avoid a pro-cyclical tightening. The suspension of economic activity and the subsequent decline in aggregate demand will take its toll on the government’s fiscal revenues. Besides the deferred tax obligations, the fall-out in turnover and income is expected lead to a fiscal revenue loss of about 3.3% of GDP. The expected rise in unemployment will also put more pressure on the expenditure side as spending on social benefits will automatically increase. In addition, the authorities have adopted an unprecedented amount of measures to support the economy. According to the estimates of the European institutions, the overall size of the measures is 10.5% of GDP, of which 5.0% of GDP are budgetary measures. The majority of the measures aim to support companies and their employees who are affected by the Coronavirus outbreak either through a direct suspension of the companies’ operation or the general deterioration of economic activity. The adopted measures will provide benefits to broadly 2 million persons and 800,000 companies until the end of May. According to the estimates of the European institutions, the net impact on the budget balance of these measures is estimated at 3.7% of GDP in 2020, as part of the measures are fiscally neutral. The fiscally neutral measures will be financed by the Coronavirus Response Investment Initiative or through a re-allocation of expenditure of the public investment budget. The most important measures are: Temporary economic support of €800 to wage earners whose labour contracts have been suspended and to self-employed, freelancers and individual businesses (with up to 20 employees) who are affected by the Coronavirus outbreak. The benefit of €800 is expected to be granted to broadly 1.8 million persons for the period of mid-March until April and the monthly equivalent for May. The total cost is estimated at 1.5% of GDP and part of it (0.3% of GDP) will be covered through the re-allocation of the public investment funds. This scheme would qualify for support under the EU temporary Support to mitigate Unemployment Risks in an Emergency (SURE) scheme. Repayable advance payment of €2.0 billion to companies which is planned to be financed both by the ordinary budget (€1.3 billion) and the Corona Response Investment Initiative (€0.7 billion). The affected businesses can request financial assistance with a low interest rate to be paid back within a five years period and a grace period of eighteen months. However, in case the turnover does not recover to the pre-crisis levels, the companies are not obliged to repay this advance. The eligibility criteria will take into account among other things the deterioration of turnover, the decrease in profits and the impact of net employment cost. Payment by the state of social security contributions of employees whose labour contracts have been suspended. The coverage includes both employee’s and employer’s contribution until May and it is calculated based on the nominal salary. This measure is estimated to benefit 1.2 million persons with a fiscal cost of 0.8% of GDP. Interest subsidy on loans to small and medium-sized enterprises with an estimated cost of 0.5% of GDP. The state will cover the interest payments for performing loans for the months April until June. Suspension of social security contributions instalment schemes by three months with a fiscal impact of 0.2% of GDP in 2020. Additional support to the public health care system of 0.2% of GDP to account for extraordinary expenditures with respect to payroll costs both of existing personnel and 2,000 new recruitments, equipment of Intensive Care Units, pharmaceuticals, medical equipment, cleaning, storage, transport and analysis of samples and to all other areas where extraordinary expenditures are required.

Temporary economic support to certain liberal professions (i.e. economists/accountants, engineers, lawyers, doctors, teachers and researchers) of €600 until end-April and the monthly equivalent of the €800 benefit in May. The total number of beneficiaries is around 180,000 and the fiscal cost is estimated to reach 0.1% of GDP and will be covered by the public investment budget. A partial payment by the government to the Easter bonus for private sector employees whose labour contract has been suspended. The Easter bonus constitutes a standard part of the salary of the private sector employees and amounts to broadly half of their monthly salary. It applies only to the private sector while in the public sector it was abolished in 2013. The state will cover the fraction of the Easter bonus that corresponds to the period of suspension and the cost is estimated at 0.1% of GDP. Additional measures with a fiscal impact of 0.5% of GDP as depicted in Table 3.1 which include among others: (i) 25% discount on tax and social contributions obligations paid in expected deadlines, (ii) extension of the regular and long-term unemployment benefit for persons whose rights would expire in March for two additional months, (iii) capital transfers to support specific areas of the primary sector of the economy affected by the Coronavirus outbreak, (iv) local governments were granted the possibility to abolish local government levies until June for the companies whose operation was suspended, (v) a temporary increase in the clawback ceiling for hospitals, (vi) additional support to ministries to cover expenditure related to the Coronavirus outbreak, (vii) extraordinary Easter bonus to public sector employees working in hospitals, National Emergency Aid Centre, National Organisation of Public Health and Civil Protection, (viii) temporary economic support of €400 to long-term unemployed. The authorities have also adopted a number of measures to improve the liquidity of the private sector, worth 1.9% of GDP which is expected to mobilize up to 3.6% of GDP of additional loans (see section 2.2 and table 3.1). These measures aim to support the sectors of the economy affected by the Coronavirus outbreak by providing liquidity in the short run. Firstly, the government has postponed the payments of tax and social security obligations including the tax instalment schemes for at least 3 months for all companies, self-employed and wage earners affected by the Coronavirus pandemic. The size of the suspension is estimated at 0.6% of GDP without however affecting the fiscal balance as these obligations will remain due within the year. Secondly, medium-term liquidity will be provided to businesses through a cash collateral guarantee mechanism of €2.0 billion provided by the Hellenic Development Bank. The loans will be provided by the commercial banks to small and medium-sized enterprises, as well as large companies. A further extension of the total envelope for TEPIX II scheme from the Hellenic Development Bank, with an additional 250 million is also envisaged. For a detailed analysis of these schemes please consult Section 6.1. Table 3.1: Measures to tackle the Coronavirus outbreak included in the Commission 2020 spring forecast (1) The funds to Hellenic Development Bank were disbursed already in 2019 from the Public Investment Budget. Source: European Commission Apart from the Coronavirus outbreak, Greece is also grappling with renewed migration pressures. Greece has recorded a 46% increase in migrant arrivals in 2019 and the inflows have further strengthened in the first quarter of 2020. The steady increase in the number of asylum seekers poses challenges to Greece’s migration management capacities and makes intensified border protection and patrol activities necessary. To support and acknowledge Greece’s efforts, the EU pledged to provide Greece €700 million emergency support. This, together with a more prudent reporting and forecast of the migration-related expenses contribute to the relaxation of the budgetary constraints Greece might face in addressing the migration crisis. The migration-related expenses that were not financed through EU-funds and are therefore excluded from the primary balance considered under enhanced surveillance reached 0.1% of GDP in 2019 and are expected to increase to 0.2% of GDP in 2020. The authorities have taken steps to record these expenses across the public administration and clarified that the range of eligible costs includes wages of police officers assigned to the management of the migration crisis. The authorities have postponed the adoption of a Medium-Term Fiscal Strategy for 2020-2024. Due to the exceptionally high macroeconomic and fiscal uncertainty for the short term, the authorities have decided to postpone the adoption of a more comprehensive fiscal strategy for the medium term. As a result of the measures adopted to tackle the Coronavirus