EUROPEAN COMMISSION Brussels, 22.9.2021 COM(2021) 598 final COMMUNICATION FROM THE COMMISSION Enhanced Surveillance update - Greece, September 2021 {SWD(2021) 273 final}



BACKGROUND Economic developments and policies in Greece are monitored under the European Semester for economic policy co-ordination and under the enhanced surveillance framework according to Articles 2 and 3 of Regulation (EU) No 472/2013 ( ). 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. Enhanced surveillance provides a comprehensive framework for monitoring economic developments and the pursuit of policies needed to ensure a sustainable economic recovery. It allows for a regular assessment of recent economic and financial developments in Greece, as well as for monitoring sovereign financing conditions and updates of the debt sustainability analysis. Enhanced surveillance also provides the framework for assessing the general commitment given by Greece to 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 that context, enhanced surveillance monitors the implementation of 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 is the eleventh enhanced surveillance report for Greece. The report is based on the findings of a mission held remotely on 15 July 2021 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. The current report assesses the implementation of Greece’s commitments to the Eurogroup regarding reform completion due up to mid‑2021. 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 twelfth report. The twelfth report is expected to be published in November. The commitments given by Greece to Eurogroup partners in June 2018, which are the basis for the release of additional debt relief measures, were established up to mid-2022 and thus Greece has entered the final year of this arrangement. Whilst many commitments have been completed, the mission sought to clarify the scope and timeline for completion of the outstanding reform commitments. OVERALL ASSESSMENT The economy shows signs of an earlier-than-expected recovery, in spite of the later-than-planned opening. Following the large downturn of 8.2% in 2020, real GDP increased by 4.5% and 3.4% on a quarter-on-quarter basis in the first and second quarter of 2021 respectively, driven by investments and accumulation of inventories. According to the Commission 2021 Summer interim forecast, GDP is forecast to increase by 4.3% in 2021 and by 6.0% in 2022, taking into account the investment impetus from the recovery and resilience plan, as well as the fiscal stimulus from the government support measures. Fiscal policy remains accommodative as the authorities continue to provide targeted and temporary support to the economy, including in response to the catastrophic fires that affected the country in August. Employment support measures, supported notably through the EU instrument to 'Support to mitigate Unemployment Risks in an Emergency (SURE), continued propping up the labour market and, along with the relaxation of the healthcare restrictions and the restart of the tourist season, supported a further decrease in the unemployment rate to 15.9% in the second quarter of 2021 compared to 17.1% in the second quarter of 2020. The vaccination campaign continues to progress; however, the uncertainty surrounding the outlook remains high in particular in relation to the recent upsurge of COVID-19 cases over the summer due to the spread of new variants of the coronavirus. The recently adopted recovery and resilience plan will play a key role in helping Greece emerge stronger from the COVID-19 pandemic. Greece’s recovery and resilience plan was among the first plans that were formally approved by the Council, on 13 July, following a positive assessment by the European Commission on 17 June. Greece received a disbursement of €3.96 billion in pre-financing on 9 August. The plan, which presents measures to mobilise €17.8 billion in grants and €12.7 billion in loans, represents a significant effort by Greece to address the challenges it faces. It includes many climate-relevant investments and will provide a boost to digitalisation and a large number of reforms building on past and ongoing efforts. Greece was also the first Member State to finalise its Partnership Agreement for the 2021-2027 programming period. The Partnership Agreement, adopted by the Commission on 29 July 2021, sets out the strategic orientation for deploying of more than €21 billion worth of investments to support Greece’s economic, social and territorial cohesion. Reform implementation continued at a good pace across a number of policy areas, with a number of specific policy commitments completed in the current reporting period. Notably: ·Important and material progress has been achieved as regards privatisations, notably by closing the transaction on the iconic Hellinikon project and by selecting a preferred investor on the Egnatia concession and the Public Gas Corporation (DEPA) Infrastructure transaction. The work of the Hellenic Corporation of Assets and Participations is progressing as regards the preparation of the update of its strategic plan and the performance contract for the Athens Urban Transport Organisation. ·The supplementary wage grid for the Independent Authority of Public Revenue, adopted in the context of the 10th report, has been successfully rolled-out to a significant number of its staff, thus completing the specific commitment in the area of tax administration. ·Despite long delays in the tendering procedure, the contract regarding the full deployment of the relevant IT system to support the investment licensing framework was recently signed, thus fulfilling this specific commitment. ·The contract for the development of the National Gateway for Codification and Reform of Greek Legislation has been awarded, effectively closing this specific commitment. The contract has a long implementation