Communication from the Commission to the Council - Follow-up to the Council Decision of 16 February 2010, giving notice to Greece to take measures for the deficit reduction judged necessary in order to remedy the situation of excessive deficit
Date: 2010-03-09
Institutions: European Commission
Subjects: Greece, budget deficit, budget policy, fiscal policy, public debt, public expenditure, stability pact

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EUROPEAN COMMISSION 

Brussels, 9.3.2010 
COM(2010) 91 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL  

Follow-up to the Council Decision of 16 February 2010, giving notice to Greece to take 
measures for the deficit reduction judged necessary in order to remedy the situation of 
excessive deficit 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL  

Follow-up to the Council Decision of 16 February 2010, giving notice to Greece to take 
measures for the deficit reduction judged necessary in order to remedy the situation of 
excessive deficit 

1. 

INTRODUCTION 

This Communication assesses the decisions taken so far by the Greek authorities in order to 
achieve the 2010 budgetary target in response to the Council Decision of 16 February 2010, 
on  the  basis  of  the  ‘March  2010  Report  to  the  implementation  of  the  Hellenic  stability  and 
growth programme and additional measures’. The report, as provided in Article 4(1) of the 
Council  Decision  was  transmitted  by  Greece  on  8  March  2010,  a  week  in  advance  of  the 
deadline. It refers not only to the fiscal measures that aim at reducing the government deficit 
ratio in 2010, but also to the structural reforms covered by the stability programme. 

In view of the submission of the March 2010 report by the Greek authorities, the Commission 
services, assisted by ECB and IMF staff, organized a technical mission to Athens, from 22 to 
24  February  2010,  and  met  the  Greek  authorities  to  discuss  the  implementation  state  of 
stability  programme  and  the  response  to  the  Council  Decision.  Another  mission,  led  by 
Commissioner Rehn took place on 1 March 2010.  

2. 

THE EXCESSIVE DEFICIT PROCEDURE: TACKLING A FISCAL CRISIS IN GREECE 

Many  EU  countries  are  presently  facing  general  government  deficits  above  the  3%  of  GDP 
reference value set in the Treaty. The often strong deterioration in the deficit as well as the 
debt  positions  must  be  seen  in  the  context  of  the  unprecedented  global  financial  crisis  and 
economic downturn. While in Greece the current deterioration in public finances must also be 
seen in the same context, fiscal imbalances have been high and persistent for many years, in 
spite of the buoyant economic activity up to 2008, suggesting structural roots. In particular, 
public  deficits  reflect  insufficient  control  of  public  expenditure,  while  revenue  projections 
have  proven  to  be  systematically  overoptimistic.  Fiscal  policy  contributed  to  aggravate  the 
external  imbalances  and  to  protracted  losses  in  competitiveness.  Moreover,  structural  and 
endemic deficiencies related to the recording of Greek government accounts, have also been 
detrimental  for  timely  and  effective  revenue  and  expenditure  control.  High  government 
deficits have led to one of the highest public debt ratios in the EU, which is now significantly 
above 100% of GDP, and remains on a steep upward path.  

On 3 February 2010, the Commission adopted a proposal for a Council Decision under Article 
126(9)  TFEU  giving  notice  to  Greece  to  take  measures  for  the  deficit  reduction  judged 
necessary  in  order  to  remedy  the  situation  of  excessive  deficit1,2.  At  the  same  time,  the 

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COM(2010)  93  (http://ec.europa.eu/economy_finance/sgp/pdf/30_edps/104-09_commission/2010-02-
03_el_126-9_commission_en.pdf).  All  EDP-related  documents  for  Greece  can  be  found  at: 
http://ec.europa.eu/economy_finance/sgp/deficit/countries/index_en.htm. 
The ongoing excessive deficit procedure for Greece started on 18 February 2009, when the Commission 
adopted  a  report  under  Article  104(3)  TEC,  on  the  basis  of  which,  and  in  accordance  with  Article 

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Commission put forward a draft Council Recommendation under Article 121(4) TFEU with a 
view to ending the inconsistency with the broad guidelines of the economic policies in Greece 
and removing the risk of jeopardising the proper functioning of the economic and monetary 
union3, and a draft Council Opinion on the update of the Hellenic stability programme4. On 11 
February  2010,  the  European  Council  invited  the  ECOFIN  Council  to  adopt  the  documents 
put  forward  by  the  Commission,  and  called  the  Commission  to  closely  monitor  the 
implementation  of  the  Council  decision  and  recommendation  in  liaison  with  the  ECB  and 
drawing on the expertise of the IMF5.  