outbreak and the deteriorated macroeconomic environment, the updated forecast of the European institutions ( ) expects the primary balance to turn to a deficit of 3.5% of GDP in 2020 and reaching a small surplus in 2021. The projection reflects the cost of functioning of automatic stabilisers with an estimated impact on the balance of 3.3% of GDP, and the fiscal impact of measures taken by the government in order to tackle the Coronavirus pandemic, which is expected to deteriorate the balance by another 3.7% of GDP. On top of these revisions, the macroeconomic outcome of 2019 negatively affects the 2020 forecast by 0.3% of GDP, mainly through a substantial decline of the gross operating surplus in 2019, implying a low tax base for this year’s corporate income tax. The forecast also takes into account a prudent assessment of the carryover of value added tax revenues in view of the heightened uncertainty and lower balances of local governments which can be attributed to the decrease in expected revenues due to the amendment made in municipality levies measure. Finally, the flexibility provided due to the Coronavirus outbreak as regards the frontloading of EU funds in combination with the increase in EU co-financing rate are expected to affect positively the balance by 0.4% of GDP. On the back of a projected rebound in the economy, the primary balance is expected to return to a surplus in 2021 and reach 0.7% of GDP. Greece benefits from the same flexibility arrangements as other Member States in the context of the Stability and Growth Pact. Faced with the emerging implications of the Coronavirus outbreak, the 16 March 2020 Eurogroup stated that the full use of the flexibility will be made available under the Stability and Growth Pact to all Member States. In a Communication adopted on 20 March 2020, the Commission shared with the Council its view that the severe economic downturn resulting from the Coronavirus outbreak warranted the activation of the general escape clause of the Stability and Growth Pact ( ). On 23 March, EU Finance Ministers supported that view. The general escape clause allows for a temporary departure from the budgetary requirements, including Greece’s fiscal targets monitored under enhanced surveillance, provided that this does not endanger fiscal sustainability in the medium term. It does not suspend the procedures of the Stability and Growth Pact nor Greece’s commitments but it will allow the Commission and the Council to undertake the necessary policy coordination measures in order to tackle the economic consequences of the pandemic. The inherent uncertainty in the current forecast and assessment is much larger than in normal times. At the time of drafting this report, only very preliminary data were available to confirm the magnitude and the severity of the economic and fiscal fallout. The degree to which the economic downturn will take its toll on public revenues and social expenditure is subject to substantial uncertainty and could be larger than assumed in this projection. Furthermore, there is considerable uncertainty about the final costs of the emergency budgetary measures adopted by the authorities. Notably, fiscal recording of the measure on tax deferrals is subject to uncertainty. In principle a (planned delay) in the actual cash receipts should not prevent the fiscal recording of the revenues in accrual terms for 2020. However, if there is considerable uncertainty whether the deferred amounts will indeed be paid in full, the deferred (and not recovered) amounts might be considered lost for the year. This is a considerable downside risk for 2020 and a moderate upside for 2021. Further risks relate to an eventual extension of the currently assumed measures. An extension of the currently adopted measures beyond May could have a negative impact on the fiscal balance. Such extensions are however not considered at this stage. In view of the uncertainty, the assessment will be updated in the autumn. Public finances face further risks with respect to ongoing court cases and public service obligations. As analysed in the previous report, the Council of State is expected to issue a milestone ruling on retroactive payments to pensioners. An additional fiscal risk stems from the litigation cases against the Public Real Estate Company (ETAD). Although some small amounts have already been awarded in favour of the plaintiff, which are enforceable, the question of the validity of the most important (in terms of adjudicated amounts) recent arbitral awards is still pending before the Athens Court of Appeal, following the filing of petitions for their annulment by the Public Real Estate Company. The remaining fiscal risks with an estimated total cost of 0.2% of GDP relate to the Hellenic Post’s restructuring and more specifically to the payment of the remaining public service obligation claimed by the Hellenic Post for the period 2013-2020 and the financing of the planned voluntary exit scheme. 3.2. Public Investment Public investment continued to be under-executed in 2019. Compared to the initial plans, general government investment was lower by 1.2% of GDP while the total impact on the general government balance was broadly neutral due to the lower drawing of EU funds. Public investment has been continuously under-executed in recent years with only 62% of the investment appropriations allocated to ministries being actually spent on general government investment in 2017-2019, compared to an average of 88% in 2014-2016. The recurrent undershooting of investment expenditure in recent years raises concerns in view of the country’s large investment needs, making the best use of EU funds and, ultimately, economic growth. As shown in Graph 3.1, the outturn for public investment in recent years was considerably lower that envisaged in the budget. The under-execution concerned investment by both the general government as a whole and the state budget in particular (net of grants to general government entities). In the past three years, the under-execution at the level of general government exceeded 1.2% of GDP or €2.3 billion. The biggest part of the undershooting stems from the investment projects managed by the central government/ministries (0.9% of GDP). Graph 3.1: General government investment execution 2014-2019 Source: European Commission The reasons for the continued undershooting of public investments are numerous and the authorities have taken some measures to address them, while there remains substantial scope for additional action. Making the best use of available resources in the public investment budget will be key also to preparing the ground for a speedy recovery after the Coronavirus outbreak. While the immediate priorities of the government are justifiably focused on initiating emergency measures to tackle to current crisis, addressing the issues which hinder the efficient management and execution of public investments will support the country’s large investment needs and economic growth. The on-going and foreseen actions to improve the management of public investments are the following: In October 2019, the authorities adopted a law (Law 4635/2019) to establish a National Development Programme for the programming and implementation of the national component of the Public Investment Budget. Based on the experience of the planning and implementation procedures of the EU funds and the existing institutional framework governing the national part of the investment budget, this law aims to set the foundations of an integrated system for the preparation, management, monitoring and control of a National Development Programme. The Plan, having a programming period of five years, aims to set-up a programme of investments, including strategic goals and medium-term policy targets for government entities. The National Development Programme will start to be operational in 2021. Its swift implementation is considered key for improving the management of the public investment budget. To this aim, the Greek authorities have prepared a road map, which includes all the specific actions for the successful implementation of the National Development Programme. The authorities have decided to create a Strategic Projects Pipeline to support the development of large infrastructure projects of national importance. The lack of new mature projects is an important reason for the low execution of public investments. The project pipeline will support the delivery of National Growth Strategy priorities, ensure the timely preparation of projects, plan future public expenditures and maximize complementarities between private, public and EU funded projects, by optimising the blending