phase of 36 months and is EU-funded through the National Strategic Reference Framework. Progress continued well also in other areas covered by specific commitments and the authorities committed to ensure their implementation according to agreed timelines. More specifically: ·The end-to-end IT collection system for the tax administration, a mid-2021 specific commitment, is in a testing phase and the final system is expected to be in place by end-2021, broadly in line with what was expected in the 10th report. ·As regards health and social care, the collection of clawback, i.e. spending over and above the legislated ceiling for public spending on pharmaceuticals and other healthcare services that is due to be collected back from healthcare providers, is now progressing broadly according to schedule, following delays due to the pandemic. The authorities are advancing with the adoption of the primary legislation establishing a Personal Assistance scheme for persons with disabilities based on a new functionality-based disability assessment approach, with secondary legislation to follow by the end of the year. ·As regards the business and investment environment and following the set of legislations adopted in April 2021, the authorities adopted further primary legislation in June 2021 to reform the licensing of economic activities in all agreed sectors. This is a welcome step. Nonetheless, the authorities are encouraged to strengthen the pace of the adoption of ministerial decrees necessary to implement the April and June laws, which is necessary to make the new provisions fully operational. The implementation of the road map for the completion of the cadastre project progresses satisfactorily, with moderate delays on the ratification of forest maps. The European institutions welcome that the authorities adopted a new cadastral law, which aims to accelerate cadastral mapping and property transfer procedures. Following the recent labour reform, the authorities are expected to present an initial draft of a new Labour Code by early 2022, with a view to enhancing legal certainty and access to law through legal codification. ·In the area of justice, the authorities have made good progress on the specific commitment on electronic e-filing in the current reporting period. Greece’s recovery and resilience plan includes a number of welcome follow-up measures that will further pursue and broaden the objectives of this reform. ·Regarding the fight against corruption, the authorities have put forward measures to address the remaining recommendations by the Group of States against Corruption (GRECO), a specific commitment, progressively by April 2022.

·The authorities progressed with the master plan for the development of the Olympic Athletic Centre (OAKA). Further work will be needed to ensure that the plans for the site guarantee its long-term financial sustainability. The authorities advanced on a number of broader structural reforms initiated in the context of enhanced surveillance. Notably: ·A new comprehensive law on school education was adopted in Parliament in August 2021 and will be applied in the current academic year 2021-22. This reform brings a number of important innovations as regards schools’ autonomy, organisational changes and teachers’ evaluation. ·The authorities prepared a detailed action plan, through technical support provided by the European Commission, to strengthen the hiring process for civil servants. The implementation of the plan will be monitored under Greece’s recovery and resilience plan. ·The authorities adopted a new national public procurement strategy for 2021-2025, with key initiatives including the digitalisation of public procurement processes, introduction of modern tools and e-services and improvements in governance and control framework. ·Last but not least, the authorities continue making steady progress on e-governance, notably as regards the ongoing development of the gov.gr portal and securing the robustness of public sector systems. The actions in this area will be also supported under Greece’s recovery and resilience fund. In some areas, progress has been slower than expected in the 10th report. Notably, the pace of arrears clearance has not picked up. The total stock of arrears stood at around €900 million, exceeding the end-July overall target (around €500 million) by nearly 80%. This significant deviation raises concerns, especially given the extensive reassessment of clearance targets undertaken in the context of the 10th report. The current delay makes the target to materially clear the stock of non-pension arrears, which was due in June 2021, challenging to be met even by end-September. The authorities are invited to accelerate the implementation of all actions that facilitate the arrears clearance and prevent the accumulation of new ones, in order to avoid any future slippages from the agreed targets. It is nevertheless encouraging that the implementation of the recommendations of the Hellenic Court of Auditors on arrears clearance continues as planned and that the authorities identified proposals for the simplification of certain fiscal procedures, the majority of them to be adopted by October and December 2021. The authorities have overall made significant progress on the reform of the inspection framework but the last remaining element from the priority areas followed under enhanced surveillance, namely primary legislation and implementing decrees on inspections in the area of environmental protection, has suffered delays on account of ongoing wider environmental reform with respect to the May 2021 timeline that was expected in the 10th report. The authorities committed to completing the inspection reform by the end of October 2021. In the area of justice, the work on the establishment of JustStat units is progressing slower than expected and the call for tenders for