COMMISSION STAFF WORKING PAPER The Economic Adjustment Programme for Greece Third review – winter 2010   Accompanying document to the Communication from the Commission to the Council: Follow-up to the Council Decision 2010/320/EU addressed to Greece, with a view to reinforcing and deepening fiscal surveillance and giving notice to Greece to take measures for the deficit reduction judged necessary to remedy the situation of excessive deficit
Date: 2011-02-24
Institutions: European Commission
Subjects: Greece, anti-crisis plan, budget deficit, budget policy, budgetary control, economic recession

EN 

EUROPEAN COMMISSION 

Brussels, 24.2.2011 
SEC(2011) 240 final 

COMMISSION STAFF WORKING PAPER 

The Economic Adjustment Programme for Greece Third review – winter 2010 

Accompanying document to the Communication from the Commission to the 
Council: Follow-up to the Council Decision 2010/320/EU addressed to Greece, with 
a view to reinforcing and deepening fiscal surveillance and giving notice to Greece 
to take measures for the deficit reduction judged necessary to remedy the situation 
of excessive deficit 

COM(2011) 85 final 

EN 

EN

 
 
  
 
 
   1 

                3 

OUTLINE OF THE REPORT 

Executive summary and conclusion 

1. 

2. 

3. 

4. 

Introduction 

Macroeconomic developments and outlook  

Financial markets and financial sector developments 

Programme implementation and policy discussions   
4.1 

4.2 

4.3 
4.4 

Fiscal developments in 2010   
Fiscal policy in 2011 
Fiscal policy in 2012 and beyond 

Fiscal policy 
4.1.1 
4.1.2 
4.1.3 
Structural fiscal reforms 
4.2.1  Public administration   
4.2.2  Pension and healthcare reforms 
4.2.3 
4.2.4  Health care and education reforms   
Fiscal financing and treasury management   
Growth-enhancing structural reforms 
4.4.1   Labour market reforms 
4.4.2   Energy and transport   
4.4.3 
4.4.4.   Other reforms to improve business environment and 
            strengthen competition 

Investment, export and R & D promotion 

Fiscal institutions 

Annex 1 

Assessment of compliance with required action for the 

third review 

Annex 2  

Provision of data 

Annex 3 

Macroeconomic forecast 

Annex 4 

Financing needs and sources 

Annex 5 

Statement by the European Commission, the ECB and IMF on  

the third review Mission to Greece  

Annex 8 

Updated programme documents 

   5 

 12 

 17 
 17 
 10 
 19 
 21 
 25 
 25 
 26 
 20 
 20 
 28 
 29 
 30 
 32 
 33 

 33 

 37 

 59 

 65 

 66 

72 

67 

67 
71 

Letter of intent 
Memorandum of Economic and Financial Policies 
Memorandum of Understanding on Specific Economic 
Policy Conditionality   
Technical Memorandum of Understanding 

83 
           115 

LIST OF BOXES 

  1. Export growth drivers 
  2. State aid to financial institutions in the context of the financial crisis 
  3. From cash accounts to ESA95 accounts  
  4. Reforming the tax collection mechanism 
  5. Reforming the healthcare system: improving efficiency and  

quality of health services 

  9 
15 
19 
25 

27 

iii 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  6. Financing profile in a medium-term perspective 
  7. Labour market reforms 
  8. The reform of professional services   

29 
30 
34 

LIST OF TABLES 

1. Disbursements under the economic adjustment programme 
2. Contribution by the euro-area member states to disbursements to  

   4 

 Greece 

3. Macroeconomic scenario: main features   
4. Banking sector soundness indicators 
5. Summary of compliance with conditionality for end-December 2010 
6. Quantitative performance criteria and outcomes  
7. Deficit accounting: from the deficit in one year to the next 

                4 
   8 
 15 
 17 
 18 
 22 

LIST OF GRAPHS 

1. Real GDP growth 
2. Employment and unemployment rate 
3. Nominal Unit Labour Cost 
4. Exports and non-domestic orders 
5. HICP inflation developments and projections 
6. HICP inflation main drivers developments    
7. Current account and net external liabilities 
8. Yield spreads 
9. Bank deposits 

10. Greek banks' borrowing from the ECB  
11. Credit to private sector 
12. Non-performing loans 
13. Holding of Greek government debt                 
14. State primary payments 
15. (Available) government primary balance    
16. Public debt sustainability scenarios  
17. T-bill auctions since May 2010 
18. Maturing debt 

                5                                     

   5 
                5 
   6 
                6 
                7 
   8 
 12 
 14 
 14 
 14 
 14 
              15 
              18 
 18 
 24 
 28 
 28 

vi 

 
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
          
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
     
 
               
 
 
 
 
 
 
 
 
 
 
              
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ACKNOWLEDGEMENTS 

The report was prepared in the Directorate General Economic and Financial Affairs under the 
direction of Servaas Deroose, Deputy Director-General.  

Contributors: 

Servaas  Deroose,  Uwe  Boewer,  Giuseppe  Carone,  Fotini  Dionyssopoulou,  Leila  Fernández 
Stembridge,  Loukas  Kaskarelis,  Filip  Keereman,  Daniel  Kosicki,  Luis  García  Lombardero, 
George Moschovis, João Nogueira Martins, Elena Pavlova, Milda Valentinaitė, Peter Weiss and 
Ana Xavier, and Danila Malvolti. Christos Zavos was responsible for the layout. 

The report was prepared in liaison with the ECB. 

Comments on the report would be gratefully received and should be sent, by mail or e-mail to: 

João Nogueira Martins, 
European Commission, 
Unit ECFIN-F-3, 
BU 1  01-140 
B-1040 Brussels 
e-mail: joao.nogueiramartins@ec.europa.eu 

v 

3 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
vi 

 
 
 
 
 
 
 
EXECUTIVE SUMMARY AND CONCLUSION 

A  joint  Commission/ECB/IMF  mission  met  with  the  Greek  authorities  in  Athens  on  27  January–10 
February 2011. The mission assessed compliance with the terms and conditions of the third review under 
the economic adjustment programme and updated conditionality for the next reviews. Completion of the 
review  will  release  the  fourth  tranche  of  financial  assistance  from  euro-area  Member  States  to  Greece 
(EUR  10.9  billion)  according  to  the  loan  facility  agreement.  Completion  of  the  IMF  review  under  the 
stand-by arrangement is expected to release an additional EUR 4.1 billion.  

The programme's objectives remain intact. The objectives of the adjustment programme are financial 
stability  and  adequate  liquidity  in  the  banking  sector,  reduction  in  fiscal  deficit  to  bend  the  increasing 
dynamics  in  the  government  debt-to-GDP  ratio,  and  a  change  to  a  growth  model  based  on  exports  and 
investment, to ensure growth and jobs and the sustainability of the external accounts. As this compliance 
report documents, these objectives remain intact. Despite a number of hurdles, including a tense financial 
situation, contagion from other peripheral economies, persistent slippages in tax collection and delays in 
the  adoption  of  complex  and  far-reaching  structural  reforms,  the  programme  is  broadly  on  track. 
However,  determination  in  the  implementation  of  economic  policy  is  necessary  for  the  programme  to 
remain on track.  

The  main  features  of  the  macroeconomic  scenario  remain  valid,  but  growth  composition  needs 
reshaping. Economic activity contracted by 4.5 percent in 2010, broadly as planned when the adjustment 
programme  was  designed.  However,  available  data  suggest  that  the  downturn  in  domestic  demand, 
mainly  private  consumption,  was  deeper  than  expected,  while  exports  and  non-domestic  orders  were 
strong at the end of 2010. The inflexion point of activity is estimated to sit in Q4-2010, while positive 
quarterly  growth  rates  are  expected  to  be  recorded  in  the  second  half  of  2011.  The  progressive 
rebalancing  of  the  economy,  supportive  external  demand  and  growth-friendly  reforms  will  move  the 
economy  back  to  its  potential.  Growth  rates  for  2012–14,  which  underlie  the  programme,  are  prudent. 
Inflation at constant tax rates is hovering zero and are expected to remain moderate, despite commodity 
price-related upward risks. 

Most  fiscal  criteria  for  2010  have  been  met,  but  action  is  needed  for  the  2011  fiscal  targets  to 
remain credible. A severe contraction in payments by the end of the year offset large shortfalls in tax 
collection, thus resulting in the fulfilment of the cash-based quantitative criteria. The ESA fiscal deficit – 
which has a wider coverage and refers to underlying expenditure commitments rather than cash outflows 
– is estimated to have exceeded its ceiling by 1½ percent of GDP, as already projected at the time of the 
previous review in November. This slippage was in part because of the revision of historical statistics in 
autumn. Fiscal policy in 2011 aims at further reducing the deficit-to-GDP ratio, effectively cutting it to 
less  than  half  the  peak  of  2009.  However,  meeting  and  over  achieving  those  targets  will  require 
discretionary  actions  beyond  the  measures  in  the  budget  and  an  enhancement  of  the  mechanisms  to 
monitor expenditure commitments, and to ensure a successful fight against pervasive tax evasion. 

The government is preparing its medium-term fiscal strategy. Fiscal consolidation measures adopted 
in the course of 2010 and in the budget for 2011 have been in excess of 14½ percent of GDP and aim at 
reducing the deficit ratio in two years (from 2009 to planned 2011) by around 8 points of GDP. However, 
the primary balance is still negative in 2011 and the increasing debt dynamics has not been stopped. The 
government has committed to identify additional consolidation measures, which will be implemented in 
2012-14, so that fiscal targets are met. On current projections, these measures will have to be of at least 8 
percent of GDP, though part of this total has already been identified.   

