EUROPEAN COMMISSION Brussels, 23.9.2020 SWD(2020) 208 final COMMISSION STAFF WORKING DOCUMENT Enhanced Surveillance Report - Greece, September 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION Enhanced Surveillance update - Greece, September 2020 {COM(2020) 618}



AIA: Athens International Airport ANFA: Agreement on Net Financial Assets ASEP: Supreme Council for Civil Personnel Selection CRR: Capital Requirement Regulation DEPA: Public Gas Corporation (Δημόσια επιχείρηση αερίου) DRU: Dispute Resolution Unit ECB: European Central Bank EFKA: Single Social Security Fund (Ενιαίος φορέας κοινωνικής ασφάλισης) EFSF: European Financial Stability Facility EIB: European Investment Bank EKAPY: National Central Authority of Health Procurements (Εθνική κεντρική αρχή προμηθειών υγείας) ENFIA: Unified Property Tax (Ενιαίος φόρος ιδιοκτησίας ακινήτων) ERGANI: Greek Database for Unemployment Registration (Πληροφοριακό σύστημα «ΕΡΓΑΝΗ») ERGOSE: Subsidiary company of OSE to implement railways infrastructure projects ESI: Economic Sentiment Indicator ESM: European Stability Mechanism ESOEL: National Coordinating Body for Audit and Accountability (Εθνικό σώμα ορκωτών ελεγκτών λογιστών) ETAD: Public Properties Company (Εταιρεία ακινήτων δημοσίου Α.Ε.) ETEAEP: Supplementary Pension Fund

EYATH: Thessaloniki Water Supply and Sewerage Company (Εταιρεία ύδρευσης και αποχέτευσης Θεσσαλονίκης Α.Ε.) EYDAP: Athens Water Supply and Sewerage Company (Εταιρεία ύδρευσης και αποχέτευσης Πρωτευούσης A.E.) FEK: Government gazette (Φύλλο της εφημερίδας της κυβερνήσεως) GDP: Gross Domestic Product GPS: Global Positioning System GRECO: Group of States against Corruption HCAP: Hellenic Corporation of Assets and Participations HELEXPO: Νational institution for the organisation of exhibitions, congresses and cultural events (Εθνικός φορέας διοργάνωσης εκθέσεων, συνεδρίων και πολιτιστικών εκδηλώσεων) HFSF: Hellenic Financial Stability Fund (Ταμείο χρηματοπιστωτικής σταθερότητας) HRADF/TAIPED: Hellenic Republic Asset Development Fund (Ταμείο αξιοποίησης ιδιωτικής περιουσίας του δημοσίου) HRMS: Human resources management system IAPR: Independent Authority for Public Revenue ICT: Information and Communication Technologies IEK: Public professional schools (Ινστιτούτο επαγγελματικής κατάρτισης) IKE: Greek private company (Ιδιωτική κεφαλαιουχική εταιρεία) IMF: International Monetary Fund JASPERS: Assistance to Support Projects in European Regions KEK: Vocational training centres (Κέντρα επαγγελματικής κατάρτισης) KEPA: Disability assessment centres (Κέντρο πιστοποίησης αναπηρίας) KOMYs: Newly and swiftly deployed medical mobile units (Κινητές μονάδες υγείας)

KTEL: Joint-venture of Regional Transport LCR: liquidity coverage ratio LEPETE: Supplementary Pension Fund of the National Bank of Greece (Λογαριασμος επικουρισης προσωπικού εθνικής τράπεζας της Ελλάδος) MFIs: Monetary financial institutions NOME: Nouvelle organisation du marché de l’electricité (New organisation of the electricity market) NPEs: Non-performing exposures OAED: Public employment service (Οργανισμός απασχόλησης εργατικού δυναμικού) OASTH: Urban Transport of Thessaloniki OMED: Mediation and arbitration board (Οργανισμός μεσολάβησης και διαιτησίας) OSDDY: Integrated Management System for Judicial Cases (Ολοκληρωμένο σύστημα διαχείρισης δικαστικών υποθέσεων) OSE: Organisation of railways of Greece PMI: Purchasing Managers Index SEPE: Labour inspections directorate (Σώμα επιθεώρησης εργασίας) SMP: Securities Markets Programme SURE: Support to Mitigate Unemployment Risks in an Emergency SYNERGASIA: Temporary short-time work scheme (Μηχανισμός ενίσχυσης της απασχόλησης «ΣΥΝ-ΕΡΓΑΣΙΑ») TEPIX II: Envelope for co-financing loans to small and medium-sized enterprises (Δράση “Επιχειρηματική Χρηματοδότηση – ΤΕΠΙΧ ΙΙ”) TLTRO III: Eurosystem targeted longer-term refinancing operations (TLTRO III) VAT: Value added tax This report is prepared as an enclosed document to the Commission's assessment pursuant Article 3(5) of Regulation (EU) 472/2013 published as Communication from the Commission – Enhanced Surveillance – Greece, September 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 Julia Lendvai, Head of Unit and Milan Lisicky, Deputy Head of Unit.

Contributors: Chris Allen, Giuseppe Carone, Christos Daoulas, Fotini Dionyssopoulou, Matteo Duiella, Sotirios Giannoulis, Christos Gofas, Andras Hudecz, Alexander Ioannidis, Eloïse Lecouturier, Vasileios Maroulis, Benedetta Martinelli, Vasilis Nikitas, Zoltan Petrov, Eleni Polemidiotou, Marie-Luise Rud, Alexandros Tavoutsoglou, Andreas Trokkos, Vasiliki Vasilopoulou, Irene Vlachaki, Veli Laine, Rainer Wichern and Alkistis Zavakou. The European Central Bank staff participated in the drafting of this report in accordance with the European Central Bank’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 contributed to the preparation of this report in the context of the European Stability Mechanism's Early Warning System and in accordance with the Memorandum of Understanding of 27 April 2018 on working relations between the European Commission and the European Stability Mechanism. International Monetary Fund staff participated in the context of its Post-Programme Monitoring framework. Comments on the report would be gratefully received and should be sent by post or e-mail to: Julia Lendvai European Commission Unit ECFIN-F-2 CHAR 14/103 B-1049 Brussels e-mail: ECFIN-GREECE-REQUESTS@ec.europa.eu 1.Introduction 2.Macroeconomic Developments 2.1.Macroeconomic outlook 3.Fiscal and fiscal-structural policies 3.1.Fiscal developments and outlook 3.2.Tax policy 3.3.Revenue administration 3.4.Public finance management

3.5.Public investment 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 (HFSF) 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.Fight against corruption Annex LIST OF Tables 2.1.Summary of the main economic indicators 3.2.Key Performance Indicators of the Independent Authority for Public Revenue, second quarter 2020 (*) 6.1.Main financial stability indicators LIST OF Graphs 4.1.5-year government bond spreads over the German Bund 6.1.Bank deposits (left) and total borrowing from the Eurosystem (right) 6.2.Non-performing loans as a % of total customer loans (left) and changes in their stock in the first quarter of 2020 (right: million EUR) 6.3.Bank credit to households and non-financial corporations 6.4.Bank interest rates on new loans to euro area residents (annual percentages %) LIST OF Boxes 3.1.The Council of State ruling on pensions LIST OF Maps No table of contents entries found.