On  16  February  2010,  the  ECOFIN  Council  adopted  the  above-mentioned  decision, 
recommendation  and  opinion6.  The  Council  requested  Greece  ‘to  put  an  end  to  the  present 
excessive  deficit  situation  as  rapidly  as  possible and, at the latest, by the  deadline of  2012’ 
and indicated the path for the correction in the excessive deficit from 2010 to 2012 (Article 1). 
Based on the Hellenic Stability Programme, the Council Decision contained a detailed list of 
urgent fiscal measures to be taken by 15 May 2010 (Article 2, Section A) other measures to 
be adopted by the end of 2010 (Article 2, Section C) and to be adopted by 2012 (Article 2, 
Section D). The Decision also requested Greece to adopt a series of measures in relation to the 
compilation  and  processing  of  statistics  (Article  3).  To  the  extent  that  a  number  of  risks 
associated  with  the  deficit  and  debt  ceilings  for  2010  provided  in  the  Council  Decision 
materialise,  Greece  was  requested  to  announce  additional  measures  to  ensure  that  the  2010 
budgetary target was met. According to the Decision, the additional measures should focus on 
expenditure cuts, but could also include revenue-increasing measures (Article 2, Section B). 
Those additional measures, as well as information on the implementation of fiscal measures in 
2010, should feature in a report to be submitted to the Council and the Commission and made 
public (Article 4(1)). According to the Council Decision (Article 4(4)), the Commission may 
indicate  the  measures  needed  to  respect  the  adjustment  path  set  in  the  Decision  for  the 
correction on the excessive deficit. 

3. 

ACTION  TAKEN  BY  GREECE  IN  RESPONSE  TO  THE  COUNCIL  DECISION  AND  TO 
IMPLEMENT THE JANUARY 2010 UPDATED STABILITY PROGRAMME 

The latest update of the Greek stability programme, which was submitted on 15 January 2010, 
targets a budgetary target of 8.7% of GDP in 2010, down from a headline deficit of 12.7% of 
GDP  in  2009.  The  programme  outlined  a  detailed  package  of  fiscal  consolidation  measures 

104(4) TEC - SEC(2009) 197 - the Economic and Financial Committee (EFC) formulated an opinion on 
27  February  2009.  On  24  March  2009  the  Commission,  adopted,  in  accordance  with  Article  104(5) 
TEC, its opinion that an excessive deficit existed in Greece - SEC(2009) 263. On 27 April 2009, upon a 
recommendation by the Commission, the Council decided, in accordance with Article 104(6) TEC that 
an excessive deficit existed in Greece - Council Decision 2009/415/EC (OJ L 135, 30.5.2009, p. 21). At 
the  same  time,  in  accordance  with  Article  104(7)  TEC,  the  Council  addressed  recommendations  to 
Greece to put an end to the excessive deficit situation by 2010. On 11 November 2009, the Commission 
assessed the action taken by Greece in response to the Council recommendation of 27 April 2009, and 
concluded that the action taken was inadequate, and addressed a recommendation for a decision to the 
Council. The Council decided accordingly on 2 December 2009 under Article 126(8) TFEU.  
COM(2010) 95.  
COM(2010) 94. The update of the Hellenic Stability Programme was submitted to the Council and the 
Commission, and made public on 15 January 2010. 
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/112856.pdf  
http://register.consilium.europa.eu/pdf/en/10/st06/st06147.en10.pdf, 
http://register.consilium.europa.eu/pdf/en/10/st06/st06145.en10.pdf and 
http://register.consilium.europa.eu/pdf/en/10/st06/st06560.en10.pdf  

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for  2010,  focusing  mainly  on  public  revenue  enhancement  and  to  a  lesser  extent,  on  public 
spending  retrenchment.  Nominal  fiscal  adjustment  in  2010,  as  planned  in  the  stability 
programme,  reflects  an  increase  in  total  revenue-to-GDP  ratio  of  2.6  percentage  points  of 
GDP and a reduction in total expenditure-to-GDP ratio of 1.4 percentage points of GDP.  