of funds. It will demonstrate the feasibility and value-added of potential projects, describe the level of their maturation, costing and multi-year budgeting, and clarify the sources of funding. The pipeline will be coordinated by the Presidency of the Government. The establishment of the Strategic Projects Pipeline will considerably improve the coordination of investments and the efficient management of the public investment budget and contribute to its increased execution. The authorities committed to define and agree on the scope and role of the pipeline by July 2020, establish it by September 2020 and ensure staffing and operationalization by October 2020. The pipeline is expected to be fully developed by January 2021. The authorities have decided to establish a Project Preparation Facility to help to support the preparation and implementation of priority infrastructure investment projects included in the Strategic Projects Pipeline. The slow preparation and implementation of projects is another reason for the continued undershooting on public investments. The Facility will support projects in a number of sectors, including energy, environment, social, transport and digital economy infrastructure. Support will be provided through a core team of experts who will support the key stages of project development: preparation of feasibility studies, cost/benefit analyses, preliminary and detail designs, spatial planning procedures, support for the tendering process, supervision of works, other preparatory sectoral studies, preparation of terms of references, capacity building of beneficiaries and administrative support for monitoring the progress of the projects. The Facility will also enhance Public Private Partnerships. The Facility will be hosted in the Hellenic Development Bank. It is expected to attract additional human resources from international financial institutions and relevant Greek authorities. The scope and role of the Facility will be defined by July 2020 and a roadmap will be designed by September 2020. The initial staffing will be placed by October 2020 including by secondments from international financial institutions, with a view to making the Facility fully operational by March 2021.

Other factors that slow down the implementation of projects, weaken their cost management and contribute to the under-execution of public investment relate to insufficient predictability and coordination of archaeological and environmental permits and expropriation procedures, in addition to complexities of associated judicial procedures. Legislative measures were taken in previous years in a number of areas. Regarding archaeology, these include a Handbook of Procedures for Archaeological Works for co-financed projects, a registry for the recruitment of experts (archaeologists) and the mapping of the archaeological procedures implemented with own means. Regarding expropriations, they include the reduction of the number of responsible bodies and the standardisation of the process for the expropriation of agricultural land. A transparent methodology to assess the value of expropriations has been established and no public procurement is possible, unless expropriations are in an advanced stage (Law 4412/2016). The measures include as well the certification of 120 independent experts, the opinion of whom would be mandatory for the Courts in cases of co-financed projects. Once these measures are fully in place, it is estimated that the project implementation stage could be shortened by 4-6 months. The authorities have recognised the need to improve the flow of information between the ordinary (non-investment) and the investment budget. The investment budget is prepared and executed independently from the non-investment state budget, which is a practice followed by some Member States and one that requires high standards of transparency and flows of information between the authorities managing the two budgets in order to avoid inefficiencies. Greece has adopted a detailed action plan to remedy the situation in November 2019, with an implementation timeline reaching to 2021. The implementation of the November 2019 action plan to enhance the monitoring and forecasting of the Public Investment Budget is on track. Based on the progress report shared with the European institutions in March 2020, some of the actions such as the exchange of data between the responsible ministries and monthly updates of the total allocation of investment expenditure so as to detect emerging underspending early on are already in place, while some others are in progress, including those related to technical adjustments of the IT systems and improvements of the revenue forecast. In the context of the action plan, technical support by the European Commission is being provided on automating and streamlining implementation procedures, while an additional project is under preparation to support the collection, handling and reporting of the data related to monitoring, budgeting and forecasting of expenses and revenue of the Public Investment Budget. The authorities are encouraged further efforts towards a timely implementation of the action plan, which also deals with the implementation of a single accounting framework for the whole public administration (see the Chart of Account reform in section 3.5). The authorities have further engaged with the European institutions regarding the possible use of SMP-ANFA income equivalent amounts for reducing gross financing needs or financing other agreed investments ( ). The Greek authorities intend to use the next tranche of SMP-ANFA income equivalent amounts to reduce gross financing needs. Following the mandate given at the December 2019 Eurogroup, technical work to operationalise the Eurogroup statement of June 2018 has been undertaken by the European institutions and the authorities. The workstream will be taken up again in autumn 2020, in the context of progress made on improving the planning and execution of public investment referenced above. 3.3. Tax policy In the face of the quickly developing Coronavirus situation, the Authorities were unable to finalise the on-going nationwide property tax valuation exercise (a mid-2020 specific commitment) in time for the current year’s tax assessment cycle. The original commitment had been to revalue property tax values in line with market prices and broaden the base of the property tax by end-March 2020. Unfortunately it was impossible to finalise the revaluation exercise in the face of the social distancing measures introduced against the Coronavirus. This will postpone the implementation of the wider property tax reform to 2021 and have a small approximately €150 million fiscal effect on 2020 revenues. The authorities have committed to reschedule the exercise to autumn with the objective of aligning the property tax values to market prices by January 2021. 3.4. revenue administration The Independent Authority for Public Revenue has been at the centre of the authorities’ efforts to combat the economic impact of the Coronavirus pandemic. The Independent Authority has under strict time pressure been able to administer the deferrals of taxes and instalments for legal for companies and persons. Further, the ‘myBusinessSupport’ portal hosted by the Independent Authority provided the platform for businesses to submit applications to the refundable advance payments scheme with more than 139,000 companies taking part. The Independent Authority also issued electronic resident certificates for permanent residents at the islands, in order to facilitate their movement in accordance with the containment measures imposed to tackle the pandemic. The Independent Authority is on track in meeting the majority of its key performance indicators for the first quarter of 2020 and its staffing numbers increased at a modest pace during this period, although remaining well below the targets (an end-2019 specific commitment). Debt collection has continued at a similar pace for the first quarter of 2020 as for the same period of the previous year, while the proportion of fresh audit cases has increased (see Table 3.2). It is noted that whereas end-2020 targets have been set for the key performance indicators, quarterly sub-targets are yet to be defined. Staffing levels continued to increase during the first quarter and currently stands at 11,916, compared to 12,500 that was set as the target by end of 2019. Table 3.2: Key performance indicators of the Independent Authority for Public Revenue (first quarter of 2020) Note: Preliminary figures. Targets for the key performance indicators were set for end-2020 but quarterly sub-targets are yet to be set.