Following  a  slowdown  in  momentum  in  autumn,  a  wave  of  structural  reforms  is  now  underway. 
After some early reforms adopted before the summer 2010, including a landmark pension reform and a 
first leg of labour reforms, the structural reform momentum lost traction last autumn, and there have been 
delays compared to earlier policy commitments. A law to further liberalise the labour market was adopted 

1 

 
 
 
European Commission 

The economic adjustment programme for Greece 

at the end of the year, with a reform of collective bargaining and other associated measures: its ambition 
was  below  expectations,  though  time  is  necessary  to  assess  its  effectiveness.  Several  other  reforms  are 
being prepared. The removal of unnecessary hurdles to the access and exercise of professions is a flagship 
reform  of  the  whole  adjustment  programme.  The  reform  of  the  national  healthcare  system  aims  at 
reducing  costs  without  endangering  the  quality  of  care.  A  number  of  business  environment-related 
measures,  such  as  a  new  investment  law,  a  new  competition  law  or  new  rules  on  licensing  have  been 
adopted  are  approaching  parliamentary  proceedings.  Irrespective  of  the  urgency  in  adopting  these 
reforms,  it  is  critical  to  ensure  the  quality  and  ambition  of  legislation,  and  determined  and  effective 
implementation. 

The banking sector is stable, but tense. The liquidity situation of banks remains tight; the outflow of 
deposits has not yet stopped. The collateral buffers of banks keep declining and the situation is likely to 
deteriorate  due  to  changes  in  the  ECB  collateral  framework  and  sovereign  rating  downgrades.  Another 
tranche  of  the  government-guaranteed  bond  scheme  may  be  necessary  in  the  course  of  the  year.  
However,  a  number  of  banks  are  improving  their  solvency  ratios  by  increasing  share  capital,  selling 
subsidiaries  abroad  and  cutting  costs.  No  bank  has  had  to  get  financing  from  the  Hellenic  Financial 
Stability Fund so far.    

Greece is suffering from contagion from other peripheral euro-area economies. In order to convince 
markets,  the  programme  benchmarks  will  have  to  be  overachieved  in  the  course  of  2011.  However, 
improvements  in  investor  sentiment  vis-à-vis  Greece  will  depend  very  much  on  progress  in  the  EU 
stability mechanisms. Therefore, progress in fiscal consolidation, structural reforms and growth prospects 
in Greece are a necessary but no longer a sufficient condition for confidence. Although a final decision on 
the  extension  of  maturities  would  help  overcoming  the  2013  and  2014  financing  humps,  the  main 
question that the markets are asking now is whether Greece will be able to return to the markets in 2012 
to finance a substantial part of its long-term financing needs. In this respect, the recent decision by the 
Greek  government  to  privatise  assets  worth  EUR  50  billion  in  five  years  may  substantially  help  in 
overcoming the immediate post-programme years. 

There  is  an  intense  debate  on  debt  management  transactions  to  reduce  the  debt  stock.  These 
operations  could  cover  buy-backs,  rolling-over  of  debts  or  the  voluntary  extension  of  maturities.  These 
transactions  could  be  done  by  Greece  with  or  without  the  support  of  EU  facilities,  without  imposing  a 
cost  on  creditors.  Irrespective  of  the  merit  of  those  actions  –  which  this  report  does  not  discuss  –  they 
would not do more than a small contribution to budgetary sustainability and financial stability in Greece. 
Therefore, this debate and those actions if implemented, must not reduce the political determination to, or 
distract  the  public  opinion  from,  fiscal  consolidation,  privatisation  and  growth-enhancing  structural 
reforms. 

———————  

Subject  to  approval  by  the  Eurogroup,  the  positive  assessment  of  compliance  with  programme 
conditionality will release the fourth tranche of the loan from euro-area Member States (EUR 10.9 
billion). Overall, the mission concluded that the conditions for the fourth disbursement were broadly met. 
The government remains committed to the adjustment programme. In particular, the fiscal target for 2011 
is within the interval of credible outcomes, and a wave of structural reforms is being prepared. The next 
steps  in  the  implementation  of  the  programme  keep  requiring  the  government's  determination,  political 
coordination and the consensus of the Greek society. 

2 

 
 
 
 
 
 
1. 

INTRODUCTION 

1.  This report assesses compliance with the conditions of the third review of the Greek adjustment 
programme.  The  assessment  is  based  on  the  Greek  government's  quarterly  progress  report  and  the 
findings of the joint Commission/ECB/IMF review mission to Athens (27 January-10 February 2011). 
The  mission  assessed  compliance  with  conditionality  associated  to  the  fourth  disbursement  and 
progress towards the key programme objectives of safeguarding the stability of the financial system, 
securing  fiscal  sustainability,  and  boosting  competitiveness,  potential  growth  and  jobs.  The  mission 
discussed  policy  challenges  and  updated  conditionality  requirements  for  the  next  quarters.  Updated 
memoranda were agreed with the authorities on 11 February 2011 and are attached to this compliance 
report.* 

2.  In May 2010, the euro-area Member States and the IMF provided financial support to Greece 
given  the  deterioration  of  its  financing  conditions.  On  2  May  2010,  the  Eurogroup  agreed  to 
provide bilateral loans pooled by the European Commission for a total amount of EUR 80 billion to 
be disbursed over the period May 2010-June 2013. The financial assistance provided by the euro-area 
Member  States  is  part  of  a  joint  package,  with  the  IMF  financing  additional  EUR  30  billion.  This 
financial assistance package fully covers government financing needs related to its fiscal deficit and 
maturing  medium-  and  long-term  liabilities  until  the  beginning  of  2012,  and  progressively  less 
thereafter. During the whole programme duration, Greece keeps its access to short-term financing. 

3.  Three  instalments  have  already  been  disbursed  under  the  programme.  After  the  fourth 
disbursement, which, if approved by the Eurogroup and IMF board, is expected to take place by mid-
March 2011, four tenths of the full package will have been disbursed. Two euro-area Member States – 
Ireland and Slovakia – are currently not participating in the disbursement of bilateral loans to Greece. 
Given the conditions of the loan facility agreement between Greece and the euro-area partners, this 
has  no  material  impact  on  amounts  that  have  already  been  paid  or  that  are  planned  to  be  paid  to 
Greece in 2010-12, as the relatively small shares of those two countries to the total euro-area loan to 
Greece are being redistributed among other partners.  

*  

This compliance report is released together with the Commission Communication "Follow-up to the Council Decision of 
10 May 2010 addressed to Greece" (COM (2010) [xxx]) of 24 February 2011. 
The  quarterly  report  submitted  on  12  February  2011,  by  the  Greek  Ministry  of  Finance  is  available  for  download  at: 
http://ec.europa.eu/economy_finance/sgp/deficit/ countries/greece_en.htm. 
During  the  review  mission  in  Athens,  the  Commission/ECB/IMF  staff  teams  met  with  the  ministers  of  Finance,  of 
Regional Development and Competitiveness, National Defence, Energy and Environment, Labour and Social Security, 
Health and Social Solidarity, Interior and e-Government, as well as with the governor of the Bank of Greece. Moreover 
the teams met with staff of these ministries and the central bank, as well as of the ministries of Infrastructure, Transport 
and  Networks,  Culture  and  Tourism,  Education,  Public  Debt  Management  Agency,  Hellenic  Financial  Stability  Fund, 
Hellenic  Statistical  Authority,  Hellenic  Capital  Markets  Committee  and  Hellenic  Competition  Commission.  Meetings 
also took place with social partners, think-tanks and several banks. 

3 

 
 
                                                           
 
European Commission 

The economic adjustment programme for Greece 

Table 1. Disbursements under the economic adjustment programme (EUR billion) 

Past disbursements

1st tranche
2nd tranche
3rd tranche
Total past disbursements

Euro-area M ember States
18 May 2010
14.5
6.5
13 September 2010
6.5
19 January 2011
27.5

IM F

12 May 2010
14 September 2010
21 December 2010

Planned disbursements

4th tranche
5th tranche
6th tranche
7th tranche
8th tranche
9th tranche
10th tranche
11th tranche
12th tranche
13th tranche
Total planned disbursements

Euro-area M ember States
March 2011
10.9
8.7
June 2011
5.8
September 2011
3.6
December 2011
7.3
March 2012
4.4
June 2012
4.4
September 2012
1.5
December 2012
4.4
March 2013
1.5
June 2013
52.5

IM F

March 2011
June 2011
September 2011
December 2011
March 2012
June 2012
September 2012
December 2012
March 2013
June 2013

Total programme

Source: Commission services and IMF. 

5.5
2.5
2.5
10.5

4.1
3.3
2.2
1.4
2.7
1.6
1.6
0.5
1.6
0.5
19.5

Total
20.0
9.0
9.0
38.0

Total
15.0
12.0
8.0
5.0
10.0
6.0
6.0
2.0
6.0
2.0
72.0

110.0

Table 2. Contributions by the euro-area Member States to disbursements to Greece (EUR million) 

May 2010
September 2010
January 2011

May 2010
September 2010
January 2011

BE

0.0
758.8
238.8
MT

14.8
5.0
6.2

DE
4427.9
1495.9
1864.4
NL
932.5
315.0
392.6

IE

0.0
347.4
0.0

AT
454.0
153.4
191.2

ES
1941.6
656.0
817.5
PT
409.3
138.3
172.3

FR
3325.2
1123.4
1400.1
SI

0.0
102.9
32.4

IT
2921.9
987.2
1230.3
SK

0.0
0.0
0.0

CY

LU

32.0
10.8
13.5

FI

0.0
392.2
123.4

40.8
13.8
17.2

Total
14500.0
6500.0
6500.0

Source: Commission services. 