On  2  February  2010,  Greece  announced  a  set  of  measures  additional  to  those  announced  in 
the stability programme, with a deficit-reducing impact of somewhat less than ½% of GDP. 
This set of additional measures consisted in fully freezing wages in the public sector (leading 
to additional savings of 0.1% of GDP) and raising further the excise duties on fuels (leading 
to additional revenue of around 0.3% of GDP). The Greek authorities made also clear on that 
occasion  that  the  government  stood  ready  to  announce  and  implement  further  measures,  if 
necessary7.  

The  Council  Decision  of  16  February  2010  (Article  2,  Section  A)  requests  Greece  ‘to 
implement  a  number  of  fiscal  consolidation  measures,  including  those  spelled  out  in  the 
stability  programme’  by  15  May  2010.  These  measures  are  related  to  both  government 
expenditure cuts and revenue enhancing policies. 

Annex I summarizes the state of progress in relation to these measures8. 

4. 

ASSESSMENT  OF  RISKS  TO  THE  2010  DEFICIT  TARGET  PRIOR  TO  THE  LATEST 
POLICY DECISIONS 

Possible  delays  in  rigorously  implementing  the  fiscal  consolidation  measures  in  2010,  as 
outlined  in  the  updated  programme,  had  been  identified  by  the  Commission  as  a  source  of 
concern.9  Moreover,  the  budgetary  strategy  outlined  in  the  programme  was  also  said  to  be 
subject to downside risks, with the growth assumptions underlying the central macroeconomic 
scenario of the programme being optimistic10.  

The risk of deviations from the 2010 deficit target was estimated by the Commission services 
at  1½%  of  GDP,  at  least11.  The  following  issues  were  taken  into  account  in  the  risk 
assessment: 

1. 

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The central macroeconomic scenario underlying the stability programme assumes a 
contraction  in  real  GDP  of  0.3%  in  2010.  Real  GDP  contracted  by  2%  in  2009, 
instead  of  1.2%  estimated  in  the  programme.  Worse  than  expected  results  in  2009 
will have an automatic negative impact on the real GDP growth for 2010, with the 

On  the  same  occasion,  Greece  announced  that  within  the next  weeks,  a  comprehensive  reform  of  the 
pension system would be submitted to Parliament. 
The report submitted by Greece on 8 March 2010 provides a more complete list of measures adopted to 
implement the stability programme. 
See  the  explanatory  memoranda  accompanying  the  Commission  proposals  for  the  Council  Decision, 
Recommendation and Opinion of 16 February 2010 - COM(2010) 93, 94 and 95. 
Available cash data on the January 2010 budgetary execution for central government suggest that both 
revenue and expenditure performed within targets, with the most promising sign being the contraction 
of  primary  expenditure.  Nevertheless,  some  one-off  revenue  was  collected  in  January  (related  to  the 
extraordinary  tax  imposed  to  highly-profitable  companies  and  large  properties).  Moreover,  the  fall  in 
capital  expenditure  and  interest  payments  on  a  cash  basis  may  be  also  related  change  in  the  seasonal 
pattern of expenditure. 
According  to  the  report  submitted  by  Greece  on  8  March,  the  fiscal  adjustment  gap  prior  to  the 
announced measures on 3 March 2010 was ‘between 1 and 1.5% of GDP.’ 

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carry-over effect at the beginning of the year standing at -0.9%. Moreover, according 
to  available  leading  indicators,  economic  activity  is  set  to  loose  further  steam  in 
2010,  on  the  back  of  a  number  of  factors,  in  particular  the  latest  developments  in 
financial markets and the implementation of an appropriately restrictive fiscal policy. 
Even if assumed that the worst quarterly real growth rates are already behind us (i.e. 
the  largest  contraction  in  economic  activity  was  in  the  4th  quarter  in  2009),  annual 
real GDP is expected to decline further in 2010, by at least 2¼%. This will have, by 
itself, a substantial impact on government accounts. 