Source: European Commission The complementary measures in the areas of human resources, IT and housing needs, agreed in 2019 have seen limited progress. First, the primary legislation on the human resources reform (the wage grid) remains pending and is a requirement for the reform to become operational. The authorities are yet to submit a revised timeline by when the new system will be launched, instead of July 2020. Second, on the IT framework, no progress has been made to clarify key competency areas and the updating of the existing service-level agreement between the Independent Authority and the Ministry of Digital Governance (General Secretariat for Information Services for the Public Sector). The efforts to clarify the competency areas and strengthen the interoperability of various databases are expected to be stepped up with greater urgency during the next reporting period with an updated Service Level Agreement to be in place by end of 2020. Concrete results in this area will strengthen the capacity to combat tax evasion and facilitate the timely collection of taxes. Third, as concerns relocation of the headquarters of the Independent Authority into one single location, the previously identified building is no longer available as the government prioritised the housing needs of the General Secretariat of Civil Protection. However, the authorities has presented plans for a new building to be erected next to a building to host the Ministry of Finance in a location at the outskirts of Athens. The tender for the construction is expected to be launched by the first quarter of 2021, while the Independent Authority should be able to access the building by April 2024. The authorities are taking steps to strengthen the operational capacity of the Operational Coordination Centre that coordinates anti-smuggling efforts. The draft legal provisions aiming to strengthen the Centre’s capacity and governance are expected to be adopted by end of May 2020. The draft provisions will, for example, upgrade the steering committee to the Ministerial level and allow for secondments of operational staff for up to six year. In terms of the selection process for the up to 20 operational posts, the criteria included are welcome, but the actual appointment decision should be consistent with the provisions of the Executive State Law ( ) that delegates such decisions to the administrative level. The authorities remain committed to also proceed with an overall revision of the customs law, including strengthening intelligence methods for anti-smuggling operations, which has been delayed due to the Coronavirus pandemic. While the redirecting of the Independent Authority’s resources to deal with the initiatives launched to mitigate the economic impact of the Coronavirus pandemic has affected some work streams, progress has still been made on a number of other projects improving tax collection and compliance. The preparations to launch an electronic invoicing system through ‘myDATA’ (Digital Accounting and Tax Application) continues as planned and the certification of the first electronic invoicing service providers is expected by June 2020. Another component concerns electronic bookkeeping that is expected to start in July for the businesses who will opt for e-invoicing. The Model Collection Office project, which has received technical support provided through the European Commission, approaches completion and appropriate premises have been secured. However, the needed personnel is yet to be identified and transferred. Further, as concerns the end-to-end collection system project (a specific commitment for mid-2021), is progressing with the implementation study now finalised, but it is expected that the whole project will need a time extension of eight months. Finally, as concerns audit, secondary legislation has been adopted ( ), which sets out the substance and the process of applying indirect audit methods to determine the taxable base. With regard to the general audit procedures, additional initiatives from the authorities in improving the audit process would be conducive to enhancing the efficiency and quality of audits, such as establishing a model audit office that is currently being considered by the Independent Authority. It is welcome that the authorities decided to request further technical support through the European Commission to also cover the public revenue administration. The continuation of the technical support is particularly important as the ongoing support provided to the Independent Authority by the International Monetary Fund is phasing out. The specific areas where technical support will continue to be provided by long-term advisors with extensive experience in other Member State’s revenue administrations include indirect audit methods, anti-smuggling capacity, taxpayer services and the human resources reform. In addition, a project for developing a comprehensive compliance risk management framework and capacity within the Independent Authority has been approved and is currently under preparation. The Joint Centre for the Collection of Social Security Debt continues to meet its targets. Similarly to previous years, specific quarterly targets have been set for the debt collection expected by the Joint Centre. These targets are also incorporated in the revenue estimates for this year’s budget. For the first quarter, the target was for €333 million to be collected, which was exceeded as €346 million were collected and also exceeded the collection for the same period in 2018 (€312 million). Further, a positive development is that the secondary legislation concerning the definition of what constitutes uncollectable debt and that have been pending for a long time has been adopted ( ). This will allow the Joint Centre to apply the classification of uncollectable debt as already used by the Independent Authority, which strengthens the coherence and transparency. 3.5. public finance management Arrears According to latest data, arrears stand above targets also due to the Coronavirus outbreak that has affected the collection of data on arrears as well as progress on the clearance plan agreed in October 2019; nevertheless, some measures should help to decrease the stock of arrears. January 2020 stock of arrears amounted to €1.3 billion, about €340 million above the clearance target ( ). Higher absenteeism in the public sector due to the measures taken in relation with the Coronavirus pandemic created delays in labour‑intensive processes such as clearing and reporting on the stock of arrears. The authorities were not in a position to deliver complete aggregate data after January and reported that some subsectors may witness a temporary rise of their arrears. Nevertheless, two measures related to arrears clearance were designed, and should allow for clearing 15% of the January stock of arrears. The first one uses an e‑platform that should be launched shortly and that would allow for new payment modalities of arrears toward health providers ( ). According to the authorities, this new process would allow for clearing €186 million stock of health arrears. The second measure allows for an immediate clearance of tax refunds related to income tax of legal entities and value added tax that are currently under audit and do not exceed €30,000. The authorities expect that the amount of arrears related to tax refunds of approximately €8 million as a result of the measure. The authorities remain committed to their October 2019 clearance plan and designed some actions that are ongoing in a number of subsectors. In spite of the Coronavirus pandemic, the authorities maintained their clearance plan, which aims to fully clear arrears by end-2020, with the exception of €140 million for pension claims that would be cleared by June 2021. More specifically, the authorities are still planning to implement a new IT system in the Single Social Security Fund (EFKA) with a view to substantially accelerating the pace of clearing the backlog of pension claims. Moreover, new managerial incentives and methods have been designed to offset the