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 fourth prolongation, enhanced surveillance for Greece is currently in place for six months as from 21 August 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) Hellenic Corporation of Assets and Participations and privatisation and (vi) the modernisation of public administration (). This report is based on the findings of a mission held remotely on 13 and 14 July 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-Programme 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). 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 third tranche of policy-contingent debt measures was released following the Eurogroup on 11 June 2020, inter alia based on the assessment of the implementation of Greece’s commitments for end-2019 included in the enhanced surveillance report adopted by the Commission on 20 May 2020 () and considering the extraordinary circumstances posed by the coronavirus outbreak. The current report assesses the implementation of Greece’s commitments to the Eurogroup including specific reform completion commitments up to mid-2020, the continuous commitments and its general reform continuity commitment. This report is not linked to a release of the next set of policy-contingent debt measures, which – in line with the agreed biannual schedule – could take place on the basis of the eighth report. The eighth report is expected to be published in November. 2.1. Macroeconomic outlook The coronavirus pandemic and measures to contain it are expected to take a strong toll on the Greek economy. Strict containment measures, which restricted movement, economic activity and international travel, were in place from the last week of March until end-May with travel restrictions for a group of mainly EU countries being lifted only gradually as of mid-June. The first estimate of real GDP growth in the second quarter of 2020 showed a decline of ‑14% quarter-on-quarter, after declining by only ‑0.7% in the first quarter of the year. Given that containment measures affected the second quarter more than the first quarter, the strong economic impact in the second quarter is in line with expectations. Assuming less strict measures to limit the spread of coronavirus in the coming months, economic activity is expected to recover somewhat in the second half of the year, compared to the first half and particular the second quarter. Overall, economic activity in 2020 is expected to remain well below 2019 levels and only return to the 2019 levels in 2022, after a partial bounce back in 2021, with GDP growth rates reaching -9% in 2020, and 6% in 2021. This forecast is based on the summer interim forecast and reflects the measures adopted or credibly announced until early-July and data released until end-June. A full update on the macroeconomic and fiscal forecast will be prepared in autumn. The services sector was the most adversely affected by the containment measures. Among services, the private services sector, including tourism and transports, took the biggest hit, followed by agriculture and industry. By contrast, construction – and to a lesser extent public services – contributed positively to growth. The travel restrictions have hit the tourism industry hard, with tourism receipts down by 99% in April and May 2020 and by 97.5% in June compared to the same months in 2019. Shipping services have been impacted as well by the restrictions in many countries and the lower overall trade volumes, with the receipts from transportation being 23% lower in May and 18.7% in June 2020 than a year ago. Domestic demand is expected to contract in 2020. Lower disposable incomes due to short-time work and job losses are expected to lead to lower domestic demand. Furthermore, consumers are expected to adjust consumption behaviour in order to reduce the infection risk, depending on medical advice, which can lead to sudden demand shifts. The dramatic drop in economic activity also puts companies under stress and is likely to lead to a significant drop in investment. In addition, the uncertainty regarding developments of the pandemic and potential economic consequences are expected to lead to the postponement of investments, while lower sales and profits increase the financial pressure and make it harder to finance investments through own resources. Service exports are expected to be severely affected by the travel restrictions as well as the slow-down in international trade. With the country cautiously opening again mid-June to tourists, the main tourism season months July and August could see some limited tourism activity, but expectations remain very low overall for 2020, with revenues between 70-90% below the 2019 level. The high uncertainty regarding travel restrictions and the high-perceived health risk, are expected to also lead to lower arrival numbers in the second half of the year. International trade is strongly affected by the economic downturn triggered by the pandemic and is expected to remain well below normal levels. The negative effects for Greek shipping service exports could remain, even if EU economies recover in the second half of 2020, depending on the global situation. Goods exports are expected to suffer somewhat less from the global crisis. Greek goods exports are composed of a comparatively large share of agricultural products, foodstuffs and pharmaceuticals, which could help mitigate some of the negative effects of the global crisis on exports. Other industrial exports are likely to be affected by the drop in economic growth in Greece trading partner countries, which are severely affected by the pandemic. Support measures have helped keep the unemployment rate in check so far, but signs point towards a frozen labour market. Swift labour market support measures (see sections 7.1 and 7.2) have so far prevented major job losses according to the available data. In May 2020, the unemployment rate reached 17%, up from 15.9% in February. The hiring of seasonal workers which usually takes place in the months March-May has been dramatically reduced and the general hiring and firing activity during these months has been extremely low. New hiring increased again in June and July, but not to the extent that could counteract the developments in the previous months. The average annual unemployment rate is expected to increase close to 20% in 2020 and to gradually decline again along with the economic recovery in 2021, assuming that support measures will only be phased out progressively. Consumer price inflation is expected to be negative in 2020 and only turn mildly positive in 2021 during the economic recovery. Inflation is expected to remain negative in 2020 around -0.5%, driven by low energy prices and the general economic situation, with limited upward pressure potentially only stemming from processed and unprocessed foods. Downside risks are present in the short term, stemming mainly from lower energy prices and subdued services inflation, in particular in relation to the drop in tourism activity and value added tax cuts. The partial economic recovery in 2021 is expected to also lead to a slow increase in consumer price inflation, which is forecast to reach a mildly positive territory at 0.5%, as oil prices also increase. In the medium term, risks are tilted to the upside due to increasing energy prices. Government support measures have helped protect the economy against widespread bankruptcies and job losses. The mix of government support consisting in a lowering of the tax burden with €3.1 billion (1.9% of GDP), protection of jobs and incomes with €4.1 billion (2.4% of GDP), and easing liquidity constraints with €5.9 billion (3.5% of GDP) is a balanced approach and is expected to be instrumental in maintaining the economic fabric and thus help the economy recover. While income support and unrestricted help during the months of the strictest measures helped keep disposable incomes from collapsing, support now needs to shift to a more targeted approach focusing on sectors still hit by hygiene and social distancing measures. As soon as the pandemic and economic situation stabilises and allows for a more medium-term planning horizon, supporting sustainable investment will be of high importance to speed up the economic recovery process. Uncertainty regarding the development of the pandemic and thus its economic impact remain extraordinarily high. While economic activity in Greece is expected to cautiously accelerate, much uncertainty still remains. The uncertainty is related to the pandemic and its spread within Greece and globally, future measures that might be necessary to contain the spread of the virus, and longer lasting economic effects due to restrictions, changed consumer behaviour, possible bankruptcies and difficulties for those who have recently became unemployed to re-join the labour market. In particular, the large tourism sector exposes Greece to risks stemming from the pandemic and changed travel behaviour. Shipping may be further strongly affected by the spread of the virus in other countries that are not even important direct trading partners with Greece due the global nature of the industry. A quick uptake of the new EU support programmes, most notably the Recovery and Resilience Facility, would be key to counterbalance these effects and provide the needed support to reforms, investments and growth. The assessment is also taking place against the background of considerable geo-political tensions and growing migration flows, which add to uncertainty, as well as economic and fiscal pressures. Table 2.1:Summary of the main economic indicators Source: European Commission 2020 Summer Interim Forecast.

3.1.Fiscal developments and outlook As a result of the new measures and in light of the latest macroeconomic developments as described in the Commission 2020 summer interim forecast, the budget deficit is expected to reach 5.8% of GDP in 2020. The fiscal forecast for 2020 has deteriorated since the last report. The current forecast is based on the Commission 2020 summer interim macroeconomic projection, and reflects the main measures adopted or credibly announced since May 2020. It does not include the impact of the Council of State’s pension ruling from 14 July, neither the pending ruling of the Court of Auditors (see Box 3.1). The main driver of the deterioration of the forecast is the fiscal impact of the new measures adopted since May 2020 to mitigate the consequences of the pandemic. The aggregate fiscal impact of the earlier measures remained broadly unchanged. On the one hand, the take-up of some of the measures has been lower than expected (e.g. temporary economic support to wage earners and self-employed and the social security coverage by the state), which led to an improvement in the forecast. On the other hand, since the publication of the previous report, due to the extension of the repayment period for the tax deferrals, these deferrals will now be considered as an accrual loss for this year’s budget, as opposed to a budget-neutral revenue shift as it was treated in the previous report. The remaining difference is due to the changes in the macroeconomic scenario and updates in the social budget and state expenditure. A full update on the fiscal forecast will be prepared in autumn, in the context of the assessment of the 2021 Draft Budgetary Plan. The authorities have prolonged the application of some of the earlier measures for a number of additional months and adopted further temporary measures to address the crisis (see Table 3.1 for a summary). In the first package of measures, companies were eligible for a total amount of €2 billion in the form of a repayable advance. After two rounds of applications, the take-up of these amounts was almost complete until July 2020. Therefore the government decided to extend the measure and open the platform for a third round of applications, due in September, with an expected envelope of €1 billion, thereby increasing the total envelope of the scheme to €2.8 billion. Α further round may follow by the end of the year. Furthermore, the repayment of the tax and instalment deferrals has become eligible to be repaid in up to 24 instalments, starting from January 2021. In addition, since May 2020, the authorities adopted a new set of measures, with the following main items: 1. Companies with a given drop in turn-over, may decrease their advance payments for the corporate income tax or for the personal income tax for self-employed. This measure is expected to have a fiscal impact of 0.9% of GDP in 2020. To recall, these advances are normally calculated based on the previous year’s taxable income and then cleared in the following year, when the actual taxable income for the current year becomes known. Since this year’s taxable income is expected to be substantially lower than the last year’s, this measure anticipates the lower net clearances that the companies would be paying next year. 2. A second set of measures was introduced with a view to protecting employment. Following the provision of a special allowance and financing of social security contributions of employees for companies affected by the coronavirus outbreak, the government introduced a short-time work scheme. Under this scheme, the state covers part of the employment costs for employees whose working time has been reduced, as long as the companies commit to keep them employed. The government undertook additional measures to sustain employment such as: (a) the provision of a special allowance for seasonal workers in the tourism sector, (b) the coverage by the state of seasonal and Christmas bonuses for furloughed employees and (c) the financing by the state of social security contributions of employees of seasonal companies, if they can prove that 50% of their yearly turnover was concentrated in the third quarter of the year in 2019. The fiscal impact of these measures is estimated to reach 0.6% of GDP in 2020 and will be financed by the new European instrument for temporary support to mitigate unemployment risks in an emergency (SURE) (). The total cost of measures requested by the authorities to be financed under the SURE initiative amounts to 1.6% of GDP also including the payment of a special allowance and the financing of social security contributions of employees, for companies affected by the coronavirus outbreak. 