4 

 
 
 
 
 
 
 
 
 
2. 

MACROECONOMIC DEVELOPMENTS 

4.  The economy is contracting fast but the quarter of deeper contraction should be already behind 
us.  After  a  contraction  by  5½  percent  (year-on-year)  in  the  second  and  third  quarters  of  2010,  on 
average, the economy is estimated to have narrowed by 6½ percent in the last quarter of the year. For 
the  year  as  a  whole,  real GDP  growth  was  -4.5 percent.  In  2010,  private  consumption fell  by  more 
than 4 percent, with a particularly strong contraction in the fourth quarter, consistent with a drop in 
consumer sentiment and a fall in credit to households, which resulted in a sharp deterioration in retail 
sales. In addition, employment and wage developments weighted on households' disposable income, 
in particular at the end of 2010: the full effect of public sector wage and pension cuts, including the 
year-end seasonal bonuses, which used to have a very large propensity to consume, materialised only 
at  the  end  of  the  year.  Investment  recorded  very  negative  readings,  as  business  sentiment  was 
depressed, capacity utilisation well below the historical average and credit supply restrained. 

7

5

3

1

-1

-3

-5

-7

Graph 1. Real GDP growth

Forecast

Break in series

% change, q-o-q (rhs)

% change, y-o-y (lhs)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source : EL.STAT and Commission services.

3

2

1

0

-1

-2

-3

Graph 2. Employment and unemployment rate

Graph 3. Nominal unit labour cost (annual growth rate)

4

3

2

1

0

-1

-2

-3

-4

-5

Employment (% change, y-o-y) (lhs)

Unemployment rate (rhs)

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

16

14

12

10

8

6

4

2

0

12

10

8

6

4

2

0

-2

Greece

EA-16

2000

2002

2004

2006

2008

2010

2012

Source : EL.STAT. 

Source : EL.STAT.

5.  The strength of external demand at the end of 2010 is encouraging. Although complete data on 
the composition of demand are not yet available, high frequency indicators – such as monthly data on 
exports  of  goods  and  non-domestic  orders  –  suggest  a  rebound  in  exports  in  autumn.  Such  a 
development reflects an improvement in the economic climate of Greece's main trading partners and 
gains  in  price  competitiveness.  Moreover,  asymmetric  developments  in  the  domestic  and  global 
markets  are  prompting  a  diversion  of  Greek  firms  to  foreign  markets.  This  augurs  well  for  the 
necessary change in the economy's growth model, with a shift of resources from the sheltered sectors 
to exports. 

5 

 
 
 
 
 
 
European Commission 

The economic adjustment programme for Greece 

Graph 4. Exports and non-domestic industrial orders 

50

40

30

20

10

0

-10

-20

-30

-40

Exports of goods 
(% change, y-o-y, lhs)

Industrial non-dom estic orders 
(% change, rhs)

80

60

40

20

0

-20

-40

-60

Jan-08

Jan-09

Jan-10

Sources: EL.STAT and Bank of Greece.

6.  Inflation  has  surprised  again  on  the  high  side.  Inflation  may  have  already  passed  its  peak  –  in 
September the annual growth rate reached a peak of 5.7 percent – but remains stubbornly high. For 
2010,  average  consumer  price  inflation  was  4.7  percent.  In  January  2011,  HICP  increased  by  4.9 
percent  (year-on-year).  These  growth  rates  are  being  driven  by  the  tax  increases  adopted  in  several 
waves over the last twelve months: for 2010 as a whole, the tax component of the inflation rate was in 
excess  of  3½  percentage  points.  Constant-tax  inflation  has  touched  negative  territory  in  November, 
and this indicator is expected to be very moderate in the near future. 

Graph 5. HICP inflation developments and projections (% change, y-o-y) 

6

5

4

3

%

2

1

0

-1

-2

Forecast

GR-Headline inflation
GR-At constant taxes
EA-16-At constant taxes

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Source: EL.STAT. 

6 

 
 
 
 
 
 
2. Macroeconomic developments 

Graph 6. HICP inflation main drivers developments (% change, y-o-y) 

Core inflation (lhs)
Processed food (lhs)
Energy (rhs)

Headline inflation (lhs)
Alcohol (rhs)
Transport (lhs)

8

6

%

4

2

0

20

16

12

8

4

0

%

9

8

7

6

5

4

3

2

1

0

Jan-07

Jan-08

Jan-09

Jan-10

Jan-07

Jan-08

Jan-09

Jan-10

Source: EL.STAT. 

Source: EL.STAT.

7.  The mission revisited the macroeconomic scenario in light of new, albeit limited, evidence: 

50

40

30

20

10

0

-10

-20

-30

•  Economic activity should start growing in the second half of 2011. GDP is projected to decline 
by  3  percent  in  real  terms  in  2011.  This  remains  unchanged  as  compared  to  the  previous 
compliance  report.  However,  the  composition  of  demand  has  changed  with  stronger  net  exports 
and weaker  internal  demand as  higher  consumer  prices  compress  disposable  income:  during  the 
three years 2009-11, per capital private consumption is falling by around. 10 percent The average 
growth  rate  for  the  year  as  a  whole  hides  substantial  differences  in  quarterly  growth  rates  – 
positive growth rates are expected for the second half of the year – and a strong negative carryover 
coming  from  2010.  Risks  to  the  macroeconomic  scenario  for  2011  and  onwards  are  balanced. 
These  risks  are  related  to  both  the  strength  of  external  demand  and  domestic  developments.  In 
particular, risks on net exports are on the upside, but less favourable employment could depress 
income and consumption.  

•  The inflation outlook has been revised upwards. HICP inflation is projected to moderate from 
4.7 in 2010 to 2.4 percent in 2011. This is in spite of the VAT increase in January 2011, the plans 
to  increase  excises  on  heating  oil  in  autumn  and  the  cost  recovery  in  the  tariff  policy  of  state-
owned  enterprises.  The  forecast  has  been  slightly  revised  upwards,  mostly  due  to  revised 
prospects for commodities and oil prices. Constant-tax inflation is expected to be negative during 
2011 and to remain close to zero thereafter. This forecast does not yet fully reflect the impact of 
the ongoing structural reforms, which will contribute to productivity, competition and higher price 
flexibility.  Therefore,  prices could  fall  by  more  than  in  the  central  scenario.  However,  there  are 
also upward risks in relation to import prices. Overall inflation is expected to decelerate markedly 
in the course of 2011 and to remain below or around 1 percent in 2012-13. 

•  The labour market is adjusting fast. There is evidence of strong downward pressure on labour 
costs, in particular non-basic pay, as the cuts in public sector wages spill over the private sector 
and firms endeavour to recover competitiveness, and to absorb indirect taxes in their margins and 
costs. Employment has contracted in 2010 and is projected to decline further by some 2½ percent 
in  2011,  with  the  unemployment  rate  peaking  at  above  14¾  percent  –  higher  than  previously 
projected. On the other hand, a symmetric faster rebound of employment in the recovery phase is 
possible,  especially  if  ongoing  labour  market  reforms  are  implemented  as  planned,  and  the 
economy is successful in swiftly reallocating resources from the non-traded sectors to tradables. 
Wage projections remain very subdued in line with the national collective agreement of July 2010 
(for minimum wages, but which also play a guiding role for other wages as well). 

v 

7 

 
 
 
European Commission 

The economic adjustment programme for Greece 

•  The  external  deficit  is  contracting,  but  remains  high.  The  current  account  was  marginally 
below  11  percent  of  GDP  in  2010,  and  is  estimated  to  decline  to  about  8  percent  in  2010.  This 
improvement resulted mainly from a contraction in imports (by more than 6 percent in real terms), 
while  the  strong  exports  in  the  last  months  of  2010  have  only  partially  offset  anaemic  external 
demand in the first half of the year. For 2011 and beyond, the external current account is projected 
to fall to 6¼ percent of GDP in 2012 and 5 percent in 2013. The net external debt-to-GDP ratio is 
projected to increase to 134 percent to in 2012 and stabilising after then.   

8.  The success of the programme and the orderly adjustment of the Greek economy depend very 
much on a strong recovery from 2012 onwards. The economy is currently projected to grow by 1 
percent in 2012 and by slightly above 2 percent in 2013 and 2014. These growth rates are still below 
potential growth rate for the Greek economy once barriers hampering growth are removed, markets 
are  liberalized,  credit  flow  normalizes  and  confidence  returns.  After  three  years  of  contraction  in 
economic  activity,  potential  for  a  larger  rebound  is  substantial  if  implementation  of  programme 
policies proceeds as planned, with key reforms enacted upfront. However, given the necessary large-
scale  change  in  the  growth  model  and  the  need  to  improve  price  and  non-price  competitiveness  of 
Greek  firms,  prudent  medium-term  projections  appear  appropriate  and  contribute  to  robust  fiscal 
planning.  

Graph 7. Current account and net external liabilities 

%

16

14

12

10

8

6

4

2

(percent of GDP)

Net external liabilities  (rhs)

Current external account (deficit) (lhs)

150

140

130

120

110

100

90

80

2009

2010

2011

2012

2013

2014

Source: EL.STAT and Commission services.