accumulated delays and achieve the clearance targets. In view of the fact that local governments seem to have been reporting amounts that should not be counted in their stock of arrears, the Ministry of Interior is currently taking measures to clarify the statistical reporting of arrears. Moreover, whereas weaknesses in the hospitals procurement process had previously been identified as a key factor for the creation of arrears, substantial progress has been made on the centralising procurement for the healthcare sector since the beginning of the Coronavirus outbreak (see section 5.2). The vast majority of the recommendations of the Hellenic Court of Auditors were implemented (a mid-2019 specific commitment rescheduled to mid-2021) and further complementary measures including a plan on implementing a proper framework for internal control, are being designed also with a view to avoiding the accumulation of new arrears. The Hellenic Court of Auditors has set up a plan with a view to increasing the awareness of the general government entities of their legal obligations in terms of internal control ( ). The National Authority for Transparency cooperates with the Court to strengthen the internal control process in both central and local government (see section 9.3). The first set of guidelines for the implementation of an integrated internal control system in the public sector has been issued and circulated while training activities are planned to be delivered. The National Authority for Transparency also target to establish and operationalize internal audit units in the organigrams of ministries. The International Monetary Funds has finalised in February 2020 its technical support report for streamlining the payment processes in the central government. Some recommendations are related to accelerating the payment process for the central government, which can help prevent the emergence of new arrears. When designing and shifting to their new accounting IT framework ( ), which provides for an opportunity to improve payment processes, the authorities intend to implement many of these recommendations.

Treasury Single Account All significant entities have joined the Treasury of Single Account system, which is operational and provides a useful overview of the cash situation of the state (an end-2019 specific commitment rescheduled to mid-2020). Out of the 1,700 general government entities officially listed, 650 do not yet maintain an account at the Bank of Greece. The Public Debt Management Agency as well as the Ministry of Finance and the Bank of Greece are therefore able to monitor, nearly in the real time, a great part of the cash flows and cash balances of the general government. Deposits of general government entities and liquidity of the Public Debt Management Agency within the commercial banking system will remain outside of the Treasury of Single Account. The Ministry of Finance monitors the requirement according to which general government entities should not hold more than a fifteen days liquidity buffer in commercial banks. The developments regarding the substitution of paper orders by electronic ones are encouraging, especially after entities with high visibility and substantial transactions have joined the e‑payment portal of the Bank of Greece. The remaining challenges are minor. They concern the rationalization of the number of cash accounts with law balances and the extension of the Treasury of Single Account to eventually cover all the entities that should be part of the scheme. The pilot project on cash forecasting that covers the majority of state’s cash reserves will be rolled out according to the March 2020 draft strategy. According to the interim report on the matter, a substantial share of the pilot entities did not report their cash needs in the first months of the project and data submission in March has been significantly delayed in light of the measures that were taken to respond to the Coronavirus outbreak. On the other hand, despite the complexity of the cash forecasting exercise, the authorities reported that among entities that reported data, only a few submitted incomplete forecasts and that some entities submitted data files of excellent quality. The pilot project will be gradually fine-tuned in the course of 2020. In March, the authorities drafted a strategy for extending this project to the entities that are not yet part of the pilot as of January 2021, under the condition their budgeted expenses exceed €50 million. Given that the entities that are part of the pilot project account for at least 70% of the total state cash balance, the €50 million threshold allows for capturing the majority of the cash reserves of the remaining general government entities and is therefore deemed appropriate. Chart of Accounts The implementation of the Chart of Account reform is broadly on track (a mid‑2021 and mid-2022 commitment). Although the Coronavirus pandemic caused further delays in the procurement of the new IT system supporting the Chart of Account reform, the call for tender is expected to be launched as soon as the major providers will be in a position to respond, and the overall timeline of the project is likely to remain unchanged. Further steps in the right direction have been taken in a number of fields. Among others, the General Government Accounting Directorate, which is to be reinforced, is finalizing an accounting policy for the first time implementation of the new General Government Accounting Framework, which is a precondition for the compilation and the closure of the pending 2019 financial statements of the state and for transitioning towards accrual accounting in an orderly manner ( ). In addition, some amendments of the legal framework have been drafted, in order to ensure a smoother transition and facilitate the adoption of the necessary Accounting Policies. The integration of the invoices into the IT accounting system of the state, in order to ensure that they are recognized fully and in a timely manner, is pursued under the e-invoicing project in the public sector. The strategic decision was made to place the project under the control of the Steering Committee for the Accounting Reform, in order to ensure that it also delivers on true and fair financial reporting. The functional classification of the Chart of Account is being designed in accordance with the performance budgeting framework. The five ministries that have not joined the pilot yet are expected to do so in 2021. Technical support is provided through a project on the implementation of the Chart of Accounts, while another project is under preparation and is aimed to ensure the continuation of the technical support and capacity building actions for the General Accounting Office of the State. The implementation of the Chart of Account in the Public Investment Budget remains a challenge. The single accounting framework participate to improve the required transparency and information flows between the authorities managing the non‑investment budget and the Public Investment Budget (see section 3.2). The situation differs in the execution and preparation stages of the Public Investment Budget. Regarding the execution stage, the 2019 action plan will allow for presenting the execution of the budget in accordance with the Chart of Account classifications. Nevertheless, given that the action plan is not designed to deliver on accrual accounting ( ), the authorities were encouraged to envisage avenues for addressing this issue in the medium term. Regarding the budget preparation stage, the authorities consider that the Public Investment Budget can only abide by the less detailed level of administrative and functional classifications of the Chart of Account. However, they committed to consider potential avenues for improving the situation with the help of technical support that will be provided by the European Commission ( ). Public Procurement The authorities committed to adopt a new public procurement strategy for 2021‑2025 by end 2020 that would contribute to a more sustainable and efficient use of public resources. A well-functioning public procurement process is a key element in the investments process that will be crucial for the recovery after the Coronavirus outbreak. However, Greece’s procurement market still has a number of deficiencies ( ). An efficient public procurement would help to rationalise public spending, boost growth and guarantee a competitive business environment (see section 7.2). In addition, such a strategy could have spillovers on the digital reform agenda (see section 7.2) and on the green policy. The authorities agreed to take stock of the various issues in the public procurement legal framework and its implementation before taking actions on issues that need to be addressed by priority in light of relevant EU legislation. They will also adopt a new 5‑years national strategy on public procurement and a road map. The authorities foresee to agree on a public procurement strategic partnership with the Commission with a view to be supported in their endeavour. 