3. A third set of measures aim to mitigate the impact on tourism through dedicated social tourism programmes and an extended advertising campaign with an estimated fiscal impact of 0.1% of GDP. 4. A temporary decrease in VAT rates for transportation, beverages, tourism packages and cinema tickets from 24% to 13% is expected to bear a fiscal cost of 0.1% of GDP. 5. A temporary instalment subsidy scheme for mortgage, consumer and business loans secured by a primary residence for debtors with mortgages on main residences that have been financially affected by the coronavirus pandemic has been introduced. Under this primary residence protection scheme, the state subsidises for nine months up to 90% of the monthly instalment for all performing loans related to the primary residence but also a significant percentage (from 60% to 80%) of the non-performing loan instalment (see section 6.2). The fiscal cost is estimated at 0.3% of GDP for the period 2020-2021. The authorities also extended the previously taken measures that provide liquidity support to households and firms. In particular, the envelope for co-financing loans to small and medium-sized enterprises (TEPIX 2 scheme) by the Hellenic Development Bank has been increased by €588 million, totalling €838 million. Furthermore, the deadline for certain tax payments has been extended. The personal income taxes can now be paid in 8 monthly instalments, instead of 3 bi-monthly instalments. Similarly, the corporate income tax can now be paid in 7 or 8 instalments instead of the usual 5 or 6 instalments. The single property tax (ENFIA) can now also be paid in 6 instalments instead of 5. These measures have around 0.9% of GDP impact on the cash balance, but no impact on the accrual fiscal balance, due to the time adjustment applied in the statistical recording of these revenue streams. Table 3.1: Coronavirus response measures and their financing sources (1) The total envelop of the Hellenic Development Bank’s co-financing loans to small and medium-sized enterprises is €838 million of which €250 million were disbursed to the Hellenic Development Bank already in 2019 from the public investment budget and €588 million will be financed by the flexibility offered by the Corona-response Investment Initiative. Source: European Commission. (Continued on the next page) Box (continued) The Prime Minister announced a number of additional measures on 12 September. These measures aim to provide support for the recovery next year. Notably, the social security contributions rate will be temporarily reduced for private sector employees by three percentage points and the special social solidarity contribution of private employees and self-employed will be abolished for 2021. The package also includes prolongation of some of the earlier measures and a new round of repayable advances. These measures will be assessed in the context of the 2021 Draft Budgetary Plan. Some further measures recently adopted by the government are expected to further increase the deficit. The recalculation of the objective value of immovable properties for the calculation of the single property tax (ENFIA) in 2020, has been postponed due to delays in the valuation exercise (see section 3.2). Hence, this year’s declarations for the single property tax will still be based on previously used values, which will have a negative fiscal impact of around 0.1% GDP. On the occasion of a temporary loss of income, the authorities reduced the personal income tax rate of aircraft pilots to 15%, thus introducing a permanent exemption to the tax system which contradicts the principles of a single and uniform tax system. Finally, in order to fiscally support businesses with R&D operations, the authorities increased the deductibility of the related expenses (and their depreciation) at minimal fiscal cost. The uncertainty around the fiscal forecast remains substantial. While the uncertainty around the fiscal impact of the emergency budgetary measures has subsided, the macroeconomic environment remains a source of substantial uncertainty. Beyond the pandemic-related macroeconomic uncertainty, there are a number of fiscal and other risks that may affect the future evolution of the fiscal balances. First, Greece is grappling with renewed migration pressures and geo-political tensions, which may give rise to additional funding needs. Second, a part of the state guarantees that are being extended through the Hellenic Development Bank may get called in the coming years, especially if the recovery turns out to be sluggish. Given the total amount of €2 billion, a call-rate of 10% would already impose a fiscal cost of over 0.1% of GDP. Third, the future repayment of the repayable advances will depend on the survival rate of the receiving companies. A slower-than-expected recovery would therefore jeopardise the recovery of these funds. Furthermore there are public service obligations of 0.1% of GDP to be paid to the Hellenic Post, which may materialise in the near future. On the positive side, Greece is expected to greatly benefit from new facilities including the Recovery and Resilience Facility that aims to support investments and reforms in the EU over the next programming period, and is expected to support growth and public finances going forward. Greece’s public finances continue to face important fiscal risks related to pending court rulings. Fiscal pressures might be posed by the litigation cases against the Public Real Estate Company (ETAD). The case is ongoing, as the question of the validity of the recent arbitral awards is still pending before the Athens Court of Appeal following the petitions for the annulment by ETAD. The pending ruling of the Court of Auditors on the retroactive compensation of public-sector pensioners for cuts identical to those that were ruled unconstitutional for the private-sector pensions creates additional fiscal risk. Finally, additional fiscal risks stem from the uncertainty as regards the Council of State ruling on retroactive compensation for cuts in supplementary pensions and seasonal bonuses introduced by previous pension reforms. (see Box 3.1). 3.2.Tax policy

The authorities have restarted work towards completion of the nationwide reassessment of property tax values, a mid-2020 specific commitment, whose finalisation has now been rescheduled for mid-2021. The inevitable delays occurred earlier in the year due to the coronavirus lockdown. The work of data collection and quality assessment, leading to the final determination of prices for existing value zones is expected to be completed by the end of the year. This year’s ENFIA single property tax assessments will thus mainly be based on the previous property tax values. The agreed further expansion of the existing value zone system across the entire country will need to be addressed in the course of next year with a rescheduled deadline of mid-2021. Moreover, technical support is provided by the European Commission through a new project to revisit key features of the immovable property valuation system, including a review of commercial properties valuation methodology, as well as support the steps towards further modernisation and digitalisation of the existing system, in line with best practices. 3.3.Revenue administration Staffing levels at the Independent Authority for Public Revenue continued to increase at a modest pace, although remaining well below the targets, an end-2019 specific commitment, whereas limited progress has been made on the overarching human resources reform, putting in doubt if it will be operational by 1 January 2021. Staffing levels at the end of the second quarter stood at 11 916, compared to 12 500 set as the target by end of 2019. Moreover, the authorities have adopted provisions () that have resulted in staff from the Independent Authority being transferred to other bodies, thus making the achievement of the set staffing targets even more difficult. The completion of the human resources reform, which – once in place – is expected to greatly facilitate the Independent Authority’s capacity to attract and maintain the high calibre staff it needs, continues facing significant delays. Although the budget has been allocated for 2020, the draft legislation for the wage grid is yet to be prepared. The European institutions encouraged the authorities to adopt it during the next review period. It is noted that significant technical support has been provided through the European Commission that is expected to continue also in 2021, which adds to the urgency of a timely implementation of this key reform. Adopting the wage grid legislation during the next review period is considered crucial to help with addressing the challenges faced by the Independent Authority to fill its vacant posts (currently 1 353 below the mid-2021 target). Mixed progress has been made in the areas of the Independent Authority’s IT framework and its headquarters, with further key steps expected to be adopted in the coming months. A jointly agreed roadmap for the IT framework has been prepared by the Independent Authority and the Ministry of Digital Governance. The rollout of myDATA (), relating to electronic bookkeeping and other web services offered by the Independent Authority, is expected to be completed by October 2020. The needed budget for investment expenditures for other planned IT projects until 2022 is yet to be allocated and is estimated at €25-30 million. As concerns the relocation of the headquarters of the Independent Authority into one single location, planning is moving ahead 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 and the Independent Authority should be able to access the building during 2024. A draft law to strengthen the anti-smuggling framework, including provisions to strengthen the operational capacity of the Operational Coordination Centre, has been prepared and is expected to be adopted by October 2020. The draft law includes a number provisions aiming to strengthen the anti-smuggling framework, such as the ratification of the World Health Organisation Framework Convention on Tobacco Control and GPS tracking system for fuels. The draft law, which is expected to be published for public consultation during September, will need to be further elaborated with a number of secondary legislation acts. It would be important to swiftly adopt these bills and ensure sufficient sourcing of the Independent Authority, to allow it to carry out its role efficiently, in particular as concerns the development and use of various digital tools. The European Commission is continuing providing technical support until the end of 