8 

 
 
 
2. Macroeconomic developments 

Table 3. Macroeconomic scenario: main features 

Real GDP (growth rate)

Domestic demand contribution*
Net trade contribution

Employment (growth rate)
Unemployment rate (percent of labour force)

Unit labour cost (growth rate)

HICP inflation 

Current account balance (percent of GDP)

Net borrowing vis-à-vis RoW (percent of GDP)

2010

2011

2012

2013

2014

-4,5
-8,0
3,9

-2,8
12,1

-1,1

4,7

-10,6

-9,5

-3,0
-6,2
3,1

-2,6
14,7

-0,5

2,4

-7,9

-6,6

1,1
-1,0
1,8

0,1
14,9

0,2

0,6

-6,3

-5,0

2,1
0,8
1,4

0,9
14,3

-0,3

0,7

-5,0

-3,6

2,1
1,0
1,1

1,2
13,5

0,0

1,1

-4,0

-2,4

* Excluding change in inventories and net acquisition of valuables

Source : Commission services.

Box 1: Export growth drivers 

The Greek economic growth in the medium-term is expected to be driven by external trade, as the economy 
shifts to a more sustainable model. GDP growth rates have been negative since Q4-2008 and activity is expected to 
further  shrink  in  the  first  half  of  2011,  on  the  back  of  contraction  in  private  and  public  consumption  and  sluggish 
investment. Net exports are the only GDP component which is estimated to have exhibited a positive contribution to 
growth in 2010. This reflected both strongly falling imports, and slightly positive growth in exports in 2010, after a 
20  percent  slump  in  the  previous  year.  Exports  are  expected  to  rise  by  around  5  percent  in  real  terms  in  2011,  as 
demand  from  trade  partners  accelerates  and  Greece  recovers  competitiveness.  Given  the  losses  in  market  share  of 
goods and services exports accumulated during the pre-crisis decade, exploiting the potential of the underdeveloped 
external sector of Greece will play a key role in driving economic activity in the coming years.   

Greece is a relatively closed economy with a structural trade deficit. Considering its size, the Greek economy is 
surprisingly closed, with imports at 30 percent, and exports of not more than 19 percent of GDP (2009 data). During 
the  last  decade, the  goods  and  services  deficit  was  systematically  above  10  percent  of  GDP,  though  it  fell  slightly 
from 13½ percent in 2000 to 10¾ percent in 2009. The deficit in goods trade of 16½ percent of GDP in 2009 was 
only partly mitigated by a surplus in services of 5¾ percent. Therefore, while there is a large unexploited potential, 
the small size of Greek exports mean that very dynamic growth rates will be necessary to pull the whole economy.  

Mapping  the  sectoral  market  shares  and  global  export  demand  helps  in  identifying  the  opportunities  and 
shortcomings  of  the  Greek  export  sectors.  Graphs  1  and  2  show  Greece's  major  export  sectors  in  goods  and 
services,  in  perspective  of  market  shares  and  global  export  dynamics.  Sectors  with  above-average  growth  rates  in 
world markets are shown above the horizontal axis. To the right of the vertical axis, Greek export sectors that have 
increased  their  market  shares  are  found.  The  top  right  quadrant,  therefore,  identifies  the  most  promising  sectors, 
benefiting from  dynamic world demand and enjoying relatively large market shares. Sectors located in the top left 
quadrant imply growth opportunities since world demand for these products is above-average, while Greece's market 
share  is  still  weak  and  could  be  expanded.  Sectors  in  the  bottom  right  quadrant,  on  the  other  hand,  are  well 
represented in Greece's exports and could yield sizeable earnings, but world demand has not been, or is not expected 
to  be,  dynamic.  Finally,  the  sectors  in  the  bottom-left  quadrant  are  the  least  promising,  characterised  by  sluggish 
world demand and low Greek market shares. The size of the bubbles is proportional to the share of each sector in 
total  Greek  exports  of  goods  and  services.  This  mapping  suggests  that  Greece's  most  promising  export  sectors  are 
pharmaceuticals, petroleum products and transport services, while the outlook for tourism is mixed. 

Graph 1. Mapping of opportunities for Greek exports of goods 

v 

9 

 
 
 
 
 
European Commission 

The economic adjustment programme for Greece 

)
9
0
0
2
-
0
0
0
2
(
s
t
n
o
p

i

t
e
k
r
a
m
d
l
r
o
w
n

i

r
o
t
c
e
s
f
o
e
t
a
r
h
t
w
o
r
G

e
g
a
t
n
e
c
r
e
p
n

i
e
g
a
r
e
v
a
e
h
t
o
t
d
e
r
a
p
m
o
c

Petroleum products

Misc.manufactures

5

7

Pharmaceuticals

-0.5

-0.3

Apparel and 
clothing

Non 
ferrous

-0.1
Non-metallic 
minerals

Vegetables 
and fruits

Tobacco

Electrical 
machinery

3

1

-1

-3

-5

-7

Iron and 
steel

Man. of metals

0.1

Oth.transp. 
equipment

0.3

Fish

0.5

Textiles

Cereals

Source: Comtrade

Evolution of the Greek market share in world market in percentage points (2000-2009)

Graph 2. Mapping of opportunities for Greek exports of services 

)
9
0
0
2
-
0
0
0
2

Computer and 
information

Construction

-1.0

i

,
s
t
n
o
p
e
g
a
t
n
e
c
r
e
p

Oth.business 
-0.5
services 

d
l
r
o
w
n

i

r
o
t
c
e
s
f
o
e
t
a
r
h
t
w
o
r
G

n
i
(
e
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r
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v
a
e
h
t
o
t
d
e
r
a
p
m
o
c
t
e
k
r
a
m

Personal, culture and 
recreational services

6

4

2

0

-2

-4

-6

Insurance

Financial services

0.0

0.5
Communications

1.0

1.5

2.0

2.5

Travel

Transport

Evolution of Greece's market share in the world 
exports of services (in percentage points, 2000-2009) 

Pharmaceuticals are among the most promising export sectors. Greek pharmaceuticals are characterised by both 
growing  market  share  and  above-average  world  export  growth  over  the  last  decade.  The  presence  of  multinational 
pharmaceutical companies in Greece offers the opportunity for knowledge spill-overs and access to R&D resources 
which have been scarce in Greece due to the large share of SMEs. Significant investments are underway in this sector 
and an effort to promote FDI and improve the R&D framework could help to further improve competitiveness.  

Greece's  petroleum  sector  has  benefited  from  dynamic  world  markets  and  new  projects  are  in  the  pipeline. 
Greece  operates  ten  oil  terminals  and  four  major  refineries  with  a  total  crude  oil  refining  capacity  of 
490 000 bbl./day,  of  which  one third  is  exported.  Greece's  oil  product  exports  increased  by  57  percent  in  2004-09. 
However,  the  feedstock  is  largely  imported,  thereby  limiting  the  domestic  value  added.  Future  prospects  of  the 
petroleum  sector  may  be  fuelled  by  an  envisaged  new  oil  pipeline  connecting  Greece  and  Russia  via  Bulgaria, 
bypassing Turkey's Bosporus. The pipeline is expected to commence operation in 2013. 

Greece's  market  share  of  transport  services  has  grown  fast,  although  global  dynamism  in  this  sector  was 
sluggish. Greece's sea transport sector further increased its already dominant market share in recent years. The Greek 
maritime  fleet  is  the  largest  in  the  world  in  terms  of  capacity.  In  the  short-term,  prospects  for  shipping  remain 
difficult and uncertain, due to oversupply. In the medium to longer term, however, Greece could strengthen its role as 
a regional transportation hub and gateway to Southern Eastern Europe, provided that the infrastructure of other means 
of  transport  and  their  connectivity  were  sufficiently  upgraded.  The  continuing  rise  in  Chinese  demand  for 
containerised exports, already making up a quarter of the world total, also strengthens Greek potential.   

The  Greek  tourism  sector  has  lost  ground  but  bears  the  potential  for  higher  growth  contributions.  The 
contribution  of  tourism  to  GDP  has  been  constant  at  around  15  percent  since  1990.  However,  Greece  has  fallen 
behind its most important competitors. While Greece's tourist receipts grew by 57 percent in 2000-09, they rose by 
116 percent in Egypt, 178 percent in Turkey and 219 percent in Croatia during the same period. As a result, Greece's 
world ranking in tourist receipts fell from rank 11 to 15. Greek tourism suffers from over-concentration of 65 percent 

10 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2. Macroeconomic developments 

of supply in only four geographical regions and an intense seasonality of demand with 50 percent of arrivals within 
three months. According to tourism experts, a new growth model to better develop the unexploited potentials of the 
tourism  sector  would  include  facilitating  investment  in  the  tourism  sector  by  fast-track  procedures  and  zoning 
simplifications; improving  the coordination of  tourism  promotion  efforts; creating  a  better  marketing  infrastructure 
via web applications and promoting niche markets such as winter holiday homes; developing more synergies with the 
culture, sports, education, medical and gastronomy sectors, and investing in technology and human resources with a 
view  to  improving  value-for-money  and  positioning  Greece  as  a  high-quality  tourist  destination.  Moreover, 
improving airline connections both with the European low-cost network and with long-haul emerging market origin 
countries has shown to vitalise the tourism industries in other countries and could also enhance Greece's attraction as 
a holiday destination.   

The  food  and  beverage  industry  has  experienced  sluggish  world  market  growth  but  Greek  products  could 
capitalise on their high quality. The food and beverage industry is one of Greece's major export sectors, accounting 
for  around  25  percent  of  manufacturing  value  added  and  12  percent  of  goods  exports.  Agriculture  and  fish  add 
another  13  percent.  Greek  food  products  generally  benefit  from  exceptionally  high  quality  and  specific 
characteristics. However, the sector suffers from small average firm size, low market prices and difficulties in finding 
markets outside the EU. Greece has been losing ground to its competitors, notably Spain. In Turkey, Greece's market 
share  in  the  food  industry  has  remained  constant  at  around  1.5 percent  since the  early  1990s,  overtaken  by that  of 
Spain which rose from 0.5 to 2.5 percent during the same period. In Germany, Spain's market share increased from 
12 percent to 17 percent while Greece's shrank from 3 to 2 percent. Opportunities for the Greek food and agricultural 
sector  could  be  exploited  by  developing  the  market  for  traditional  products,  benefiting  from  the  tendency  to 
Mediterranean diets, and healthy and high-quality products.  