According to the stability programme, interest expenditure was expected to increase 
by ¼ of one percent point of GDP in 2010, compared to 2009. Available information 
of  the  debt  composition  and  maturity,  as  well  as  the  interest  rates  of  recent  debt 
increase  beyond  official 
interest  expenditure  shall 
issuances  suggests 
estimations. 

that 

The tax reform will be launched in March 2010. It is an ambitious undertaking. It is 
expected to start producing additional tax revenue after the 2nd quarter of the year. In 
particular, efforts to widen the tax base for household and corporate income taxation 
(through  the  imposition  of  a  unique  taxation  scale  and  elimination  of  income  tax 
exemptions) are expected by the authorities to increase tax revenue by some ½% of 
GDP.  While  the  Commission  shares  the  intentions  of  these  measures  and  believes 
that they may enhance tax collection, administrative deficiencies and possible delays 
in initial phases of the reform invite to be prudent in the estimation of tax revenue.  

In  the  context  of  the  tax  system  reform,  the  government  has  launched  a  number  of 
administrative  actions  with  a  view  to  intensifying  the  fight  against  tax  and  social 
contributions  evasion,  improving  collection  and  to  increasing  compliance.  The 
government expects to increase public revenue by more than ½% of GDP, already in 
2010, as a result of the fight against tax evasion. A similar amount is also expected to 
come from the fight against social contribution evasion. Given experience in Greece 
and in other EU Member States, and bearing in mind that this kind of measures may 
take longer time to yield expected gains, especially during recessionary periods, the 
Commission services estimate that even if some gains materialise in the short-term, 
they may be much smaller that officially estimated.  

The Greek government has also set an ambitious target for accelerating absorption of 
the EU funds absorption  in  2010. In particular, it assumes that, at the end of 2010, 
absorption of structural funds will reach 15% of funds available for the period 2007-
13. Based on this assumption, revenue from structural funds in 2010 is expected to 
increase  by  more  than  ½%  of  GDP.  According  to  the  Commission  services,  this  is 
quite a favourable assumption.  

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3. 

4. 

5. 

5. 

MEASURES  ANNOUNCED  BY  GREECE  AFTER  THE  COUNCIL  DECISION  OF  16 
FEBRUARY 

The Council Decision of 16 February 2010 indicated (Article 2, Section B) that, ‘to the extent 
that a number of risks materialised,’ Greece should announce additional measures. 

On 3 March 2010, the Greek authorities – after having exchanged views with the Commission 
services,  assisted  by  the  ECB  and  the  IMF  –  officially  announced  a  number  of  additional 

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deficit reducing measures, amounting to 2% of GDP (or EUR 4.8 billion), to be implemented 
in 201012. The additional fiscal measures announced on 3 March are ambitious; they include 
significant  expenditure  cuts,  and  in  particular  savings  in  the  public  wage  bill,  which  are 
essential  for  achieving  permanent  fiscal  consolidation  effects  and  restoring  competitiveness 
(Annex II). 

The  measures  announced  and  presented  in  the  report  consist  in  equal  shares  of  permanent 
revenue enhancing measures (1% of GDP or EUR 2.4 billion) and permanent expenditure cuts 
(1%  of  GDP  or  EUR  2.4  billion).  The  presentation  of  most  measures  is  precise  and  the 
quantitative  information  provided  sufficient.  The  draft  law  including  all  additional  fiscal 
measures was tabled the same day with the announcement and was be adopted by Parliament 
on 5 March 2010. The same bill also included a number of previously announced, but not yet 
adopted measures. Some of the measures, in particular the ones related to tax rates raises, will 
take effect from 15 March on. 

6. 

CONCLUSION AND NEXT STEPS 

In  conclusion,  Greece  is  implementing  the  Council  Decision  of  16  February  2010  and  the 
measures outlined in the Greek Stability Programme. 

Against  available  information,  the  fiscal  measures  announced  by  the  Greek  authorities  on  3 
March 2010, adopted by Parliament on 5 March and included in the report submitted to the 
Commission on 8 March, appear sufficient to safeguard the 2010 budgetary targets provided 
in the Council Decision of 16 February 2010 and in the stability programme. 