2020. The capacity of the Operational Coordination Centre – which coordinates anti-smuggling efforts – will be strengthened through the introduction of a new selection process for officials that extends the secondment period up to six years, while the structure remains firmly embedded within the Independent Authority. Separately, the implementation of the new organisation structure of the customs department is progressing, but there has been some delays in the full operationalisation of the mobile control units. The recently established debt collection centre moved into its new premises, while the end-to-end collection project, a specific commitment for mid-2021, is faced with some delays. The debt collection centre, which has been provided technical support through the European Commission, still needs to be fully staffed, as it currently has filled 28 out of a total of 126 posts. The implementation study for the end-to-end collection project (supported by EU funds) has been finalised and is expected to require a time extension of 8 months. Finally, two projects with technical support provided by the European Commission have recently been launched. The projects aims at improving taxpayer services, developing and implementing a comprehensive compliance risk management framework, standardising the audit process and implementing some practical guidelines on indirect audit methods. A new temporary committee for settling tax debt disputes has been established under the competence of the Ministry of Finance. According to the adopted provisions () the committee’s mandate ends by July 2021. Although the settlements to be agreed are expected to alleviate the burden on the judicial system, it would be important that the mandate of the new committee is not extended, as it might risk establishing a parallel system to the existing Directorate for Settlement of Disputes, which is part of the Independent Authority. The outcome of the key performance indicators for the second quarter of 2020 reflects the impact of confinement measures imposed during this period, including for audits carried out by mobile units. As regards debt collection, the results for the second quarter is yet to be published, but according to preliminary monthly results for the period January to May 2020, it seems that the payment culture was not significantly disrupted. In addition, the results from the large debtor unit (see Table 3.2), which saw a reduction but encouragingly not too sharp (27% reduction compared to the same period of 2019), could serve as an additional indication. Looking ahead, the expected tighter liquidity conditions for both households and businesses is projected to provide pressure for deferrals to be further extended. Furthermore, the authorities’ intentions to establish a new settlement scheme for individuals directly impacted by the coronavirus pandemic are likely to raise expectations that could affect the timely repayment of debts. Table 3.2:Key Performance Indicators of the Independent Authority for Public Revenue, second quarter 2020 (*) (*) End-2020 target, as no quarterly target has been set. (1) DRU: Dispute Resolution Unit. Source: Independent Authority for Public Revenue. In contrast to the previous periods, the Joint Centre for the Collection of Social Security Debt did not meet its targets, which were set prior to the coronavirus pandemic. The reason behind the reduction in debt collection by the Joint Centre is most probably due to the impact of the pandemic and the deferrals allowed for the period April to June 2020. For the second quarter €574 million was collected, while the target was for €671 million to have been collected. 3.4.Public finance management Arrears The coronavirus outbreak has affected the pace of clearance of arrears, adding to previous implementation difficulties. The authorities appear behind schedule in adhering to the intermediate targets set in the clearance plan adopted in October 2019 (). In June 2020, the stock of arrears amounted to €1.5 billion, that is to say €241 million above its December 2019 level, €667 million above the targets set in the plan and €1.3 billion above the target set for December 2020. This development partially reflects disruptions in labour-intensive processes caused by the pandemic. Among the major drivers is the increase in the stock of unprocessed pension claims, which grew by €300 million between December 2019 and June 2020, due to an unforeseen burden of new unprocessed pension claims that is reported to stem from the implementation of an early-2019 law according to which self-employed were granted the possibility to recalculate their debts and apply for pensions. According to the authorities, this increase of pension claims would result in a remaining stock of arrears of €400 million by end-December instead of €160 million. They committed to update their plan by end-October, with detailed information regarding the clearance of the additional pension backlog. Notwithstanding the unforeseen increase in pension claims, some crucial structural measures, including the automation of the processing and awarding of the new pensions claims as well as the digitalisation of the Single Social Security Fund (e-EFKA, see section 5.1) were reported to be broadly on track. These measures should help avoiding the accumulation of new pension claim arrears and should enable the personnel of the Single Social Security Fund to focus on clearing the stock of old pension claims. To counterbalance the delays and bring the implementation of the clearance plan back on track, the authorities are adopting and implementing a set of additional corrective measures in several subsectors. The authorities prepared a legal provision that is expected to substantially decrease the value of unprocessed pension claims by allowing an increase in temporary pensions. Moreover, after some delays, the e‑platform, allowing for new arrear payment modalities towards health-sector providers, has been launched in August. It should enable the authorities to clear the remaining health arrears stock, which had already dramatically decreased early-September. Specific targeted actions are undertaken on an ad-hoc basis to accelerate the reduction of arrears of extra‑budgetary funds. A new programme has been adopted for the repayment of local governments’ stock of arrears alongside measures to avoid the creation of new arrears were also adopted (). The Ministry of Interior continues its efforts towards improving the quality of the statistical reporting of arrears and is designing new IT tools in collaboration with the Ministry of Digital Governance, with a view to improving the payment processes. According to the authorities, the impact of these measures will be visible in the August data (), which will be assessed in the next enhanced surveillance report. Implementation of structural reforms recommended by the Hellenic Court of Auditors, a mid-2021 specific commitment, is underway in order to improve the payment system and avoid the accumulation of new arrears. Challenges remain regarding the central procurement system of the health sector (see section 5.2). The Hellenic Court of Auditors identified the lack of internal control across the public administration as a major weakness of the Greek payment system. The Court is taking measures to increase the awareness of general government entities of their legal obligations in terms of internal control. In the meantime, the authorities are finalising a new law which will cover all relevant aspects of internal control and internal audit across the public administration in a single piece of legislation (see section 9.3). This is a significant step forward. The National Transparency Authority helps the public entities comply with the new law. Moreover, the Authority, which is responsible for designing a structured internal control and audit framework for the Greek public administration, is working with the line ministries to fully establish internal audit units and make them operational. For local entities that are too small to have their own internal control system, a technical support project funded by the European Commission is underway to investigate avenues for inter-municipal collaboration on the matter. Moreover, the authorities are designing a new accounting IT system (), also with a view to rationalising and speeding up the payment processes of the central government, except for the Public Investment Budget payments which are handled through a different IT system (see section 3.4). When shifting to the new IT system, the authorities intend to address some of the recommendations made by the International Monetary Fund in its technical support report from March 2020. Treasury Single Account The authorities have continued to take the necessary steps for the full establishment of the Treasury Single Account at the Bank of Greece to enhance cash monitoring, a mid-2020 specific commitment. The Treasury Single Account system is operational and provides a useful overview of the cash situation of the state. A large number of entities is already participating in the Treasury Single Account and entities that remain outside of the scheme are not significant in terms of total liquidity. Although the process has stalled since April 2020, the authorities are taking steps to ensure full compliance among the remaining entities. By end-October 2020, the Ministry of Finance will perform an assessment of the entities’ compliance with the rules relatives to the monitoring of their relevant liquidity buffer in commercial banks, which, according to the law, should not exceed their fifteen days’ liquidity needs. The Ministry plans to perform an assessment of compliance with that rule by end October-2020. The authorities are encouraged to set up dedicated tools for the close monitoring of entities deemed to face difficulties to comply. The substitution of paper payment orders by electronic ones continues to progress. The share of electronic payments in the entities that had joined earlier the e‑payment platform of the Bank of Greece continued to increase and a few more entities have joined the platform since April 2020. The authorities plan to address the remaining challenges, such as the rationalisation of the number of cash accounts with low balances or improving the monitoring and the recording of special accounts. Progress on cash forecasting, a mid-2020 specific commitment, has suffered delays due to the coronavirus pandemic, and will be reassessed under the next review. The results of the ongoing pilot project are encouraging since the entities’ projections are meeting the expected quality standards. Progress had picked up in June, when 20 of the 25 entities that were supposed to submit their forecasted cash needs to the Ministry of Finance did so. Nevertheless, at end‑August, only two thirds of the entities were able to send their forecasted cash needs on a monthly basis. The Ministry of Finance adopted a set of actions to ensure that the remaining third of the pilot entities will be able to report on their cash needs on a monthly basis as of September. Chart of Accounts The implementation of the Chart of Accounts reform is broadly on track, a mid‑2021 and mid-2022 commitment. The procurement of the new IT system () supporting the accounting reform and the implementation of the Chart of Account is on‑going. In addition, the authorities have taken further steps to underpin progress on this reform. The directorate in charge of the reform at the Ministry of Finance has been reinforced. The accounting policy for the implementation of the new General Government Accounting Framework has been adopted, following three necessary amendments of legal provisions (); this was a precondition for the compilation and the closure of the pending 2019 financial statements of the state, and for an orderly transition towards accrual accounting (). The closely linked e‑invoicing project in the public sector is showing encouraging results. Work is underway on the functional classification of the Chart of Accounts, in accordance with the performance budgeting framework that is being developed. The five ministries that have not yet joined the pilot project on the matter are expected to do so in 2021, in line with the initial timeline. Technical support is provided through two projects of the European Commission for the rollout of the accounting reform, as well as for further capacity building actions at the General Accounting Office.