The Greek clothing industry has been facing structural challenges, most notably by low-cost competitors, such as 
China and other Asian countries. Graph 1 shows that both apparel and textile have been growing below-average on 
world markets. In 2010, of the Greek textile exports grew by around 12 percent, catching up after a sharp decline in 
the previous year. Unless the Greek textile industry manages to move to a high-quality niche segment, it is, however, 
unlikely that the textile industry will regain structural competitiveness on world markets. 

The iron/steel and mineral sectors are facing short-term difficulties despite market opportunities. Greece's iron 
and  steel  sector  enjoyed  a  growing  market  share  and  dynamic  world  demand  over  the  last  decade.  However,  the 
Greek steel industry is relatively small, contributing only around 1 percent to the EU's annual production. Despite a 
strong pick-up in global steel markets of 15 percent in 2010, Greece's output contracted by 8 percent. While Turkey's 
growing  steel  sector  exports  mostly  to  the  Middle  Eastern  and  North  African  region,  Greece  does  not  seem  to 
capitalise sufficiently on these neighbouring dynamic markets. Greece's minerals industry, although among the EU's 
largest in terms of bauxite, magnesium and nickel, has been suffering from a relatively small industrial base, lack of 
adequate investment and distance from EU markets. Its world market share has increased since the beginning of the 
decade,  but  world  markets  have  been  growing  below  average.  In  the  medium-term  future,  the  emerging  Balkan 
markets  could  offer  new  opportunities  for  growth.  The  privatisation  of  a  state-owned  mining  company  (LARKO) 
could also help revitalising the sector.  

v 

11 

3. 

FINANCIAL MARKETS AND FINANCIAL SECTOR 
DEVELOPMENTS 

9.  Investor  sentiment  towards  Greek  sovereign  debt  remains  very  negative.    The  main  risk 
indicators – like CDS spreads and yield spreads vis-à-vis the German government paper for similar 
maturities – show that financial markets keep a very sceptic view on Greece tapping financial markets 
from  2012  on.  Given  investment  restrictions  and  rules  by  international  banks,  insurance  companies 
and  pension  schemes,  the  current  ratings  do  not  help:  all  three  rating  agencies  now  rate  Greek 
government paper as junk. Fitch has recently downgraded the Greek sovereign rating (from BBB- to 
BB+) and keeps a negative outlook while Moody’s (Ba1) and S&P (BB+) are reviewing ratings.  

Graph 8. Yield spreads

basis points

2 years bond
10 years bond

2000

1800

1600

1400

1200

1000

800

600

400

200

0

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Note: Greek government bond spreads (2-year and 10-year bonds) vis-à-vis German Bundes. 

10. 

11. 

12. 

The  liquidity  situation  of  banks  remains  tight.  The  deposit  outflow  since  the  beginning  of 
2010 is at 16 percent and the sovereign debt crisis and the concomitant rating downgrade have 
reduced the collateral available for ECB liquidity provision. Market volatility, the changes to the 
ECB  collateral  framework  and  possible  downgrades  of  the  sovereign  were  grounds  for  further 
enhancement of the liquidity cushion in the system.  

Responding to the need to strengthen balance sheets, some modest deleveraging is ongoing.  
A number of banks have expanded their balance sheets in the course of 2010, however, despite 
the  contracting  economy.  The  banks  increased  their  exposure  to  the  Government  while  they 
modestly deleveraged from the real economy. Total assets of Greek commercial banks increased 
from EUR 454 billion at the end of 2009 to EUR 465 billion in September, driven by growing 
holding of government bonds. Total loans and advances of the banking groups decreased from 
EUR  308  billion  to  EUR  306  billion  at  the  same  time.  The  average  loan-to-deposit  ratio  in 
Greece was 120 percent at the end of 2010, up from about 114 percent in 2008-09. The increase 
was mainly due to the shrinking deposits.   

The banking sector remains solvent, though asset quality continued to deteriorate. Despite 
better  than  expected  net  interest  income  in  the  first  nine  months  of  2010,  the  Greek  banks 
suffered from losses on their loan and trading book. The non-performing loans increased to 10 
percent in September 2010, from 7.7 percent at the end of 2009. The corresponding increase in 
provisioning, especially in the domestic lending portfolio, resulted in a loss for the system on a 
consolidated basis. Profitability measured by return on assets and equity fell to -0.3 percent and -
3.7  percent,  respectively,  during  the  first  nine  months  of  2010.  The  average  capital  adequacy 
ration (CAR) at the end of September was 11.4 percent, while the tier I ratio was 10.1 percent.  

13. 

Some banks carried out successful capital increases on the market. In October, NBG raised 
EUR 1.8 billion by issuing shares and convertible bonds. A similar operation was completed by 
Piraeus  Bank  (EUR  0.8  billion)  in  early  2011.  Other  opportunities  for  improving  capital 

12 

 
 
4. Programme implementation and policy discussions 

adequacy  include  reduction  of  risk-weighted  assets,  including  sales  of  subsidiaries.  The  latter 
refers to the sale by NBG of a minority stake in Finansbank (Turkey) and the Eurobank sale of a 
majority  stake  in  Polbank  (Poland).  Moreover,  the  Hellenic  Financial  Stability  Fund  (FSF) 
remains available as a capital backstop 

Graph 9. Bank deposits

Graph 10. Greek banks' borrowing from the ECB

EUR billion

250

200

150

100

50

0

Total deposits

Sight deposits

Borrowing from the ECB (EUR
million) (lhs)

ECB liquidity as percent of bank's
liabilities (rhs)

100000

90000

80000

70000

60000

50000

40000

30000

20000

10000

0

25

20

15

10

5

0

Jan-07

Jan-08

Jan-09

Jan-10

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

Source: Bank of Greece 

Source: IMF, FIS 

14. The Greek financial system has benefited from various Eurosystem policies in 2010 and 2011. 
The  fixed-rate  full-allotment  tender  procedures  in  the  Eurosystem  monetary  policy  operations  have 
eased  the  funding  activity  of  all  banks  in  the  euro  area,  including  Greek  banks.  Furthermore,  the 
already very flexible collateral framework was further broadened on 3 May 2010 based on the ECB 
Governing  Council's  positive  assessment  of  the  Greek  adjustment  programme.  The  ECB  decided  to 
suspend  the  application  of  the  minimum  credit  rating  threshold  in  the  collateral  eligibility 
requirements  for  the  purpose  of  the  Eurosystem  credit  operations,  in  the  case  of  marketable  debt 
instruments issued or guaranteed by the Greek State. This suspension, combined with the pre-existing 
flexible  collateral  framework,  eased  the  access  to  Eurosystem  funding  for  all  counterparties,  in 
particular the Greek ones. In a similar vein, the ECB’s securities markets programme (SMP) helped 
contain  undue  volatility  in  sovereign  bond  market  prices  in  Greece  and  other  peripheral  euro  area 
economies. 

Graph 11. Credit to private sector (percent change, y-o-y)

Graph 12. Non-performing loans

%

30

25

20

15

10

5

0

-5

Households
Enterprises
Private sector(total)

%

11

10

9

8

7

6

5

4

Jan-07

Jan-08

Jan-09

Jan-10

2007

2008

2009

2010

Source: Bank of Greece 

Source: Bank of Greece

v 

13 

 
 
  
 
European Commission 

The economic adjustment programme for Greece 

Table 4. Banking sector soundness indicators 
2007

2008

2009

basis

2010-Q1 2010-Q2

2010-Q3

Capital adequacy ratio

Tier I ratio

Return on assets (after tax)

Return on equity (after tax)

Loan to deposit ratio
Non performing loan ratio (2)
Coverage ratio (3)

consolidated
solo (1)
consolidated
solo
consolidated
solo
consolidated
solo
consolidated
solo
solo

11,2
12,7
9,2
9,3
1,4
1,0
17,7
14,8
106,0
4,5
53,4

9,4
10,7
7,9
8,7
0,7
0,2
10,0
3,2
114,0
5,0
48,9

11,7
13,2
10,7
12,0
0,2
-0,1
2,4
-1,5
113,8
7,7
41,5

11,7

10,6

-0,6

-8,7

8,2
42,8

11,2
12,3
10,1
11,0
-0,3
-0,6
-4,5
-9,7
122,4
9,0
43,4

11,4
12,8
10,1
11,2
-0,3

-3,7

120,0
10,0
43,2

Notes : (1) at the level of the individual entity; (2) Non performing loans  as  percentage of total gro s s  loans ; (3) 
Provis io ns  as  percentage of non-performing loans .
Source: Bank of Greece. 

Graph 13. Holding of Greek government debt 

Domestic banks
Foreign banks
EA and IMF

Other domestic entities
Other foreign entities

n
o

i
l
l
i

b
R
U
E

400

350

300

250

200

150

100

50

0

déc-07 mars-08 juin-08 sept-08 déc-08 mars-09 juin-09 sept-09 déc-09 mars-10 juin-10 sept-10

Source : ECB and Commission services.