4.1. Sovereign financing Greece’s debt servicing needs are low in the coming years. Since the onset of the crisis, Greece has successfully issued both treasury bills and long-term bonds with seven-year maturity, indicating sustained access to short and medium/long-term market financing. Greece’s debt servicing costs in 2020 and 2021 are low, and mostly reflect the refinancing of short-term bonds. Greece has only about €3 billion of long-term bonds that mature in 2020 and of around €5.1 billion of interest expenditure to cover. Debt servicing cost will remain modest in 2021 too, with only about €10 billion of medium and long-term loan repayment and interest expenditure. The volatility of the yield spreads has increased. Greece enjoyed a long and almost uninterrupted decline of the spreads on its bond yields until mid-February 2020, when they reached their lowest levels since 2009. As the signs of the coming crisis began to appear, spreads have started to increase with some high volatility until 18 March with spreads reaching a high of around 400 basis points on a 10-year maturity, when the European Central Bank announced its Pandemic Emergency Purchase Programme. Due to a waiver of the eligibility requirements, the Greek government bonds have become eligible for purchases under this program. After a decrease in the days after the start of the programme of around 200 basis points, the Greek yield spreads over the German bonds have increased again, and have settled close to 270 basis points by the end of April for the ten year tenure, which is around 130 basis points higher than the February lows but still around 130 basis points points lower than the highest value in March. The considerable cash reserves provide a cushion to absorb liquidity shocks. The cash buffers of the general government reached around €34 billion at the end of March 2020. This includes €15.7 billion in the cash buffer account (built also through disbursements under the European Stability Mechanism programme and dedicated to debt service – Greece may use this amount for other purposes as well, following an approval of the European Stability Mechanism’s governing bodies. ), €10 billion of state deposits in the Bank of Greece and commercial banks, €1.9 billion of general government entities’ deposits in the Bank of Greece ( ). Given the limited debt service needs discussed above, the cash buffer is available to absorb liquidity shocks in the coming months. Greece signalled that it plans to keep its presence in the bond markets and raise further cash to cater for downside financing risks. A further intensification of the crisis may lead to non-trivial increases in financing needs. The main risk for the Greek state financing would be if the economic standstill and the related containment lasted well beyond May. This could lead to a substantially higher deficit than currently assumed and may require additional use of the cash reserves in the early summer months. 5.1. pensions The implementation of the 2020 pension law, adopted in February 2020 with a view to addressing an earlier Council of State ruling, is ongoing. As mentioned in the 5th enhanced surveillance report, the authorities have also created a new system of social security contributions for the self-employed. The implementation of the 2020 pension law is ongoing: the relevant circulars have already been issued while other secondary legislation is being drafted. The authorities have updated their action plan to finalise the setup of the Single Social Security Fund (EFKA), a mid-2020 specific commitment. The aim of the plan is a comprehensive digital transformation by the end of 2020 leading to a new operational and institutional setup to be called ‘e-EFKA’. The plan consists of 40 specific actions. These are organised under the following seven pillars: i) the modernisation of infrastructure, ii) investment in IT systems, iii) administrative reforms, iv) improving existing and creating new IT services, v) ensuring interoperability with other public IT systems (e.g. with the Independent Authority for Public Revenue), vi) developing the digital skill of the personnel and vii) concrete steps to safeguard personal data protection. The major organisational measures to be completed by end-June 2020 concern the merging of the Supplementary Pension Fund (ETEAEP) into the Single Social Security Fund and the creation and operationalisation of the department for Public Sector Pensions within it. The remaining organisational reforms are the creation of local subsidiaries for farmers and self-employed. The reforms concerning the subsidiaries have been suspended due to the Coronavirus crisis. The authorities expect that the reforms will be fully completed within four months after operations resume. The 2019 legislation related to the transfer of the supplementary pension fund of the National Bank of Greece (a commercial bank) to the state was revised in March 2020. The revision followed an agreement between the state and the bank. The purpose of the reform was to avoid further litigation and to harmonise pension benefits. According to the amended law, the bank will contribute some €40 million per year until 2032 and the benefit rules for retirees are harmonised with the general supplementary pension rules. 5.2. healthcare Greece demonstrated strong responsiveness to the health emergency, by putting in place strict social distancing measures shortly after the detection of the first cases. By closing down all non-essential shops just a few days after the first recorded death and by putting a ban on non-essential movement in the country early on, Greece prioritised public health and patients’ safety, despite the unavoidable and known impact on economic activity. Penalties for non-compliance were set up to support the effective implementation of the national containment measures. Measures to contain the spread of the Coronavirus among vulnerable groups, who are not only exposed to higher risks in terms of physical health but also of livelihood and living conditions, require careful monitoring by the authorities. Structural reforms already implemented and additional funding of €200 million are supporting the health system response to Coronavirus but more financial resources may be needed in the short term. Measures agreed during the European Stability Mechanism stability support programme were designed to deliver an effective, accessible and resilient healthcare system and some of these in particular are supporting the response to the Coronavirus pandemic. Measures aimed at enhancing the social dimension, such as introducing universal healthcare coverage and a comprehensive primary healthcare system, alongside others focusing on efficiency and quality such as centralised procurement, are proving key, as they ensure unhindered access to health care services and appropriate supply and stocks of resources. The authorities are currently making use of an extra €200 million to acquire elements to build up the health care system’s preparedness for future needs, i.e. intensive care units, ventilators, protective equipment and, crucially, staff.