The action plan on the implementation of the Chart of Accounts in the Public Investment Budget is reported to be on track, although the full implementation of the Chart of Accounts in the Public Investment Budget remains a challenge. The action plan will allow for the presentation of the budget execution in accordance with the Chart of Accounts classifications. At the same time, the authorities consider that, at the budget preparation stage, the Public Investment Budget can only abide by the less detailed levels of administrative and functional classifications of the Chart of Accounts. The authorities committed to consider potential ways for improving the situation with the help of technical support to be provided by the European Commission (). In addition, the action plan is not designed to deliver on accrual accounting (). The authorities are encouraged to address this issue in the medium term. Public procurement The authorities have taken stock of the various issues in the public procurement legal framework and are in the process of adopting a new piece of legislation to address those issues. The pandemic greatly affected the initial timeline of the preparation and the adoption of the law, which addresses a number of important issues in the public procurement legal framework, including the frequent phenomenon of excessively low offers submitted in the tendering procedure. Simplifying and enhancing the transparency in the public procurement procedures namely through e‑procurement as well as simplifying and accelerating the review procedures are amongst the authorities’ priorities. A legislative committee was established to amend the current law. The new law is planned to be adopted by end‑October. Its full and timely implementation is key given that public procurement will play an essential role in the efficient management of the Recovery and Resilience Plan. To this end, the authorities are encouraged to adopt an action plan for the implementation of the new framework. The authorities plan to adopt a new public procurement strategy for 2021‑2025, which would contribute to a more sustainable and efficient use of public resources. A committee has been created under the Hellenic Single Public Procurement Authority that is responsible for the national strategy on public procurement. It is working with the support of the General Secretariat for Coordination on the new strategy, the priorities of which are still to be determined and which will encompass a component on fighting corruption (see section 9.3). A timeline which foresees a mapping of the current situation and the identification of political priorities has been established, before the envisaged finalisation of the strategic and action plan in February 2021. The authorities foresee an agreement on a public procurement strategic partnership with the Commission, with a view to supporting the necessary reforms. 3.5.Public investment Public investment in Greece declined substantially in the aftermath of the financial crisis, assisted by a recurrent under-execution of the investment budget in recent past years. General government investment was by 1.1% of GDP lower in 2019 than initially planned, marking 2019 as yet another year of very sizeable underspending. The lower execution was accompanied by lower drawing of EU funds, which broadly neutralised the impact on the general government balance. The investment under-execution in 2019 comes on top of the recent years’ undershooting and as a result, only 62% of the public investment budget ceilings allocated to ministries were actually spent in the period 2017-2019, compared to an average of 88% in 2014-2016. The authorities estimate that the investment budget will be fully executed in 2020, also confirmed by the actual data for the first half of 2020. The state investment expenditures more than doubled compared to the corresponding period last year, recording an increase of 1.5% of GDP. However, this increase cannot be attributed to structural measures analysed below but rather to the fact that spending from the programming period 2014-2020 is reaching maturity and to the fact that a part of the measure undertaken in response to the coronavirus crisis will be financed by structural funds. The authorities have started implementing measures to address the structural obstacles. These measures, including a detailed action plan to improve the monitoring and forecasting of the Public Investment Budget, as well as the creation of a Project Preparation Facility and the preparation of Strategic Project Pipeline, aim to make the best use of available resources in the public investment budget and accelerate the drawing of EU funds. In addition, the establishment of the Hellenic Development Bank has accelerated the disbursement of financial instruments and the simplification of the regulatory framework has accelerated the implementation of entrepreneurship programmes. The flexibility of the State Aid rules that was allowed due to the coronavirus outbreak has also helped accelerate the disbursements of the funds. Work continues on the preparation of the National Development Programme that will start being implemented in January 2021. The implementation of these measures will also be crucial for a sustainable recovery from the coronavirus crisis. All the more so, in light of the various new EU facilities including the Recovery and Resilience Facility that will support investment in the EU over the next EU budget programming period, of which Greece could greatly benefit. In order to prepare new bankable projects, the authorities are preparing a Strategic Project Pipeline. The characteristics and role of the pipeline as well as a timetable were agreed in July 2020. The Pipeline will be an independent unit, outside the core structure of the sectoral ministries to avoid conflicts of interest. It will be coordinated by the Presidency of the Government. Priority infrastructure investment projects will include energy, environment, urban, transport and digital sectors, with projects that have a budget over €10 million. Selected projects will have high relevance for/under the National Growth Strategy and the sectoral national strategies. The Strategic Project Pipeline will be particularly useful for mobilising funds under the EU Recovery and Resilience Facility. To help the preparation and implementation of priority infrastructure projects of the Strategic Project Pipeline, the authorities are setting up a Project Preparation Facility. The details and placement of the Project Preparation Facility is currently being worked out. It will be important to ensure that its placement safeguards the rights and competencies of established independent institutions. The facility aims at supporting the planning and execution of public investment projects, including giving technical assistance and providing project management The 2019 action plan to enhance the monitoring and forecasting of the Public Investment Budget is being implemented as scheduled. A more frequent and enhanced exchange of data between the Ministry of Finance and Ministry of Development, as well as monthly updates on the total Public Investment Budget allocation of expenditure based on actual payments, are already in place. Other actions, such as the increase in frequency of Public Investment Budget revenue forecasts – from semi-annually to quarterly – and the technical adjustments of the Public Investment Budget database to facilitate the budget preparation process, are still in progress, but in line with the timetable. Although the coronavirus outbreak resulted in minor delays, the authorities are planning to absorb any delay within the initial timeline, an effort that is welcomed by the European Institutions. In the context of the action plan, technical support by the European Commission is being provided on two projects: (i) the automation and streamlining of the implementation procedures, and (ii) support on the collection, handling and reporting of data related to monitoring, budgeting and forecasting of Public Investment Budget expenses and revenue. 4.1.Sovereign financing The Greek government bond yields and the yield spreads declined close to post-crisis lows. The yield spreads over the German Bund on the long-term bonds have declined by around 250 basis points since early May 2020 and stabilised below 1 percentage point in August for the 5-year tenure. Benefiting from the favourable financing conditions, the Public Debt Management Agency issued a 10-year bond in June 2020 of an amount of €3 billion. The auction attracted great interest, with a final order-book of close to €16 billion. The bond was issued with a coupon of 1.5% and a re-offer yield of 1.6%. This bond auction was successfully reopened in September, raising another €2.5 billion with a 1.2% yield, which is the lowest yield in the history of the Hellenic Republic for this tenure. Graph 4.1:5-year government bond spreads over the German Bund Source: European Commission. The favourable market conditions described above are likely to have been strongly supported by the Eurosystem’s purchases of Greek government securities. Under its Pandemic Emergency Purchase Programme, the Eurosystem has bought Greek government securities for almost €10 billion by end-July. Even if market volatility has subsided, Greece’s market access conditions are likely to remain sensitive to the market sentiment. Financing risks are considerable, but there are safety nets in place. The financing needs of the budget have increased markedly since the last report. The deterioration of the budgetary outlook calls for vigilance. Since May 2020, not only has the baseline primary balance deteriorated, but the state will face additional payment obligations due to the payment of retroactive pensions worth €1.4 billion. The cash reserves of the general government remain considerable and stood above €31 billion at the end of June, about €2.5 billion lower compared to March. The cash buffer account () balance remained at €15.7 billion. The recent bond issuance, the space to increase repos by over €3 billion, the potential proceeds from the medium-term debt relief measures amounting to €1.5 billion, and the available EU funding, could alleviate short-term liquidity pressures. Preserving an adequate cash buffer will be crucial to sustain stable market access next year, taking into account the risks that selling pressure may emerge in the sovereign bond market. Investor sentiment may be also affected by global risk appetite and by the perceptions of the management of the pandemics and progress with reforms, including in the banking sector. Debt servicing needs in 2021 are limited, but further bond issuances will be required to maintain an adequate level of cash reserves.

5.1.Pensions Despite the difficult circumstances, the authorities are making progress in implementing the action plan to finalise the setup of the Single Social Security Fund (EFKA), a mid-2020 specific commitment. The main aim of the action plan besides finalising the organisational setup is the digital transformation of the Fund by end-2020 (renamed to e-EFKA as of 1 March 2020). The first stage of merging the public sector and supplementary pension functions to the Single Social Security Fund has already been implemented through the assignment of employees to new positions. The physical move of offices has been delayed by the pandemic. The moving begun only in July with staff moving initially from five to two or three buildings with a view of moving all offices to one building by the end of 2020. Therefore the commitment is rescheduled to end-2020. The remaining organisational measures are the establishment of local subsidiaries for farmers and self-employed, which have seen delays due to the coronavirus outbreak. While the setup of the subsidiaries for farmers is foreseen to be completed by the end of 2020, the establishment of subsidiaries for self-employed is foreseen to be completed by mid-2021. On the digital processing of pension applications, the action plan foresees moving all scattered data under one platform, which is now under a pilot phase. The results of the pilot are being currently analysed. According to the authorities, the preliminary results indicate that the target of 30% coverage of digitally processed main pension applications (out of all digitally submitted main pension applications) by end-June 2020 has been met. Regarding the recent ruling of the Court of Auditors granting early retirement rights to male civil servants with young children, the authorities expect that the effects of this ruling will be small. The court ruling affects only those men with young children who, back in 2010, had the legal requirements to apply for early retirement (25 years of service and a child less than 18 years old) and had filed a claim for early retirement back then. This only affects a small number of claims. All other persons applying for an early retirement will be assessed under the new, reformed and less generous pension rules, not those that applied ten years ago. This significantly mitigates the fiscal impact of the ruling. The recent Council of State ruling on the 2012 pension cuts, entitles to a compensation of those pensioners, who had filed a claim, for the 11-month period starting from the publication of the previous Council of State ruling in June 2015 until the implementation of the 2016 reform in May 2016. (see Box 3.1 for an in-depth description of the recent rulings). The publication of the court decision in full detail may take a number of weeks and therefore not all technical details of the ruling are fully clear at this stage. To comply with the Court ruling, the government has submitted a law amendment on 29 July, which compensates all private sector pensioners (not only those who had filed a claim) for pension cuts incurred on their main pensions at a cost of 0.5% of GDP. The government has also pledged to compensate pensioners of the public sector in case the Court of Auditors issues a ruling to the same effect related to their pension cuts, which would raise the total cost of the compensation to 0.8% of GDP. Being a one-off compensation for pension cuts incurred in 2012, the measure has no impact on the current functioning of the Greek pension system nor on future pension expenditure. The major pension reform enacted in May 2016 remains thus intact. 