Box 2: State aid to financial institutions in the context of the financial crisis 

State aid control is an integral part of the EU’s competition policy. Since the beginning of the current crisis, the 
Commission’s interventions have contributed to maintaining financial stability while preserving a level playing-field 
across Member States and financial institutions and safeguarding the real economy and the internal market. From the 
competition and state aid standpoint, the Commission achieved this objective by giving legal certainty to the support 
measures given by Member States and by making possible that real economy had access to credit. The absence of 
state aid rules could have led to a costly and distortive subsidy race between Member States at taxpayers' expense. 
Uncoordinated national action would have seriously undermined the internal market and financial stability.   

Exceptional  circumstances  and  systemic  risk.  From  the  viewpoint  of  competition  policy,  the  European 
Commission  approached  the  resolution  of  the  financial  crisis  in different  steps.    During  the  first  phase,  before  the 
Banking Communication was published in mid October 2008, the Commission tackled the individual state aid cases 
according  the  Community  Guidelines  on  State  aid  for  rescuing and  restructuring  firms  in  difficulty  (the  so-called 
‘R&R Guidelines’). The general erosion of confidence within the banking sector and the serious difficulties to access 
liquidity, in October 2008, led to a systemic dimension of the crisis, justifying the application of the legal basis that 
allows for remedying a serious disturbance to the economy of a Member State.   

The  Commission’s  communications.  The  'Banking  Communication'  of  13  October  2008  provided  an  appropriate 
European framework to allow rescue operations in order to stop or prevent runs on financial institutions. It indicates 
how the Commission intends to apply state aid rules to state support schemes and individual assistance for financial 

14 

 
 
 
 
 
 
4. Programme implementation and policy discussions 

institutions. Support schemes such as guarantees or recapitalisation schemes must be well-targeted and proportionate 
to the objective of stabilising financial markets and contain certain safeguards against unnecessary negative effects on 
competition. In a second step, the 'Recapitalisation Communication' of 5 December 2008 identified a set of standards 
and  safeguards  allowing  Member  States  to  recapitalise  banks  in  order  to  ensure  adequate  levels  of  lending  to  the 
economy. The third step was the clean-up phase of financial institutions' balance sheets by removing toxic assets and 
underperforming loans. The 'Impaired Assets Communication' of 25 February 2009 provided the framework for this 
phase. The ‘Restructuring  Communication' of 14 August 2009 addressed the follow-up to such support measures. It 
builds  on  three  fundamental  principles:  (i)  aided  banks  must  be  made  viable  in  the  long  term  without  further  state 
support; (ii) aided banks and their owners must carry a fair burden of the restructuring costs and (iii) measures must 
be taken to limit distortions of competition in the Single Market.  

The  phasing  out  process.  On  2  December  2009,  the  ECOFIN  Council  emphasised  the  need  to  phase  out  from 
various forms of temporary support for the financial sector, starting from the guarantee schemes. Since 1 July 2010, 
the Commission has applied tighter conditions for the compatibility of government guarantees, by introducing (i) an 
increased  guarantee-fee  based  on  a  bank's  creditworthiness  and  (ii)  the  new  requirement  of  a  viability  plan  for 
beneficiaries  that  have  recourse  to  new  guaranteed  and  exceed  a  certain  threshold  of  total  outstanding  guaranteed 
liabilities.  As of 1 January 2011, a restructuring plan is required from every beneficiary of a new recapitalisation or 
an impaired asset measure, thus creating an incentive to accelerate the necessary restructuring. 

State  aid  to  financial  institutions  in  Greece.  In  2009,  before  the  sovereign  debt  crisis,  Greece  had  already  put 
together a banking rescue package which provided for liquidity and capital support to banks in Greece. This support 
package  has  been  used  by  all  major  Greek  banks.  Tzn  banks  were  recapitalised  in  May  and  July  2009.  As  a 
consequence of the capital support, the recapitalised banks have to present restructuring plans.  

In  2010,  following  the  sovereign  debt  crisis,  euro  area  Member  States  and  IMF  provided  financial  support  to  the 
country. In order to strengthen the Greek financial system, two important schemes with relevance in terms of State 
aid control were put into place:  (i) Issuance of additional government guarantees to be used as collateral in order to 
obtain  funding  from  the  ECB.  An  additional  amount  of  EUR  25  billion  was  authorised  by  the  Commission  under 
State aid rules in June and December 2010. (ii) The establishment of an independent Financial Stability Fund (FSF) 
as a safety net to preserve the solvency of the financial sector by providing capital support to banks. The granting of 
aid  was  subject  to  a  scheme  which  was  authorized  by  the  Commission  under  state  aid  rules  in  September  and 
December 2010. 

v 

15 

4. 

PROGRAMME IMPLEMENTATION AND POLICY 
DISCUSSIONS 

15. Implementation of the programme has encountered a number of barriers. While Greece was a 
source of financial contagion in the first half of 2010, it is now suffering from contagion from other 
peripheral  economies  and  the  political  uncertainty  in  relation  to  the  EU-wide  facility  mechanisms. 
Fiscal consolidation was held back by a less than successful fight against tax evasion and incomplete 
expenditure  control.  The  implementation  of  a  wide  and  ambitious  agenda  of  structural  reforms 
stretched  the  capacity  of  the  Greek  administration,  all  the  more  as  from  a  technical  point  of  view, 
reforms have become more complex and therefore more difficult to design. Moreover, many reforms 
have met fierce resistance by vested interests.  

16. The government remains committed to the programme. In 2011, this commitment will be tested in 
the implementation of fiscal policy, including preparing a credible medium-term fiscal strategy and in 
overcoming  interest  groups  that  oppose  growth-enhancing  reforms.  Polls  suggest  that  the  Greek 
society  understands  the  need  for,  and  supports,  fiscal  austerity  and  other  measures  to  liberalise  the 
economy and modernise institutions.       

Table 5. Summary of compliance with conditionality for end-December 2010 

Ove rall asse ssment

Comme nts

Fiscal policy

Partially observed

The ESA-based fiscal deficit was missed. Cash-based 
spending and deficit ceilings were respected.

A key healthcare reform has been adopted. A tax policy act 
has been tabled in Parliament. The government announced 
its privatisation plan for 2011, and decided to substantially 
scale it up.

A EUR 25 billion tranche of government guarantees on bank 
bonds was made available in November. The FSF is 
operational, though there are lingering problems in staffing.

A new wave of structural reforms is ongoing, though with 
some delay compared to previous policy commitments

There are still issues in the prompt availability of data on 
expenditure commitments and payment arrears.

Structural fiscal reforms

Partially observed

Financial se ctor policy

Largelly observed

Othe r structural reforms

Partially observed

Data provision

Largelly observed

Source:  European Commission.

4.1.  FISCAL POLICY 

4.1.1. Fiscal developments in 2010 

17. The  ESA-based  government  deficit  for  2010  is  estimated  at  9½  percent  of  GDP  or  EUR  22 
billion.  This  is  in  excess  of  the  target  of  EUR  18.0  billion  (8  percent  of  GDP).  There  is  still  some 
uncertainty  on  the  2010  outcome  as  data  on  the  financial  performance  of  state-owned  enterprises, 
extra-budgetary funds, social security and hospitals, and local government are not yet complete. There 
are also uncertainties on the differences between cash and accrual accounting. For Greece, as for all 
other EU Member States, the first complete set of ESA-based annual data will be available by end-
March, and validated by Eurostat in April.  

18. The  quarterly  quantitative  performance  criteria  on  a  cash  basis  for  the  Q4-  2010  were  met. 
While  the  criterion  on  state  primary  spending  (cash)  for  the  fourth  quarter  of  2010  was  met  with  a 
large margin reflecting an under execution of payments compared to plans, the criterion on (available) 
general  government  primary  balance  (cash)  was  respected  by  a  very  thin  margin.  The  outcome  for 
both criteria was better than projected in the previous compliance report. However, it may have been 

16 

 
 
 
4. Programme implementation and policy discussions 

distorted by the accumulation of arrears and other payables. The central government debt criterion has 
also been respected. 

Table 6. Quantitative performance criteria and outcomes (EUR billion)  

end June 2010

Actual data 

QPC 

end September 2010
QPC 

Actual data 

end December 2010
QPC 

Actual data 

General government primary cash balance1
State budget primary spending 

Overall stock of central government debt 

New guarantees granted by the central government

Accumulation of external payment arrears on 
external debt contracted or guaranteed by general 
government

Accumulation of domestic arrears (indicative)

-3,9

28,4

317

0,3

0

1

-5.0 (floor)

34 (ceiling)

342

2,0

0

0,0

-3,6

43

328

1,2

0

0,8

-4.0 (floor)

50 (ceiling)

342

2,0

0

0

-5,5

61.1

366*

1,3

0

-5.7 (floor)

67 (ceiling)

342

2,0

0

3,0 (estimate)

0,0

1/ Available general government: it does not include extra-budgetary funds and public enterprises. 

* Adjusted for upward revision to end-2009 stock of central government debt (original ceiling EUR 342 billion) 

Source: Commission services. 

70000

60000

50000

40000

30000

20000

10000

0

Graph 14. State primary payments - 2010 

Graph 15. (Available) government primary balance - 2010  

(cumulative balance EUR million)

(cash basis cumulative balance EUR million)

67 000

50 000

Ceilings

Outcome

34 000

Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec  

1500

500

-500

-1500

-2500

-3500

-4500

-5500

-6500

Outcome

-4000

Floors

-5000

Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec  

-5700

Sources : GAO and Commission services  

Sources : GAO and Commission services

19. Three main features characterised the fiscal year 2010: 

•  The  implementation  of  several  waves  of  deficit-reducing  measures.  The  full-year  impact  of 
total  measures  implemented  in  2010  reached  EUR  22  billion  (or  10  percent  of  GDP),  of  which 
EUR 19.5 billion were reflected in the 2010 accounts, and EUR 2.5 billion carryover into 2011. 
Measures  weighing  on  2010  accounts  were  EUR  10.4  billion  (or  4.4  percent  of  GDP)  on 
expenditure and 9.2 billion (or 4 percent of GDP) on the revenue side of the budget. The reduction 
in  the  deficit  was  much  less  than  total  measures,  given  the  underlying  upward  pressure  on 
expenditure (e.g. interest, old-age pensions) and the impact of the unfavourable economic activity 
on taxes and social spending.  