Clawback collection, a continuous commitment, is progressing with delays, not all imputable to the current emergency situation. Progress in this area continues thanks to the authorities’ efforts to meet the originally agreed targets. Given the current extreme circumstances, progress is indicative of the strong commitment and generalised delays are to be expected due to present constraints and priorities. However, some of the existing delays largely stem from before the current emergency. Although significant progress is not possible, based on the latest updates by the authorities, it seems that even prospective measures may be too soft to correct the trend of the ever increasing clawbacks, the size of which challenges a regular and timely collection. The recently implemented extension of the repayment periods supports providers in managing otherwise very large repayments, but more forceful measures could pre-empt the need of any extension by limiting the size of due amounts. To address the situation, the authorities are planning some measures to strengthen therapeutic protocols by automatically linking them to laboratory results, which would limit inappropriate prescribing and expanding registries, such as those for cancer patients. Introducing means-tested exemptions for co-payments would strengthen patient protection but is not considered at present. The roll-out of primary health care, a mid-2020 specific commitment, had to be suspended given the pandemic. The planned roll-out of the reform has been temporarily suspended and all the available primary health care units have been deployed to respond to the pandemic and de-burden hospitals. Units solely focused on dealing with Coronavirus cases were set-up to support the population, both providing a clear reference point and limiting unnecessary contact between patients who have contracted the virus and those who may have not. To this effect, the authorities are working on tools such as telemedicine, whereby patients can have remote access to a family doctor that would decide the most appropriate course of action, be it a follow-up home visit or a referral. This would protect both patients and medical staff and promotes rational use of a system that is already under pressure. For instance, it could limit unnecessary visits to emergency departments, which need to be available to treat the most serious cases. The authorities have also expanded the bed capacity through agreements with the private sector. The availability of intensive care units has almost doubled, moving from an initial stock of 560 to more than 900 units. In parallel, efforts to attract medical staff, especially doctors, are ongoing and the authorities are working on new incentives. When the primary health care network roll-out can resume largely depends on the duration of the pandemic. Some progress may nonetheless take place on the side of staffing, which is not only needed for the longer-term reform goals but to tackle the current emergency. Centralised procurement, a mid-2020 specific commitment, is ongoing with a focus on the urgent needs of the health system. The ongoing centralised procurement reform is being trial tested under the current emergency, supported by the additional flexibility provided by the availability of EU level joint procurement tools. Results are satisfactory both for the present situation and with a view to developing a more systematic approach to procurement. Central governance of regional procurement is delivering more efficiency allowing to compare prices, which could be further supported by the re-activation of the Price Observatory, and contributing to achieving certain and defined delivery times, which is vital given the current circumstances. The authorities also developed a tool that builds upon the existing business intelligence system to create a live warehouse for all hospitals to allow for better management of all Coronavirus supplies with daily updates matching stocks with needs by hospital. Draft legislation to convert the new central body for health procurement into a private legal entity is still under development and could benefit from lessons learned from the current emergency. Similarly to the case of primary health care, progress is expected to resume with a timeline subject to the duration of the pandemic. 5.3. Social safety nets The Authorities have agreed with the European Institutions upon a new design for the reform of the Disabilities benefit framework (a mid-2019 specific commitment). The evaluation of an earlier pilot project gave rise to concerns about weaknesses in the questionnaire methodology adopted for the pilot. Following a discussion on EU best practices, a new reform approach will be adopted based on assessments of functional disability based upon physical examinations by qualified experts. Such assessments are widely used by other Member states with the dual role of assessing benefit eligibility and making specific proposals for disability mitigation and rehabilitation. The Authorities have provided a Roadmap for the implementation of the new design of the commitment. After an internal review to report by October 2020, they propose to undertake a further pilot project for the functional assessment that could focus on specific cases, like injury disability applicants from early 2021. As part of the commitment to complete the rollout of all three pillars of the Social Solidarity Income scheme, the authorities have completed the evaluation the of the pilot of the new delivery system for active labour market policies, an end-2019 commitment, and have set up initial plans to run further pilots for the expansion of the new model. The pilot covering three municipalities in the region of West Attica (Elefsina, Asporpyrgos, Mandra), has been evaluated by the World Bank with the help of technical support provided through the European Commission, in terms of service delivery and program design. The pilot was designed to provide integrated services as well as targeted and individualised support (profiling/counselling, vocational training, entrepreneurship, public works and wage subsidies) to those aged 45 and over who have been registered as unemployed for at least six months. Despite some significant drawbacks identified in the evaluation report, including among others the low human resources capacity, especially among employment counsellors; the lower than expected target group participation; the red-tape and implementation delays as well as the lack of primary data to be used for monitoring and evaluation purposes; the pilot is considered to represent the pathway for future reforms based on the open-framework model. The authorities will now proceed to the scale-up of the pilot in additional geographical areas with different labour market characteristics. The characteristics will concern the local economy in transition, consistently high comparative unemployment rates over time or cyclical seasonal unemployment, and single-sector dominance e.g. tourism, agriculture. Furthermore, given that the target group did not meet the expectations in terms of participation, the scale-up will expand participation to a broader age spectrum (30-50), comprising all education levels except degree-holders, and short-term unemployed beyond the 12+ month group. Data will be collected at an early stage to enable evidence-based and data driven analysis and policy. Regarding the review of the system of subsidies for local public transport, an end-2019 specific commitment, the reform process was interrupted by the coronavirus. Based on data collected for 2019, draft legislation is under preparation to allow a timely objectively-based reimbursement of subsidised public transport tickets to operators in Athens and Thessaloniki. Legislation is expected by September 2020. 6.1. financial sector developments Table 6.1: Main Financial stability indicators (1) As % of total loans