5.2.Healthcare To respond to the coronavirus outbreak in spring 2020, the authorities have substantially strengthened the health-care system to deal with the pandemic, including through a wider use of digital tools. They focused their efforts on strengthening the health-care system, increasing the availability of intensive care beds and recruiting about five thousand additional staff members, both doctors and nurses. In parallel, to cope with the ongoing challenge to manage the impact of the pandemic, telemedicine has been strengthened both on the side of consultations and on that of prescriptions, to ensure access, while avoiding any unnecessary contact between potentially infected patients and other patients and/or health-care staff. Greece also deployed a number of digital solutions, in order to deal with the health crisis by investing in services that could ideally be utilised after the end of the pandemic as well, such as a paperless e-prescription system, a National Patient Registry with a tele-consultation platform for the treatment of coronavirus patients that are restricted at home, supported by an enhanced business intelligence system. Thanks to the early implementation of this and other measures, Greece to date successfully managed to contain the spread of the virus during the first wave, but is now facing an increased number of new cases, mostly related to the tourist season. With a longer-term perspective, the Ministry of Health has revised its digital strategy and progressed on issues such as the design of the national e-health interoperability framework, with technical support provided through the European Commission, and on the digital health action plan. The redesign of the primary health-care system, a mid-2020 specific commitment, will take a substantially longer time to be implemented, to reflect changes in the delivery of some of its main elements and due to inevitable delays caused by the need to manage the response to the pandemic. Legislative changes are still at a drafting stage, with adoption expected not before spring 2021. The reform, which started in 2018, aims to set up a comprehensive system of primary health care with a compulsory registration of the whole population with a family doctor, who would become the first point of contact for the patient and implement compulsory gatekeeping. Based on available information, most of the elements of the reform are planned to be redesigned, and the roll-out of the system is suspended until a new delivery model is defined. The authorities are encouraged to preserve the elements of compulsory registration and gatekeeping, which are key for a successful establishment of a robust and well-functioning system of primary health care, as they help ensure equal access and protect the population from supply-induced demand and its avoidable financial burden, which is a growing source of concern in the current system. Meanwhile, however, the system is planned to revert to the pre-reform model, going from capitation to fee-for-service reimbursement of family doctors (with a maximum of 200 visits per months), a step back deemed necessary to support the management of the pandemic that will allow to double the number of family doctors contracted with the Public Health Fund. The authorities intend to consistently rely on public private partnerships and contracted private doctors, rather than creating a public structure, for the provision of primary health-care services. The redesign of the reform will necessitate a rescheduling of the commitment to 2021. The authorities plan to resume the roll-out of the primary health care network no earlier than spring 2021 given the short-term need to focus the efforts on the response to the pandemic. A new General Secretariat with exclusive responsibility for the implementation of the Primary Healthcare transformation was set up within the Ministry of Health to speed up implementation. The reform became all the more relevant in light of the coronavirus crisis, given the key role of the primary health care units, including the newly and swiftly deployed mobile units (KOMYs), in supporting the response to the pandemic so far and in light of its potential to improve equitable and affordable access that rests on full population coverage and uptake through compulsory registration and gatekeeping supported by a comprehensive communication campaign. The aim should remain to set up a comprehensive system of primary health care that delivers full population coverage, compulsory registration and gatekeeping to counter supply-induced demand, improving both access and the overall efficiency of the health care system. Centralised procurement, a mid-2020 specific commitment, is already being partly implemented and the overall set up of the National Health Authority for Health Procurements (EKAPY) is progressing, but yet to be completed also due to delays caused by the pandemic. A new board is in place and the Authority is coordinating the procurement strategy at regional level, with a focus on pandemic-related needs. Centralised procurement is mostly implemented at regional level, with a coordination role from the Authority, but a relatively large share of tendering procedures finalised at centralised level were launched by the former institution several years ago. Draft legislation, defining the new legal framework for the Authority was finalised and is currently planned to be submitted to the Parliament by the end of October and adopted by December. The authorities also shared an operational plan for procurements to be launched in 2020 according to which they estimate that up to 40% of the total hospital expenditure would be centrally procured by mid-2022, a mid‑2022 specific commitment, with approximately €305 million worth of items to be tendered out during the first quarter of 2021 with the aim to reach 30% by the first quarter of 2021. Even though the central authority is reported to have helped the regional authorities to ensure that items were procured at the best price, the authorities are encouraged to reactivate the Price Observatory, a monitoring tool intended to increase procurement transparency and efficiency, as from January 2021. At present, recruiting the necessary skills to complete the staffing of the Authority is progressing, although some challenges remain, but the newly finalised legal framework, soon to be legislated, may facilitate the filling of permanent posts. Up until September the authorities plan a substantial increase by 50 fixed-term appointments in the National Health Authority for Health Procurements, of which 33 were already recruited. The clawback amounts, especially for what concerns the area of pharmaceuticals, and delays in its collection are a cause of concern. For pharmaceuticals, the collection of 2019 has only been completed for 50% of the total, with the remaining part to be collected starting in November 2020 through 36-monthly-instalments planned to be legislated by October 2020 (while by this time the overall collection should have been finalised). Equally worrisome are the increasing trends: the clawback for 2019, which amounts to almost €800 million, is 36.2% higher than in 2018 and almost 65% higher than in 2017. The clawback for the first semester 2020 has been quantified at €364 million. For private health-care providers, collection has not started for 2018 and 2019 despite important delays and is expected to resume in November 2020 which implies that €600 million are currently uncollectable. Adoption of the necessary legislation to finalise collection, expected by October 2020, would help preserve the fiscal credibility of the clawback. Revision and consistent implementation of the previously adopted structural measures would support efficiency and access to quality health care. The authorities are encouraged to reduce supply-induced demand and waste, and to take urgent further action to and fully enforce the tools currently available. The insufficient implementation of structural measures has repercussions also on patients’ access. Introducing a means-tested structure could be key to protect vulnerable citizens from catastrophic payments, both from outpatients and inpatients. Furthermore, a review of the current definition of the clawback introducing a risk-sharing component would be instrumental in enhancing the efforts to avoid the creation of new clawbacks and to curb supply-induced demand, which leads to high out-of-pocket payments. 5.3.Social safety nets The review of the system of subsidies for local public transport, a mid-2020 specific commitment, is close to being concluded. The revised primary legislation for the new system was adopted in July in law 4714/2020. The secondary legislation to allow a regular and objectively-based reimbursement of subsidised public transport tickets to operators in Athens and Thessaloniki is expected to be adopted in September 2020. The reform of the disabilities benefit framework is progressing according to its previously agreed redesign, a mid-2019 specific commitment that will take longer to be completed. Following a further review of EU best practices, the initial approach of a functional assessment of disability based on a self-assessment has been abandoned in favour of a functional approach based on physical examination by qualified experts. Such assessments by experts are widely used in other Member States with the dual role of assessing benefit eligibility and making specific proposals for disability mitigation and rehabilitation. For this aim, a working group and a steering committee have been established. A policy paper is expected to be adopted in September 2020, including a proposal for a pilot project to be launched in the first quarter of 2021. The assessment process will involve a preliminary questionnaire, a testing process, and an interview. With regards to the administrative procedures related to the granting of disability benefits themselves, the electronic system for processing the applications is now available in three regions (Athens, Thessaloniki, Patras). At the same time, the operation of the disability assessment centres (KEPA) has been severely affected due to the restrictions imposed following the coronavirus outbreak. The social impact of the coronavirus crisis is not yet reflected in the take up of the Social Solidarity Income benefit, as eligibility rules are based on the previous year’s incomes. This is a broader problem of the social benefits system in Greece, as for most benefits, income is assessed based on tax returns for the previous year that are submitted in June each year. For this reason, social assistance has not played a major role in providing income support at the beginning of the coronavirus crisis. In contrast, benefit eligibility and payments are likely to increase substantially next year. This highlights the need of upgrading the benefits system, to address more accurately the actual needs of households based on the assessment of the current income situation, making the benefits system more responsive to short-term shocks of a large scale. The design of the ‘labour market reintegration’ pillar of the Social Solidarity Income (third pillar) is being adapted in view of the coronavirus crisis, and the rollout of the new framework, an end-2019 specific commitment, is scheduled for autumn 2020, contingent on health-related developments. The Social Solidarity Income scheme should combine income support with the provision of social services (second pillar) and labour market reintegration services (third pillar). During 2019, a pilot project to ensure the provision of social support and labour market activation services was implemented in 32 municipalities across the country. The findings of the pilot project have been evaluated in view of its national implementation in 2020 and the terms of the rollout for the third pillar, based on a new delivery model for active labour market policies, were being discussed before the lockdown. However, following the Covid-19 outbreak, there was a need to adapt the business processes of the public employment service (OAED) to the new situation, and, in turn, adjust the terms of the national rollout of the new framework. The rollout should be launched in autumn 2020. 6.1.Financial sector developments Greek banks have continued to build up their liquidity buffers. They were able to keep the cost of funding manageable, even though the pandemic has temporarily increased the cost of long-term unsecured funding. Greek banks have been able to reduce their funding cost by replacing repo funding, with increased liquidity from Eurosystem’s refinancing operations. This has been facilitated by the easing of conditions for Eurosystem targeted longer-term refinancing operations (TLTRO III) and a temporary easing of collateral requirements for Eurosystem credit operations, in particular the waiver to accept Greek sovereign debt instruments as collateral. As a result, Eurosystem borrowing of Greek banks has gone up by €29 billion over the period end-February to end-July 2020, increasing from 3.1% of their total liabilities to 13.9% (see graph 6.1(right)). Moreover, their liquidity position benefited from a continued upward trend in private sector deposits, in particular from corporates seeking to accumulate liquidity to weather the uncertainties from the coronavirus pandemic. This outweighed a decrease in general government deposits, as the state proceeded with the disbursements related to its support measures to the overall economy. As a result, Greek banks improved their liquidity coverage ratios (LCR), having in most cases already returned above the regulatory requirement of 100%. Nonetheless, despite this positive development, the cost for long-term unsecured subordinated funding has not yet returned to the levels seen prior to the pandemic () and is only gradually declining despite supportive trends in Greek sovereign debt yields. Graph 6.1:Bank deposits (left) and total borrowing from the Eurosystem (right) Source: European Central Bank, International Monetary Fund. The loan moratorium measures put in place by banks and servicers, coupled with the flexibility announced by the supervisory authorities, imply that the impact of the pandemic on the quality of the banks’ loan books will be limited this year. The moratoria are applicable for debtors affected by the coronavirus outbreak and apply to interest payments for business and principal and/or interest for natural persons. According to the data submitted by the Greek systemic banks as of 31 May 2020, on the loan exposures affected by the moratoria offered to debtors, non-legislative moratorium arrangements had been granted to €18.9 billion of loans, out of 332 thousand applications worth €22.8 billion of loans. Moratoria granted represent above 10% of the banks’ total loan portfolio and 14% of all performing loans (moratoria granted to small and medium-sized enterprises accounts for 20% of performing loans). In terms of allocation of the moratoria granted across different asset classes, 59% of moratoria was granted to households (mainly for collateralised residential loans) and 41% of moratoria granted to corporates (of which 26% to small and medium-sized enterprises) (). However, the Hellenic Bank Association has already announced on 7 July that the moratoria granted will be extended until the 31 December for both legal entities and natural persons, subject to the same conditions as applied until now. The 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. Thus, the main impact of the pandemic could start being reflected in supervisory asset quality indicators only after the moratoria expire.