According  to  Article  4(2)  of  the  Decision,  ‘Greece  shall  submit  to  the  Council  and  the 
Commission and shall make public, by 15 May 2010 at the latest, a report outlining the policy 
measures to comply with this Decision’. The contents of the report due by 15 May should be 
consistent with Article 4(3) of the Decision and present in full detail, the fiscal consolidation 
measures to be implemented in 2010, including a detailed calendar of implementation of all 
measures announced, but also the preparatory steps to be made for the respective measures to 
be taken in 2011 and 2012. The report should also include data on the monthly State budget 
execution, infra-annual budget implementation by social security, local government and extra-
budgetary funds, debt issuance and reimbursements, public employment, spending arrears and 
financial situation in public enterprises. Thereafter, Greece is requested to submit and make 
such reports public, on a quarterly basis.  

Moreover,  in  line  with  the  Council  recommendation  of  16  February  under  Article  121(4) 
TFEU, ‘Greece is invited to report on measures taken in response to this Recommendation, 
and on the calendar of the implementation of the structural measures, outlined in the January 
2010 update of the stability programme, in the context of the quarterly reports established by 
Article 4(2) of the Council Decision of 16 February 2010’, including the reforms to increase 
the competitiveness of the economy in the field of pensions, healthcare, public administration, 

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The President of the Commission ‘welcomed the announcement by the Greek Government to introduce 
a set of additional consolidation measures and to confirm its commitment to take all necessary measures 
to  deliver  the  programme's  objectives’.  This  assessment  was  also  shared  by  the  Chairman  of  the 
Eurogroup. The ECB ‘appreciated enormously what has been decided because judging it appropriate’, 
while the IMF ‘welcomed the very strong fiscal package for 2010,’ noting also that the implementation 
of the fiscal program will be a crucial step forward in a multi-year process. 

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the functioning of product markets, labour market, absorption of structural funds, supervision 
of the financial sector, and statistics. 

Therefore,  while  the  assessment  of  actions  taken  by  Greece  is  response  to  the  Council 
Decision  of  16  February  2010  in  this  report  has  focused  on  fiscal  measures  that  ensure  the 
reduction of the government deficit to 8.7% of GDP in 2010, the ongoing assessment by the 
Commission  will  progressively  widen  to  structural  reforms  and  to  the  fiscal  plans  for  2011 
and 2012. 

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ANNEX I: URGENT FISCAL MEASURES TO BE TAKEN BY 15 MAY 2010, 
according to Article 2, Section A of the Council Decision of 16 February 2010 

than  wages  and  pensions)  of 

Measure 
Expenditure 
‘(a)  move  10  %  of  budgetary  appropriations 
(other 
the 
government's departments in the budget for 2010 
to  a  contingency  reserve,  pending  a  reallocation 
of  appropriations  among  departments  and  the 
identification  of  spending  programmes  to  be 
rationalised,  leading  to  a  sizeable  permanent 
reduction in expenditure;’ 
‘(b)  reduce  the  wage  bill,  including  by  freezing 
nominal  wages  in  central  government,  local 
governments,  state  agencies,  and  other  public 
institutions  and  implementing  employment  cuts; 
stop  new  recruitment 
in  2010  and  cancel 
vacancies  in  the  general  government  sector, 
including  temporary  contracts,  in  particular  by 
not replacing officials who retire;’ 

in 

‘(c)  cut  special  allowances  paid  to  civil  servants 
(including from off-budget accounts) leading to a 
cut 
the  general 
government  sector,  as  a  first  step  to  improve  the 
public  wage  system  and  streamline  the  public 
wage grid;’ 

remuneration 

total 

in 

of 

benefits 

indexation 

‘(d)  adopt  nominal  cuts  in  transfers  paid  by  the 
social  security,  including  through  measures  to 
and 
the 
restrict 
entitlements;’ 
Revenue 
‘(e)  implement  a  progressive  tax  scale  for  all 
sources  of  income  and  a  horizontally  unified 
treatment  of  income  generated  from  labour  and 
capital assets;’ 
‘(f)  abrogate  all  exemptions  and  autonomous 
taxation  provisions  in  the  tax  system,  including 
income  from  special  allowances  paid  to  civil 
servants;’  
‘(g)  introduce  presumptive  taxation  for  self-
employed persons;’ 
‘(h)  introduce  permanent  levies  on  buildings  and 
increase  tax  rates  on  real  estate  as  compared  to 
the rates as of 31 December 2009;’ 

State of progress and other comment 

The relevant ministerial decision has been signed. 
A  number  of  administrative  measures  are  being 
implemented  to  enforce  it.  It  is  still  early  to 
identify  specific  savings  resulting  from 
the 
contingency reserve,  and no saving coming from 
the  contingency  reserve  has  been  included  in  the 
stability programme plans. 