the integrated case management system for civil and criminal cases remains yet to be launched. Following the adoption of a number of major education laws in 2021, the law on higher education, is now expected to be adopted by the end of 2021, somewhat later than envisaged. In the area of health care, centralised health procurements are ongoing but the adoption of the new legislative framework for the National Centralised Health Procurement Authority (EKAPY) has slipped to the next review. The revision of the law on primary healthcare is progressing, although key elements such as gatekeeping and compulsory patient registration are still being defined, and progress was also made on hiring new general practitioners. The authorities committed to completing the draft and putting it to public consultation by mid-October. The impact of the pandemic on the financial sector has been moderate so far, thanks to the measures put in place by the Greek authorities and at the euro area level. Implementation of agreed policy actions has resumed but progress is overall slower than expected. The non-performing loan ratio in the first quarter of 2021 remained at 30%, similar to the end of 2020 level, but the trend of a continuous improvement is expected to restart in the next quarters on the back of further sizable securitisations under the Hercules scheme. The initial signs from the use of the new insolvency framework implemented in the context of the 10th report are encouraging but it is too early to assess the effectiveness of the new framework. The concessionary process for the setup of the sale and lease-back entity for vulnerable debtors has been further delayed, with its establishment not expected before mid-2022, without affecting, however, other parts of the insolvency framework. The processing of the backlog of household insolvency cases, an end-2021 specific commitment, has resumed but is likely to take longer than initially expected on account of several months of court suspensions related to the pandemic and a low case-processing capacity in a number of courts. Regarding the conduct of e-auctions and other enforcement proceedings, the welcome and significant steps included in the revised (draft) Code of Civil Procedure will come into force later than expected, on 1 January 2022, which is unfortunate considering the earlier assurances that the Code would enter into force by mid-September 2021. The authorities have launched additional steps to increase the efficiency of certain procedural aspects of e-auctions in 2022. Delays in the clearance of the backlog of called state guarantees have continued in the second quarter of 2021, leading to a downward revision of the 2021 clearance target. While recent data provided encouraging signs of an acceleration, meeting the revised targets remains challenging. The European institutions welcome the adoption of the necessary secondary legislation to ensure full operationalisation of the deferred tax credits framework in July 2021, to enable the use of deferred tax credits in case of bank losses, and that the relevant primary law will be amended shortly to further facilitate securitisations and sales of non-performing loans. The authorities indicated that completion of a number of specific commitments and other important reforms is in reach in time for the 12th report. More specifically: ·As regards fiscal structural reforms, the implementation of the 1st level of the functional classification, which constitutes a mid-2021 specific commitment in the area of the Chart of Accounts, is on track for completion in time for the adoption of the 2022 budget. The end-to-end IT collection system, a mid-2021 specific commitment in the area of tax administration, is in a testing phase with a view to becoming fully operational by end-October 2021. Legislation is expected in November 2021 to implement a major reform for 2022 of the ENFIA property tax with the wider base provided by the new market-related property tax values, a specific commitment. ·In the area of energy, an anti-trust remedy has been agreed with the authorities. The successful implementation thereof, through adopting the relevant regulatory and corporate measures, will complete this specific commitment. ·The specific commitment to complete the integrated human resources management system for the public administration is expected to be closed also by October 2021, following the recent completion of interconnections between records on each jobholder collected by the census of public officials, the Single Payment Authority and the human resources department. The authorities have also completed the assessment of existing temporary staff categories and committed to set an annual ceiling for temporary staff by October 2021, to be applied as of 2022. The European institutions encouraged the authorities to complete the process for the appointment of the permanent secretary for education the soonest possible. ·Despite minor delays, the authorities are progressing well to operationalise the Strategic Projects Pipeline and the Project Preparation Facility, both of which will play a critical role in the implementation of Greece’s recovery and resilience plan. The entities are expected to be fully operational by the time of the 12th report, including the first Development Programme of Contracts of Strategic Importance and a launch of the tender process for framework contracts for consultants for projects assigned for maturation through the Project Preparation Facility. The authorities are also expected to complete the adoption of the remaining secondary legislation identified as critical for the operationalisation of the new law on public procurement, following steady progress over the past months. ·Discussions have started on the future of the Hellenic Financial Stability Fund, a specific commitment. A legal amendment, touching upon the