The authorities’ efforts to sustain access to finance during the coronavirus crisis for affected businesses, are starting to bear fruit and are expected to mitigate the impact on the corporate loan book this year. The two schemes implemented by the Hellenic Development Bank, i.e. a guarantee scheme and the interest subsidy scheme for new corporate loans, co-financed by the Hellenic Development Bank (TEPIX II), have been particularly successful in attracting strong demand. The guarantee scheme consists of two tranches of €1 billion of guarantees each, aiming to leverage €7 billion of loans. Until the beginning of July, €3.1 billion of loans had been approved under the first tranche, corresponding to 4 406 small and medium-sized enterprise loans (€1.3 billion) and 270 large corporate loans (€1.8 billion), while actual disbursements were expected to gradually pick up throughout the summer. The TEPIX II scheme has also been successful in attracting demand via a new sub-product (aimed at providing support to companies affected by the coronavirus outbreak) offering a 2-year interest grace period, financed jointly by the commercial banks and an expanded total envelope of €838 million by the Hellenic Development Bank. As a result, the scheme has mobilised 12 783 loans worth €1.8 billion (€1.4 billion of which related to the new sub-product) and was recently expanded by €180 million, aiming to leverage another €800 million of new loans, to cover the demand in excess of the initial envelope. Both schemes attracted a higher number of applications than the available budget, which points to the existence of strong demand. Nonetheless, the authorities are assessing the adequacy of existing schemes on a continuous basis, as evident by the extension of the TEPIX II scheme. Beyond these two programmes, interest subsidies to existing performing loans, bonds or bank overdrafts of corporates affected by the coronavirus crisis for the 5 month period April - September are also offered in the form of direct grants by the government (with a total envelope of €750 million, of which only €179 million had been utilised by the beginning of July) with the aim to provide working capital to viable, primarily small and medium-sized enterprises, under the condition of maintaining their number of employees. These schemes are expected to provide support to lending growth to businesses over the coming months, supporting employment and, to some extent, asset quality in the banking sector. Although the stock of non-performing loans continued to decline in the beginning of 2020 and the potential negative impact of the coronavirus crisis on asset quality will only start becoming evident after the expiry of the moratoria, the banks are proceeding to book extraordinary expected credit loss provisions to reflect the worsening macroeconomic environment. The stock of non-performing loans of Greek banks has continued its downward path in the first quarter of 2020, dropping from €68.5 billion at the end of 2019, to €60.9 billion in March 2020 (). The intragroup transfer of €7.5 billion of predominantly non-performing loans by a systemic bank, in the context of their securitisation under the Hercules asset protection scheme, was the key driver. In the absence of this transaction, the stock of non-performing loans still fell by €1.1 billion, mainly on the back of write-offs, while organic resolution of non-performing loans remains marginal. However, as the positive effect of the concluded securitisation under the Hercules scheme will only formally appear in the consolidated banking group figures next quarter (), the improvement in the share of non-performing loans to total customer loans is less pronounced, dropping to 39.6% at the end of March 2020, from 40% at the end of 2019 (). Despite this significant improvement, it remains by a large margin the highest ratio in the euro area, with a cash coverage ratio of 44.9%, slightly lower than the EU average of 47.4%. The four systemic banks significantly increased the impairments booked in their first quarter results of 2020, as they proceeded to reflect the expected deterioration in the macroeconomic outlook due to the pandemic. However, banks’ estimated provisions for 2020-2021 do not yet incorporate the more detailed aspects affecting the customers’ ability to repay their loans, as these will only become evident after the expiry of the moratoria. This implies a potentially material downside risk for additional credit provisions in 2021, particularly if the baseline scenario of a V-shaped recovery does not materialise. Going forward, the impact of the pandemic on asset quality could be exacerbated by (i) the large exposure of the banks’ performing loan book to some of the sectors most affected by the current containment measures, e.g. tourism and hospitality, shipping, transport and storage and commercial real estate and (ii) the potential adverse impact of the moratoria on the payment culture. Graph 6.2:Non-performing loans as a % of total customer loans (left) and changes in their stock in the first quarter of 2020 (right: million EUR) Source: Bank of Greece. Following an initial freeze of the secondary non-performing loan market, some of the previously planned transactions have been successfully finalised. This is evidenced by the conclusion of the first securitisation under the Hercules securitisation scheme () as well as two transactions outside it. Two more systemic banks are moving on to conclude their ‘hive downs’ () this year, as well as all other preparations to facilitate their planned securitisations under the Hercules scheme, with an aim to conclude them by the first quarter of 2021. Nonetheless, the banks’ non-performing loans reduction strategies are affected and their internal capacity to viably restructure loans remains low. Greek systemic banks have made use of the flexibility awarded to them by the supervisory authority and will submit their 2020 revised non-performing loan strategies at the latest by March 2021, in order to reflect the new status quo. Despite the large amount of non-performing loans under forbearance measures (€22.3 billion at the end of March 2020), few of these restructuring efforts prove sustainable, with 24% of long-term restructurings and 51.6% of short-term restructurings becoming non-performing again, only a quarter after the implementation of the restructuring. These ratios further increase to 48% and 88% respectively, after four quarters, suggesting that the banks’ internal capacity to viably restructure loans remains low. The already weak profitability outlook for Greek banks will come under pressure by an increase in expected credit loss provisions. At the end of 2019, Greek banks exhibited one of the lowest return-on-equity in the EU, with their profitability underpinned by non-recurring trading gains and a cost-income ratio well below the EU average. It is burdened by high provisioning and the lowest commission income as a ratio of total income among EU banks. At the same time, the large amounts of accrued interest from non-performing loans, can be difficult to collect and may also imply a material fall in net interest income from non-performing loan deleveraging. In this context, with the onset of the crisis, the four systemic banks experienced in the first quarter of 2020 a drop of 87% in pre-tax profits relative to the same period a year ago, mainly affected by exceptional provisioning and subdued operational profits net of one-off trading gains (-7% relative to the same period last year). Table 6.1:Main financial stability indicators (1) As % of total loans.