•  Large shortfalls in tax collection. Revenue collection disappointed and was revised downwards 
on  several  occasions.  For  the  year  as  a  whole,  state  revenue  was  EUR  4.5  billion  (2  percent  of 
GDP) less than projected in May 2010, when the adjustment programme was designed. This result 
reflected  a  weaker-than-planned  internal  demand,  and  households'  and  corporates'  liquidity 
constraints. However, there is also evidence that the measures against tax evasion in the course of 
2010 were not fully successful and need to be strengthened. A tax settlement organised at the end 

v 

17 

 
 
European Commission 

The economic adjustment programme for Greece 

of the year was only partially successful: it collected EUR 1 billion, much above plans, but this 
was at the costs of underperformance of regular tax collection.  

•  Underexecution  of  the  state's  spending  plans.  In  order  to  offset  revenue  shortfalls,  and 
unfavourable  local  government  and  social  security  accounts,  the  Government  under  executed 
ordinary  state  primary  spending  and  military  procurement-related  payments  by  around  EUR  4.9 
billion (more than 2 percent of GDP) compared to the plans of May 2010. Despite this effort, the 
incompleteness of the data on arrears and accounts payable do not allow assessing the share of the 
payment compression reflecting durable expenditure savings or simply delays in payments.   

4.1.2. Fiscal policy in 2011 

20. The implementation of fiscal policy in 2011 will be challenging. In the budget for 2011 voted by 
Parliament  in  December,  the  Government  confirmed  its  commitment  to  meet  the  ESA-based  fiscal 
deficit  target  below  EUR  17  billion  (or  7.5  percent  of  GDP),  fully  recouping  the  slippage  of  2010. 
Therefore, the reduction in the government deficit-to-GDP ratio in 2011 will have to be larger than 
planned  at  the  inception  of  the  adjustment  programme:  at  around  2¼  percentage  points  of  GDP, 
instead  of  0.4  points.  Most  of  the  fiscal  measures  underpinning  the  2011  deficit  target  have  been 
legislated and are being implemented. 

21. Additional  measures  may  be  necessary  to  secure  the  2011  deficit  target.  The  mission  and  the 
government  have  updated  the  fiscal  projections  for  2011.  The  revised  projections,  based  on  current 
trends,  indicate  that  the  2011  fiscal  deficit  ceiling  may  be  exceeded  by  ¾  of  a  percentage  point  of 
GDP,  unless  corrective  action  is  adopted.  This  gap  comes  mainly  from  the  less  favourable 
expectations  for  the  tax  bases  (weaker  internal  demand),  updated  estimates  for  the  yield  of  fiscal 
measures in the state budget, as well as a base effect from the worse than expected 2010 outcome for 
several revenue categories. Higher than the previously projected interest expenditure also contributes 
to the fiscal gap. 

22. The government committed to offset this fiscal gap. The additional budgetary savings are expected 
to come from a compression in ordinary spending – a strategy that was not fully successful in 2010 –
and through structural measures to be prepared in the context of the medium-term fiscal strategy. A 
further effort against tax evasion would also contribute to offset the gap. 

23. Ambitious  results  from  the  fight  against  evasion  are  indispensable  in  2011.  The  structural 
improvement of tax collection remains a crucial element of the programme, not only given its direct 
impact  on  the  fiscal  accounts,  but  also  on  equity  grounds.  The  achievement  of  the  2011  budgetary 
targets implies an increase in total tax revenue of more than EUR 1.5 billion or some ¾ percent of 
GDP, compared with 2010. EUR 1.6 billion of receipts have been specifically projected in the budget 
for 2011 from the fight against tax evasion, increase the efficiency of the tax collection mechanism 
and other measures to accelerate tax-related court cases. The mission has encouraged the Ministry of 
Finance to keep its determination against tax evaders, as well as against inertia and specific interests 
inside the tax administration. 

Box 3: From cash accounts to ESA95 accounts 

As in previous reports, this box provides estimates and forecasts on the difference between available cash figures and 
the ESA95 data.  

Cash  and  accruals.  The  government  accounts  that  are  monitored  with  a  monthly  frequency,  and  on  the  basis  of 
which  compliance  with  quarterly  performance  criteria  are  assessed  are  compiled  on  a  cash  basis.  The  annual  ESA 
accounts  are  compiled  on  an  accrual  basis,  i.e.  at  the  time  of  the  underlying  transactions.  Thus,  while  a  delay  in 

18 

 
 
4. Programme implementation and policy discussions 

payments  to  suppliers  may  temporarily  improve  the  cash-base  data,  it  has  no  direct  impact  on  the  ESA-based 
accounts.  An  improvement  in  the  ESA  accounts  from  the  saving  side  of  the  budget  is  only  possible  if  there  is  an 
effective deceleration in expenditure commitments  

Scope.  The  data  available  with  high  frequency  cover  only  part  of  the  general  government  sector.  In  particular, 
monthly  data  for  state-owned  enterprises  that  are  classified  in  the  government  sector  and  for  most  extra-budgetary 
funds  are  not  available,  or  are  not  yet  of  appropriate  quality  for  continuous  monitoring.  Also  the  monthly  local 
government  and  social  security  monthly  data  are  compiled  from  banking  statistics,  which  may  limit  their 
exhaustiveness. It is expected that data on state-owned enterprises and on extra-budgetary funds will be progressively 
available  on  a  monthly  basis.  Thus,  the  differences  in  scope  between  the  data  series  are  expect  to  progressively 
narrow.   

The Table shows estimates for 2010, and forecasts for 2011, of the several variables that establish the link between 
the cash figures that are monitored monthly under the programme and the ESA accounts.  

Table 1 : Annual adjus tment - from cas h to accrual accounts  ES A 95 for 2010, 2011

Extrabudgetary funds
M ilitary deliveries  (difference with cas h payments )
Single Treas ury account
Tax-related time adjus tment
Direct taxes
Indirect taxes
Social contributions

EETT (Pos t-telecommunication authority)
EU funds  time adjus tment
Hos pitals  s pending, accrued in 2009 and paid in 2010
Guarantees  called
Interes t accrued
Privatizations  account
Intergenerational fund, A gricultural Fund (ELEGEP) and A TE Bank
Special fund for unauthoris ed buildings  (ETERPS)
Tax refunds
Bond payments
A ccounts  payable

Health (public hos pitals )
Health (private clinics  and s uppliers )
Other-than-s tate s ectors

Reclas s ified Public enterpris e balance
Lump s um payment to public s ector retirees
Other

2010

72
-223
227
70
50
20
0
-36
1271
375
-972
-715
-324
276
151
300
0
-1673
-1708
-70
105
-360
-524
-7

Total

-2092

2011

0
800
200
-550
-550
0
0
30
248
0
-1468
640
0
763
230
0
-420
450
450
0
0
245
-240
-42

886

General government modified cas h balance

General government balance (ES A 95) 

General government balance (ES A 95): Ceiling

-19937

-22029

-18508
3521

-19693

-18807

-17065
1742

difference

Source:  Commis s ion s ervices

24. Fiscal management on the expenditure side of the budget also needs to be improved. While cash 
payments were comfortably below the ceiling in 2010, the accumulation of arrears in other-than-the-
state  sectors  was  only  marginally  restrained,  reflecting  shortcomings  in  the  expenditure  monitoring 
and control. The commitment registers in each government department are still not fully operational, 

v 

19 

 
 
European Commission 

The economic adjustment programme for Greece 

while  progress  has  only  been  made  at  the  state  level.  The  registry  needs  to  be  made  operational 
shortly,  and  include  the  commitments  taken  by  local  governments,  social  security  funds,  hospitals, 
state-owned enterprises and other extra-budgetary entities. 

25. Reforms of budgetary institutions are progressing slowly. In line with the provisions of the organic 
budget law of July 2010, the government has set expenditure ceilings for 2011 for the State and deficit 
targets for the several government sectors. There has been progress in the timely provision of fiscal 
data, although there are still some quality issues: monthly data availability for the government entities 
other  than  the  state  remains  clearly  below  par  and  prevents  adequate  monitoring  of  intra-year 
budgetary developments for the government as a whole. While the situation has somewhat improved 
in  the  social  security  sector  and  state-owned  enterprises,  fiscal  information  on  local  governments 
remains very limited.  

4.1.2. Fiscal policy in 2012 and beyond 

26. The  medium-term  fiscal  strategy  is  under  preparation.  In  November  2010,  the  government 
committed to announce by March 2011 the medium-term fiscal structural measures to ensure meeting 
the annual fiscal targets for 2012-14. To ensure wider consultation of a technical complex document, 
the government has eventually decided to finalise the  medium-term fiscal strategy by May 2011. A 
first  draft  is  expected  to  be  available  for  public  consultation  in  the  second  half  of  March.  The 
subsequent steps in the preparation of the medium-term strategy include approval by the Council of 
Ministers before mid-April and the vote of Parliamentary resolution by mid-May. The medium-term 
targets  are  unchanged:  deficits  below  EUR  14.9  billion  (6.4  percent  of  GDP)  in  2012,  EUR  11.4 
billion in 2013 (4.8 percent) and EUR 6.4 billion (2.6 percent) in 2014. Although there is no official 
target  for  the  2015  deficit  target,  the  mission  encouraged  the  government  to  aim  at  a  2015  fiscal 
deficit of below 1 percent of GDP.  