duration, governance, divestment strategy and special rights of the Fund, is expected to be adopted by October 2021. It is noted that the nomination process for the post of the Fund’s Deputy Chief Executive Officer has encountered delays. Preserving the Fund’s independence and respecting the selection process as set out in the law remains essential. Overall, this report concludes that Greece has taken the necessary actions to achieve its due specific commitments, despite the challenging circumstances caused by the pandemic. The authorities delivered on specific commitments across various areas, including privatisations, improving the business environment and tax administration, while advancing on wider structural reforms including in the area of school education and public administration. The European institutions welcome the close and constructive engagement in all areas and encourage the authorities to keep up the momentum and, where necessary, reinforce the efforts to remedy the delays partly caused by the pandemic, in particular as concerns financial sector reforms and arrears clearance. MACROECONOMIC DEVELOPMENTS Following the large downturn of 8.2% in 2020, the Greek economy started to recover in the first half of the year. Real GDP increased by 4.5% and 3.4% on a quarter-on-quarter basis (seasonally adjusted) in the first and second quarter of 2021 respectively, driven by investments and accumulation of inventories. Consumer price growth picked up in the summer reaching 1.2% in August, after several months of a decline. The developments in the first part of the year, although somewhat detached from the global inflationary pressures observed in other Member States, are primarily attributed to the impact of VAT reductions on prices of services. Employment support measures continued propping up the labour market, despite the large economic disruption brought about by the pandemic. It is estimated that in 2020, around 1.5 million workers in more than 200 000 businesses were supported by employment-support measures financed by the EU instrument to 'Support to mitigate Unemployment Risks in an Emergency (SURE), while more than 600 000 workers may benefit from the instrument in 2021. Following the relaxation of the healthcare restrictions and the restart of the tourist season, which have helped accelerate job creation, the unemployment rate in the second quarter of 2021 decreased to 15.9%, i.e. 0.4 percentage points below its level in the first quarter and more than 1 percentage point compared with a year ago. Yet, youth unemployment increased from 32.8% in the first quarter of 2020 to 41.7% in the first quarter of 2021 (latest available data). Leading indicators from ‘Ergani’ information system point to a further increase in employment during the summer months, signalling a potential reduction of the unemployment rate for the subsequent quarter. In parallel, the vaccination campaign continues to progress; however, the recent upsurge of cases over the summer period due to the emergence of the new delta variant has raised concerns. According to the Commission 2021 Summer interim forecast, GDP is forecast to increase by 4.3% in 2021 and by 6.0% in 2022. Growth is expected to be domestically driven in 2021, on the back of the investment impetus from the recovery and resilience plan, as well as the fiscal stimulus from the government support measures. While international tourist arrivals recovered a considerable part of their losses with respect to 2019 levels over the summer season, notably in August, tourist receipts are forecast to remain below their 2019 levels. Goods exports are expected to keep their positive momentum, fuelled from their notable resilience during the period of the pandemic. Headline inflation is forecast at ‑0.4% in 2021 and 0.5% in 2022. Greece’s recently adopted recovery and resilience plan is set to strengthen private and public investment going forward. Through implementing strategic investments in the fields of green transformation, digital transition, sustainable and inclusive growth as well as other growth-enhancing actions, the plan is expected to support the economic recovery. According to the latest simulations by the Commission services, the GDP level is expected to increase by 2.1-3.3% by 2026, from the combined effect of the grants and loans component. Such simulations do not include the possible positive impact from the structural reforms envisaged under the plan, which could be substantial. Growth will also be supported by the new EU funding cycle. The uncertainty surrounding the outlook remains high. Particularly as regards the recovery of the tourism industry, the progress with the fight against the pandemic, both at a domestic but also international level, will be a key factor. The reopening of tourism in early-May, provided a boost to the sector; however, the impact of this was partly offset by the late relaxation of travel restrictions from key source countries. Uncertainty also concerns the speed of recovery of the private sector after the expiry of the support measures. For that reason, the phasing-out of these measures will need to be carefully timed to avoid cliff effects and prohibit a surge of new bankruptcies. This also concerns the labour market and the withdrawal of the respective labour market support schemes, which will need to be designed with an objective to keep an upsurge of lay-offs under control. The recent pick-up in input costs and the presence of supply chain bottlenecks are adding to the uncertainty regarding the inflation outlook. External geopolitical factors and a potential resurgence of migration flows remain an additional source of uncertainty. On the upside, the realisation of part of the purchases delayed from the previous year could provide an additional boost to private consumption, as suggested by high-frequency indicators of the economy.