(2) Annualised data. Source: European Central Bank - Consolidated Banking Data 2; own calculations. Low profitability coupled with the cost of upcoming securitisations may pose challenges for the banks’ capital position in the near future. Banks’ average common equity tier 1 ratio on a consolidated basis fell from 15.9% of risk-weighted assets at the end of 2019, to 14.6% after the first quarter of 2020, in line with capital requirements, mainly due to the implementation of prudential transitional rules applied in the first quarter of each year (). Going forward, banks’ capital position is exposed in the medium-term to (i) the implementation of new rules on the treatment of own funds held under Pillar II Guidance () and (ii) the further phasing out of transitional prudential arrangements (), while the recently adopted Regulation EU 2020/873 (“CRR Quick Fix”) () will bring only limited relief for Greek banks. Upcoming securitisations aimed at scaling down non-performing loans in the banks’ balance sheets will also come at a capital cost. At the same time, the impact of the pandemic is expected to amplify these challenges in the near future, when EU banks stop benefiting from the flexibility temporarily offered by the regulators for all euro-area banks. The sovereign-bank nexus has increased and this trend may continue over the coming months. The quality of banks’ capital remains low, due to the high amount of deferred tax credits () representing a substantial part of the banks’ Common Equity Tier 1 capital (€15.5 billion or 60.4% as of March 2020). This share risks growing further in the near future, as banks’ overall capital will have to bear the cost of the upcoming securitisations of non-performing loans. This could lead to an increasing sovereign-bank nexus, further reinforced by a recent rise in the banks’ Greek Government bond holdings and Treasury bills (), as well as retained senior notes of the securitisations benefiting from the guarantee under the Hercules asset protection scheme. Data up to July 2020 show that the recovery in bank credit to non-financial corporations has gained pace, due to both supply and demand conditions. Since the outbreak of the pandemic, the net flow of credit in Greece to non-financial corporations has increased significantly. As a result, in July 2020, the annual rate of growth in bank credit to non-financial corporations reached a solid 6.5%, the highest value attained since mid-2009 (see graph 6.3). This acceleration continued to reflect (i) from the demand side, the firms’ high liquidity needs during the lockdown but also a general preference for maintaining high liquidity buffers and (ii) from the supply side, the positive impact of public measures, including those by the European Central Bank, to support the provision of emergency liquidity by banks to the real economy, as well as the provision of public guarantees by the relevant scheme of the Hellenic Development Bank. The latter greatly supported the large net flow (above €1 billion) observed in July. Large corporates continue to drive the recovery in business credit, while that to small, non-incorporated firms has also started to turn rapidly positive, thus moderating the continued contraction of bank credit to households. The average gross flow of bank loans of fixed maturity towards both large corporates and small and medium-sized companies has increased substantially during January-July 2020 compared to the previous year. This reflects both the efforts by the companies to build up liquidity buffers and the start of disbursements of emergency support measures. In contrast, the annual rate of growth of loans to households remained negative in July (at -2.6%) but has recovered somewhat from the levels observed in previous quarters. The recovery in loans to households since May 2020 reflects a rapid turn-around in consumer credit and other lending, whose net flows became positive in June and July. The turn-around in other lending was almost entirely driven by lending to sole proprietors, the loans to which, as owners of non-incorporated businesses, are reported under loans to households instead of under loans to non-financial corporations. By contrast, mortgage lending continued to contract, as it has been consistently the case in recent years (see graph 6.3). Graph 6.3:Bank credit to households and non-financial corporations Source: Bank of Greece. Nominal lending rates continued their downward trend, reaching new historical lows in May for non-financial corporations (see graph 6.4). The average nominal lending rate for non-financial corporations in the first seven months of 2020 has been 3.3% compared to 3.9% in 2019, reflecting the very accommodative monetary policy, as well as the various targeted measures geared to support the flow of credit to households and firms. The same trend can also be observed for new loans without fixed maturity for small and medium-sized enterprises and new fixed maturity loans of small value (up to €250 000) to non-financial corporations. Regarding the nominal rate for household credit, the decline observed in the first four months of 2020 was temporarily reversed in May, possibly reflecting an upward revision on credit risks, reaching its highest level (5.2%) since August last year, before falling back to a level slightly above 4.8%, in June-July. Graph 6.4:Bank interest rates on new loans to euro area residents (annual percentages %) Source: Bank of Greece. 6.2.Financial sector policies The authorities intend to adopt a major overhaul of the insolvency framework and targeted amendments to the existing tools for the resolution of non-performing loans, which are very welcome. The authorities also allowed the long-overdue expiry of the Primary Residence Protection. These steps are well-timed, as the coronavirus outbreak implies new challenges for the banks’ asset quality and for the accumulation of private debt in the economy as a whole. Therefore, timely implementation of an efficient insolvency framework is crucial. Notwithstanding the progress made, further reforms aiming in particular at improving the efficiency of the e-auctions framework, would support the normalisation of the banking sector and the financing of the economy during the recovery, and would contribute to limiting an increase in non-performing loans. The actions outlined below are monitored and assessed under the enhanced surveillance framework, as part of the continuous specific commitment to “continue to implement reforms aimed at restoring the health of the banking system, including resolution efforts for the non-performing loans”. Insolvency law reform The unified insolvency framework reform is a major step forward, inspired by international best practices. The new insolvency code, following consultation with the European institutions and completion of the public consultation process, is expected to be submitted to Parliament shortly and will enter into force as of 1 January 2021. It integrates the corporate and personal insolvency regimes and transposes EU legislation on preventive restructuring frameworks () into the Greek legal order. It replaces the hitherto existing mechanisms for facilitating debt restructuring schemes. The Code introduces a revised framework for dealing with insolvency, the collective satisfaction of creditors and the discharge of debts of any person, natural or legal, regardless of whether they pursue a business activity. It implements best practices to comprehensively prevent and address over-indebtedness in accordance with the requirements and recommendations of the Directive. Companies and entrepreneurs in financial difficulty will gain access to preventive restructuring frameworks enabling them to continue operating. The effectiveness of restructuring, insolvency and discharge proceedings is expected to be increased and their duration shortened, through the simplification of procedural requirements and the creation of an electronic solvency register that will serve as a means of communication of the court and insolvency officials with all the parties involved as well as for the publication of the relevant decisions.

The overall aim is to accelerate the return of productive means to productive uses and faster reimbursement of creditors, through the sale of the bankruptcy estate or parts thereof at market values, and also to preserve viable businesses through the out-of-court settlement procedure or the resolution process. The former will be available to all types of debtors (legal and natural persons, businesses and consumers) and aims to avoid the insolvency of very small and small enterprises; the latter will be addressed to larger companies facing potential insolvency and will require judicial ratification of the respective agreement reached. Facilitating the discharge of entrepreneurs will prevent their exclusion from the labour market and offer them the opportunity to start anew, while the discharge of private debtors will enable them to re-enter social and economic returns free of the burden of debts they cannot service. Work on the requisite secondary legislation is ongoing, ahead of the envisaged entry into force of the new Insolvency Code on 1 January 2021. Given that the full implementation of the new code, upon its entry into force, will require the adoption of a significant amount of secondary legislation, work on the drafting of the relevant texts is underway; said texts are expected to be shared with the European institutions for consultation ahead of finalisation and adoption. As for the IT infrastructure (e-platform), which is central to the operation of several proceedings envisaged by the code, the relevant work stream is nearing completion in order for the platform to be operational for testing and training purposes by December. The main features of the new Insolvency Code, as detailed in the May 2020 enhanced surveillance report (), are the following: ·Insolvency resolution proceedings are designed to operate on the basis of the size of the bankruptcy estate, covering all kinds of business ventures as well as personal insolvency. ·Pre-bankruptcy proceedings are available, consisting of an automated out-of-court process and a pre-insolvency business recovery process; in the context of the former, vulnerable debtors (as defined by the housing benefit law and joint ministerial decision), who have a loan linked to their primary residence and have suffered a sudden loss of income, will be eligible for a temporary subsidy, intended to further support the reduction of non-performing loans and avoid the accumulation of new ones. To address moral hazard concerns, the subsidy will be available to i) performing vulnerable debtors who do not apply for pre-insolvency out-of-court restructuring and ii) those performing or non-performing vulnerable debtors, who apply for and undergo a viable restructuring of all their debts, with the exception of those non-performing debtors with loans which have been denounced for more than one year. The participation of creditors is voluntary; should a restructuring agreement on all debt not be reached within two months, the application will be considered rejected. ·A special sale-and-leaseback regime allowing vulnerable distressed debtors to remain in their primary residence as tenants will be instituted, which will be implemented through a private-sector entity, to be selected by the Greek authorities through a public tender procedure. However, if the tender procedure is unsuccessful, this will not impede the unhindered implementation of the bankruptcy proceedings. Provided the eligibility criteria are fulfilled, the entity will buy the primary residence at a price determined by an appraiser appointed by it. Once the residence is purchased, it will be leased back to the debtor. Several aspects of the sale-and-leaseback regime are still subject to the adoption of secondary legislation that is expected to be issued, following consultation with the European institutions, during the coming weeks. The regime is restricted to the protection of vulnerable debtors, who will also be eligible to receive the already available housing subsidy to facilitate the payment of the rent. The private sector agency may benefit from a state guarantee to support its access to funding, if deemed necessary. Details on a possible form of support remain to be determined. Overall, the new draft code is highly satisfactory and contains all essential elements of a modern insolvency framework; however, several concerns remain that will need to be addressed mainly in the relevant secondary legislation. These include ensuring the viability of the out-of-court restructuring agreements. A carefully considered balance should be maintained for the subsidisation of out-of-court restructuring of debt for natural persons, so as not to incentivise defaults on the one hand and avoid an adverse effect on new lending on the other hand. Finally, the two schemes for the protection of primary residence, namely the subsidisation of borrowers at the pre-insolvency stage and the introduction of the sale and lease back scheme, should operate in consistence with the objective of fostering a stronger payment culture. Therefore, a regular assessment of the impact of the changes after the adoption of the law will be key, also for monitoring the fiscal impact. The authorities granted no further ex