A  decision  on  public  wage  freeze  for  wages 
above  a  given  threshold  (subsequently  the  wage 
freeze  was  extended  to  all  wages;  see  below),  a 
freeze  in  recruitments  and  cuts  in  temporary 
employment  schemes  have  been  decided  by  the 
Council of Ministers. Stricter rules have also been 
decided  in  relation  to  overtime  employment  and 
travel expenses. 
The respective law was adopted by Parliament on 
5 March and applied retroactively since 1 January 
2010. 
However,  as  planned  in  the  stability  programme, 
the  recruitment  freeze  is  not  being  extended  to 
security personnel, nursing staff and teachers. 
A 10% reduction in allowances (excluding family 
allowances  and  child  benefit-related  allowances) 
was  decided  by  the  Council  of  Ministers.  The 
respective law, including the additional cut by 2% 
announced  on  3  March,  was  adopted  by 
Parliament  on  5  March  and  applied  retroactively 
since 1 January. 
The  freeze  of  pensions,  and  cuts  in  government 
financing  to  social  security  will  be  implemented 
in March 2010, retroactively from 1 January.  

A  thorough  tax  reform  has  been  adopted  by  the 
Council  of  Ministers;  the  respective  law  is 
expected  to  be  adopted  by  Parliament  in  March 
2010 and applied retroactively since 1 January; 

Taxes on inheritances and bequests are increased 
through  a  progressive  taxation  scale  introduced 
by a law adopted by Parliament in January 2010. 

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Measure 
‘(i)  increase  tobacco,  alcohol  and  fuel  excise 
duties,  as  compared 
rates  as  of 
31 December 2009;’ 

the 

to 

‘(j) spell out in detail and implement, by the end 
of March 2010, the currently planned tax system 
reforms, while using the potential efficiency gains 
to further reduce the deficit.’ 

respective 

State of progress and other comment 
law  has  been  adopted  by 
The 
Parliament  and  enacted  in  January  2010.  The 
respective  tax  rates  have  been  increased  on  two 
occasions  at  the  beginning  of  February  and 
beginning of March (see below) 
See above (e) to (h).  

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ANNEX II:  SUMMARY TABLE OF THE ADDITIONAL FISCAL MEASURES ANNOUNCED ON 3 MARCH 2010 

million EUR  % GDP 

Comment 

(as announced by Greece) 

Revenue 

Increase in VAT rates (from 4,5%, 9% and 19% to 5%, 10% 
and 21% respectively) 

1300 

0,5% 

Increases in excise taxes (additional to those previously voted 
in Parliament), of which: 

1100 

0,5% 

Total VAT revenue in 2009 reached some 6.9% of GDP (or EUR 
16.5 billion). The estimation provided by Greece seems realistic, 
provided that the measure takes effect as of 15 March. The full-
year budgetary impact of this measure would be ¾% of GDP. 

Changes in the tax base – in relation to the contraction of internal 
demand  –  and  tax  evasion  may  result  to  lower  than  expected 
gains. 

The  Greek  authorities  have  already  proceeded  with  raises  in 
excise  duties,  as  presented  in  the  stability  programme  and 
announced on 2 February.  

(i)  Increase  in  petrol  excise  tax  by  0,08  euro  (about  0,10  price 
increase)  and  in  diesel  by  0,03  euro  (about  0,04  euro  price 
increase) 

450

0,2%  The  additional  increase  in  the  excise  duties  on  fuel  products 
raises the fuel final price closer to the EU average, implying an 
increase in revenue from excise duties on fuel by some 10%. An 
increase  of  the  excise  duties,  similar  to  the  cumulated  increase 
announced  on  2  February  and  3  March,  was  implemented  in 
2009 and resulted to increased revenues by some 20%. Expected 
gains  are  comparable  to  the  ones  from  the  recent  increases  in 
excise  duties  on  fuel  in  2009  and  seem  within  reach.  However, 
the  implications  on  tax  revenue  of  a  contraction  in  demand 
should not be underestimated. 