(2) Annualised data Source: European Central Bank - Consolidated Banking data; own calculations The Greek banking sector has become more stable and resilient to shocks since the end of the programme but legacy risks and significant underlying vulnerabilities remain, reinforced by the likely significant negative impact of the Coronavirus outbreak. Liquidity continued to improve throughout 2019, as evidenced by the continuing upward trend in deposits since the abolition of capital controls. However, access to long-term unsecured funding was only slowly being re-established ahead of the Coronavirus pandemic and still at a relatively high cost. Other positive trends observed before the Coronavirus outbreak are now being challenged: for example a pick-up in economic sentiment, which led to an increase in credit provision to large businesses or the start of the real estate prices rebound, a first positive sign for collateral valuations. Greek banks had regained access to long term unsecured funding in 2019, and sealed their return to the markets by tapping it again in two occasions in early 2020 at a lower cost. Nonetheless, asset quality is, even without the impact of the Coronavirus pandemic, still a major challenge, despite the progress made in 2019. The capital position of Greek banks is in line with capital requirements but remains exposed to increased capital demand in the near future and largely dependent on the sovereign through the high share of deferred tax credits in banks’ capital. By end 2019, the banks have returned to profitability but it remains low and fragile. It is dependent on lending growth, exposed to a renewed deterioration of asset quality and, to some extent, sovereign spread volatility. The authorities are taking steps to sustain access to finance for affected businesses, which complement initiatives at the level of private banks and servicers. The government is setting up a series of initiatives. Public guarantees will be offered by the Hellenic Development Bank via the commercial bank network (total envelope for guarantees of €2 billion in the form of cash collateral together with an additional €250 million of guarantees and loans towards the small and medium-sized enterprises through the current ‘ΤΕPΙΧ II’ scheme). Secondly, direct grants are offered by the government (with a total envelope of maximum €0.8 billion in the form of interest subsidies to existing performing loans) for the provision of credit, and particularly working capital, to viable, primarily small and medium sized enterprises. These schemes will complement initiatives backed by the European Investment Bank, in an effort to maintain liquidity in the real economy and support businesses and employment. They will also support asset quality in the banking sector in the follow-up of the voluntary debt moratoria applied by banks and servicers: the Hellenic Bank Association announced a moratorium, following an assessment on a case by case basis, until 30 September 2020 on the capital instalments paid by companies directly affected by the public health crisis, on their performing loans as of 31 December 2019. A moratorium for a period of three months was also extended to loan instalments of targeted affected natural persons, with Servicers of non-performing loans announcing a similar three-month suspension of any loan instalments. As a result of the Coronavirus pandemic, the profitability outlook of Greek banks is exposed to the risk of a renewed deterioration in asset quality and reduction in new lending activity. Greek banks entered this crisis with one of the lowest return-on-equity in the EU (2.9% annualised compared to an EU average of 6.2%), despite a cost-income ratio well below the EU average (51.4% against 64.2% in the EU in September 2019). This reflects the still high amount of new impairments, the low contribution of commission income ( ) and the high dependence on net interest income, including large amounts of accrued interest from non-performing loans which may not be collected. In addition, large parts of the banks’ performing loan book are heavily exposed to some of the most vulnerable sectors affected by the current containment measures: e.g. tourism and hospitality, shipping, transport and storage and commercial real estate. Some of these sectors were registering the highest rates of credit growth until recently and were expected to be the main drivers for new corporate lending in 2020. A resurgence in the volatility of Greek sovereign debt yields may have an impact on the profitability of Greek banks if it is persistent. Outright holdings of Greek sovereign bonds by banks have been subject to a supervisory ceiling imposed by the Single Supervisory Mechanism since 2015, which was lifted at the beginning of March 2020. At the end of 2019, Greek sovereign bond holdings of Greek banks represented €22.7 billion, i.e. 7.1% of their total assets, being the main driver behind the banks’ trading income and a source of exposure to any increase in sovereign spread volatility, to the extent they are held in the banks’ trading books. The inclusion of Greek government bonds in the recent €750 billion Pandemic Emergency Purchase Programme of the European Central Bank is expected to somewhat mitigate such adverse impact during the current crisis. The banks are compliant with their capital requirements but the capital structure is largely contingent on state-related assets and exposed to increased capital demand in the near-term. Banks’ average common equity tier 1 ratio on a consolidated basis stood at 15.9% at the end of September 2019. The capital position of Greek banks is exposed in the near future to a series of factors: These include the implementation of new rules on the treatment of own funds held under Pillar II Guidance, which will no longer be eligible to meet any other capital requirement, the cost of strategies aimed at scaling down non-performing loans and the necessary gradual phasing out of transitional prudential arrangements ( ). These factors will still burden the banks’ capital position going forward, even if Greek banks will benefit this year from the flexibility provided by the Coronavirus outbreak related measures temporarily offered by the regulators for all Eurozone banks. This is all the more relevant, as the quality of banks’ capital remains poor and the sovereign-bank nexus strong, particularly due to the high amount of deferred tax credits. Deferred tax credits of Greek banks at end-2019 continue to represent a substantial part (55.4%) of the banks’ Common Equity Tier 1 capital, amounting to €15.7 billion ( ). The flexibility announced by the supervisory authority will contribute to bank lending and mitigate the direct effect of the crisis on the quality of the banks’ loan book. The 2020 EU-wide stress test exercise will be postponed to 2021, while planned supervisory activities, including on-site inspections, may be rescheduled or, in the case of remediation actions, their implementation deadline extended. Furthermore, the Single Supervision Mechanism will allow banks to operate temporarily below the level of capital defined by the Pillar 2 Guidance, the capital conservation buffer and the liquidity coverage ratio, freeing up capital and liquidity to finance the economy. Moreover, in order to avoid a spike in non-performing loans, the supervisory authority will exercise flexibility regarding the classification of loans in default and the treatment of state guaranteed loans granted in the context of the Coronavirus pandemic. In addition, criteria published by the European Banking Authority, allow public and private moratoria not to be automatically classified as forbearance measures, for the purposes of the International Financial Reporting Standard 9 and the definition of default. Liquidity, after improving throughout 2019, has proven resilient so far, further supported by recent policy measures as announced by the European Central Bank. Bank deposits continued to moderately increase despite the challenges brought about by the Coronavirus pandemic, with normal seasonal fluctuations. Any strains across the repo market for all participants can be alleviated by Greek banks’ access to Eurosystem monetary policy operations aimed to provide additional liquidity where needed. The temporary collateral easing measures taken by the European Central Bank on 7 April, and in particular the waiver to accept Greek sovereign debt instruments as collateral in Eurosystem credit operations, will allow Greek banks to increase liquidity from Eurosystem’s refinancing operations to replace potentially increasingly expensive secured funding. Graph 6.1: Bank deposits (left) and total borrowing from the Eurosystem (right) Source: European Central Bank, International Monetary Fund The pace of reduction of non-pe