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million EUR  % GDP 

Comment 

(ii)  Increase  in  (a)  cigarette  excise  tax  from  63%  to  65%  and  in 
(b) alcohol  excises  by  20%  (increase  per  bottle  by  1,20  euro  and 
by 0,60 euro for ouzo and tsipouro) 

(as announced by Greece) 

300

0,1% 

(a) The recent increase in excise duties on tobacco, from 57.5% 
to  63%,  submitted  to  Parliament  last  January  and  estimated  to 
yield some 0.1% of GDP in 2010. The additional increase of the 
excise  duties  on  tobacco  announced  on  3  March,  from  63%  to 
65%  (which  is  around  half  of  the  previous  one)  is  expected  to 
provide  additional  revenues  of  around  0.05%  of  GDP,  which 
seems within reach.  

(b) The recent increase in excise duties on alcohol (of EUR 0.9 
per  bottle  and  EUR  0.45  for  traditional  products)  submitted  to 
Parliament is January is estimated to yield some 0.03% of GDP 
in 2010. The additional increase of the excise duties announced 
on  3  March  (EUR  1.2  per  bottle  and  EUR  0.6  for  traditional 
products),  is  expected  to  provide  additional  revenues  of  around 
0.05% of GDP, which seems within reach. 

It should be pointed out however, that increases in the final price 
of tobacco products and alcohols may have significant effects on 
demand  (as  well  as  on  tax  evasion)  and  result  in  lower  than 
expected receipts. 

(iii)  Introduction  of  excise  tax  in  electricity  (2,5  euro/MWh  in 
industrial  consumption  and  5  euro/MWh 
in  household 
consumption - excluding electricity produced by renewable energy 
resources)  and  abolition  of  the  excise  tax  exemption  for  diesel 
used by the Public Power Corporation 

250

0,1%  The  new  excise  tax  on  electricity  is  expected  to  yield  0.1%  of 
GDP. As this tax should be collected through the electricity bills, 
this  measure  seems  safe  with  respect  to  its  implementation. 
Electricity consumption in 2010 in Greece is forecasted to reach 
67.175GWh. The estimated budgetary impact seems realistic. 

EN 

11 

EN 

 
  
  
 
 
(iv)  Increase  in  the  excise  tax  for  luxury  goods  (covering  cars 
above EUR 35 000, yachts, etc) 

100

>0,1%  Lack  of  information  does  not  allow  a  thorough  assessment,  so 

far, although the estimated additional revenue is quite small 

million EUR  % GDP 

Comment 

(as announced by Greece) 

Expenditure 

Reductions  in  public  sector  nominal  wages  and  pensions 
(additional to the wage cutbacks already announced) of which:

1700 

0,7% 

The  Greek  authorities  had  previously  announced  cuts 
in 
allowances  paid  to  civil  servants,  leading  to  a  reduction  in  the 
overall  public  wage  bill.  Several  supplementary  measures  have 
also  led  to  a  reduction  in  total  public  employment.  The  cuts 
announced  on  3  March  go  beyond  those  in  the  programme  and 
the announcements on 2 February.13  

(i) Reduction by 30% in the Christmas bonus, 30% in the Easter 
bonus and 30% of the summer-holiday bonus 

610

0,3%  The  full  cut  of  the  14th  wage  (paid  to  all  public  sector 
employees),  would  result  in  savings  of  around  EUR  1  billion. 
The  estimated  budgetary  impact  of  the  measures  announced  by 
the government is realistic. 

13 

EN 

The  central  government  wage  bill  amounted  in  2008  to  EUR  22 871  million  (9.6%  of  GDP).  It  increased  by  11½%  to  EUR  25 492  million  (10.6%  of  GDP)  in  2009. 
According to the 2010 budget as put forward the Greek Parliament in October 2009, the central government wage bill would increase by 2.8% to EUR 26 213 (10.7% of 
GDP) in 2010. Taking into account the cuts in temporary public employment and the 10% cut in allowances (stability programme), the complete freeze in remuneration (2 
February),  the  additional  2%  cut  in  allowances  (3  March),  and  the  cuts  in  the  Easter,  summer  and  Christmas  bonus  (a.k.a.  ‘13th  and  14th  monthly  wages’),  the  central 
government wage bill is expected to fall by 4.6% as compared to 2009. The fall in nominal remunerations reaches 8½% as compared to 2009, if one considers that the 
allowances used to be taxed at a lower tax scale and from now on, will be included in the normal income bracket and thus, taxed at higher rate. 

12 

EN 

 
  
  
 
 
 
                                                 
(ii)  Reduction  by  2%  in  the  wage  supplements  (additional  to  the 
10% already announced) 

(iii)  Reduction  by  7%  in  the  wages  in  public  enterprises  and 
reduction  by  30%  in  the  Christmas  bonus,  Easter  bonus  and 
summer-holiday bonus each. 

(iv) Reduction  in  the  subsidies  to  the  Public  Power  Corporation 
and  the  OTE  (telecoms)  pension  funds,  leading  to  a  reduction  in 
the relevant budget allocations 

million EUR  % GDP 

Comment 

(as announced by Greece) 

130

360

>0,1%  Prior to the measures announced on 3 March, the authorities had 
already cut allowances paid to public servants by 10%, resulted 
to  savings  of  around  0.3%  of  GDP  (or  EUR  650  million).  The 
announcement of 3 March goes beyond and implies a further cut 
in  allowances  of  2%.  The  total  cut  in  allowances  would  thus 
reach 12% and the estimated budgetary impact seems realistic. 

0,2%  For  the  public  enterprises,  this  measure  as  such  has  no  direct 
budgetary  impact,  since  public  enterprises  are  not  part  of  the 
general government. However, it could imply a reduction in the 
subsidies  paid  by  the  state  to  public  enterprises  and  lead 
indirectly expenditure reduction.  

150

>0,1%  The  measure  seems  within  reach,  although  further  information 

would be useful to substantiate the estimated savings. 

(v) Freeze in all public and private sector pensions eliminating the 
announced  increases  incorporated  in  the  budget  and  leading  to 
savings in the budgetary allocations 

450

0,2%  According  to  previous  announcements  made  by  the  authorities, 
increases  to  pensions  in  2010  would  be  above  inflation  (at 
around  1.5%  points).  The  announcement  made  on  3  March, 
freezes  all  pensions,  resulting  to  savings  of  some  0.2%  of  GDP 
(the  amount  corresponds  to  the  increase  that  would  be  given  to 
pension  earners).  The  officially  estimated  budgetary  impact 
seems realistic.  

EN 

13 

EN 

 
  
  
 
 
million EUR  % GDP 

Comment 

(as announced by Greece) 

Reductions  in  current  and  capital  expenditures  in  the  public 
sector 

700 

0,3% 

The  Greek  authorities  have  announced,  already  in  the  stability 
programme, cuts in operational expenditure and subsidies to the 
public enterprises. They have previously announced an increase 
in  investment  and  education  expenditure  in  2010.  The  cuts 
announced  on  3  March  go  beyond  those  in  the  programme  and 
cancel some of the planned expenditure increases. 

(i) Reduction in the Public Investment Programme 

(ii) Reduction in the education expenditure (100 million euro from 
the Public Investment Programme and 100 million euro from the 
cancellation of the provisions for new education programmes) 

500

200

0,2%  According  to  the  stability  programme,  gross  fixed  capital 
formation would increase in 2010 by 0.3% of GDP (or EUR 800 
million ). It is in the discretion of the government to cancel the 
relevant  appropriations  by  any  amount.  Should  appropriate 
decisions be made, the cuts announced seem, within reach. 

0,1%  According  to  the  stability  programme,  education  expenditure 
would  increase  in  2010  by  some  0.2%  of  GDP  (or  EUR  500 
million).  It  is  in  the  discretion  of  the  government  to  cancel  the 
relevant  increased  appropriations  by  any  amount,  including  the 
Public Investment Program. Should the appropriate decisions be 
made, announced cuts seem within reach.  

TOTAL

4800 

2,0% 

EN 

14 

EN