20 

 
 
4. Programme implementation and policy discussions 

Table 7. Deficit accounting: from the deficit in one year to the next 

EUR million

cumulative meas ures

2010-2014

2012-2014

% of GDP
cumulative meas ures

2010-2014

2012-2014

2009 deficit

Nominal deficit drift in 2010
Identified meas ures
Impact on ratio of nominal GDP growth
2010 deficit

Nominal deficit drift in 2011
Identified meas ures  /1
Unidentified meas ures
Impact on ratio of nominal GDP growth
2011 deficit

Nominal deficit drift in 2012
Identified meas ures *
Unidentified meas ures
Impact on ratio of nominal GDP growth
2012 deficit (target)

Nominal deficit drift in 2013
Identified meas ures *
Unidentified meas ures
Impact on ratio of nominal GDP growth
2013 deficit (target)

Nominal deficit drift in 2014
Identified meas ures *
Unidentified meas ures
Impact on ratio of nominal GDP growth

2014 deficit (target)

36150

3880
18000
--
22030

11575
14800
1741
--
18806

3715
5575
2029
--
14916

2218
575
5160
--
11399

491
-1050
5573
--

6385

18000

32800
1741

38375
3770

5575
3770

38950
8930

6150
8930

37900
14503

5100
14503

15,4

1,7
7,8
0,4
9,6

5,1
6,6
0,7
0,1
8,3

1,6
2,4
0,9
-0,1
6,5

0,9
0,2
2,2
-0,2
4,8

0,2
-0,4
2,3
-0,6

2,6

7,8

14,5
0,7

16,7
1,6

16,5
3,8

15,5
5,9

2,4
1,6

2,6
3,8

2,1
5,9

1/ Including carry-over of fis cal meas ures  enacted before M ay 2010

* M eas ures  for 2012-14 identified and quantified in the original programme of M ay 2010 are s ubject to revis ion.

Deficit in year t equals  deficit in year t-1 plus  nominal deficit drift in year t minus  identified meas ures  minus  unidentified 
meas ures  (and for the ratios : plus  impact on ratio of nominal GDP).

Deficit drift includes the increas e in the deficit level that would take place without meas ures . It includes in particular the
s tructural increas e in pens ion expenditure, the increas e in interes t expenditure and other s tructural increas e in s pending.
The deficit drift has been calculated as s uming wage freeze and the implementation of the 1-to-5 rule between recruitments
and exits . It als o reflects  the increas e/decreas e in revenue becaus e of developments  in tax bas es .

27. The  medium-term  fiscal  strategy  is  a  cornerstone  in  the  programme.  In  2012-14,  8  percent  of 
GDP of measures will be necessary to reach the deficit targets. Of this total, around 2 percent of GDP 
of  measures  were  previously  identified;  however,  the  mission  advised  the  government  to  revisit  the 
measures planned to feature in the 2012, 2013 and 2014 budget, and in any case to update their yields. 
Given the scale of the required additional measures, continuous increases in tax rates and across-the-
board cuts in expenditure are not sustainable. The budgetary measures to reach the targets will have to 
come from structural actions in the several fields of government action, for which sectoral plans will 
be prepared:  

•  Tax  policy  reform.  It  will  aim  at  simplifying  the  tax  system,  broadening  bases  and  facilitating 
more  effective  tax  administration  to  fight  tax  evaders,  while  supporting  growth  and  investment. 
Implementing legislation is expected to be tabled in Parliament by end-September. 

v 

21 

 
European Commission 

The economic adjustment programme for Greece 

•  State-owned enterprises. The objective should be of bringing the enterprises' efficiency into line 
with  well-run  private  companies  and  other  EU  public  companies.  Tariff  increases,  reduction  in 
operational  costs,  reprioritization  of  investments,  and  wages  and  employment  adjustments  are 
expected to reduce deficits and increase dividends. 

•  Extrabudgetary  funds.  The  plan  should  aim  at  identifying  entities  with  overlapping  mandates 

that can be merged, restructured, integrated into the state budget, privatised or closed. 

•  Public  employment  and  public  wages.  The  system  of  wages  and  benefits  in  the  Greek 
administration  is  inordinately  complex,  unfair  and  providing  remunerations  above  the  private 
sector for similar tasks, as revealed by a recent governmnet’s report. The government expects that 
through  the  strict  implementation  of  the  rule  of  not  more  than  1  recruitment  for  5  exits,  public 
employment will be reduced by more than 20 thousand per annum until 2013. The implementation 
of  this  rule  requires  a  substantial  upgrade  in  the  government  mechanisms  to  monitor  staff 
movements  in  real  time.  The  mission  welcomed  the  government's  recent  initiative  of  aligning 
working hours in the public sector with those prevailing in the private sector. 

•  Public administration. This restructuring plan for public administration should identify services 
to  be  rationalised,  eliminating  overlapping  responsibilities  and  ensuring  efficient  lines  of 
command.  The  plan  will  benefit  from  the  findings  of  the  ongoing  functional  reviews  of  central 
administration. 

•  Social  spending  reform.  A  number  of  social  programmes  may  be  eliminated,  as  because  they 
overlap  with  other  initiatives  or  need  to  be  better  targeted,  while  keeping  the  appropriate  safety 
net.  As  for  public  administration,  the  ongoing  functional  review  of  social  programmes  will 
contribute to identify priorities and quantify potential savings. 

•  Public  investment.  The  objective  is  to  prioritize  projects  and  identify  budgetary  savings. 
Moreover, the financial oversight of the public investment programme by the Ministry of Finance 
needs  to  be  strengthened.  A  reassessment  of  public  investment  will  also  contribute  to  a  faster 
absorption of EU structural and cohesion funds. 

•  Military  spending.  Greece  is  one  of  the  EU  countries  with  the  highest  per  capita  spending  on 
defence. However, the reduction in military procurement in 2010 gave a notable contribution to 
the  deficit  reduction.  The  medium-term  military  programming  should  durably  contribute  to  the 
fiscal consolidation needs. 

•  The medium-term fiscal strategy will also be articulated with the ongoing heathcare and pension 

reform. 

28. The government has substantially scaled up its privatisation programme. The government aims 
at collecting EUR 50 billion in privatisation receipts. Such a plan will contribute to reduce the debt-to-
GDP  ratio  by  almost  20  percentage  points  of  GDP  by  2015,  and  may  help  in  regaining  investors’ 
confidence. Such an ambitious privatisation plan should be able to put the debt ratio into a declining 
trend faster than it could be achieved via accumulation of primary surpluses. Although privatisation 
proceeds  themselves  do  not  substitute  fiscal  consolidation  efforts,  they  contribute  to  fiscal 
sustainability, as the reduction in debt will lead to a reduction in interest expenditure. Moreover, an 
ambitious privatisation plan will contribute to increase the overall productivity and competition of the 
economy  and  bring  in  foreign  capital.  Privatisation  should  also  contribute  to  reduce  corruption 
potential. 

22 

 
 
4. Programme implementation and policy discussions 

29. The  mission  encouraged  the  government  to  set  up  an  appropriate  governance  system  to 
accelerate privatisation. Experience shows that large privatisation plans are more effective when a 
single entity is in the lead of the whole process and takes full ownership of the assets to be privatised. 
The  current  set-up  where  each  ministry  and  a  myriad  of  smaller  entities  manage  and  control 
government assets is less effective in extracting value from assets. The mission welcomed the fact that 
the  government  has  started  preparations  for  the  compilation  of  a  comprehensive  inventory  of  state 
assets – stakes in listed and unlisted companies, buildings and commercially-viable land – on the basis 
of which the privatisation plan will be made more specific.  

30. High primary surpluses and privatisation ensure sustainability. The chart below shows three pairs 
of long-term debt scenarios, until 2025. For each pair there are two assumptions on nominal interest 
rates 4.5 percent and 5.5 percent, both of which are much below market yields, but are not unrealistic 
if financial markets stabilise and the determination of Greece to keep fiscal accounts in order beyond 
the programme horizon is credible. In scenario 1, growth remains anaemic not exceeding 2 percent, 
and the primary surplus does not exceed 3¼ percent of GDP (level projected for 2013): it is a scenario 
of insufficient and unfinished consolidation. In this case, debt developments are not sustainable. This 
scenario suggests that, to ensure sustainability, consolidation needs to continue in coming years and 
structural reforms should be implemented with ambition to contribute to potential growth. In scenario 
2, nominal growth beyond 2014 is 3½ percent, practically the same as the one currently projected for 
2014, while the primary surplus from 2014 onwards is 5.5 percent: a high value, but not higher than 
other EU countries managed to keep for relatively long periods. The primary surplus is the one that is 
currently projected for 2014. In scenario 2, government debt is sustainable and declines, though it will 
remain  above  100  percent  o  GDP  by  2025.  Scenario  3  is  the  most  favourable  scenario:  it  is  a 
derivation of scenario 2, talking into account the government plans of privatising EUR 50 billion in 
2011-15.  In order  to  reach  the  same  debt  ratio  by  2025 without  privatisation,  the  primary  surpluses 
would have to be above 7.5 percent of GDP, from 2014 on, a level that does not seem realistic. 

Graph 16. Public debt sustainability scenarios  

(% f GDP)

Scenario 1

Scenario 2

Scenario 3

170

160

150

140

130

120

110

100

90

2006

2009

2012

2015

2018

2021

2024

Common assumptions: 
The chart shows three pairs of debt scenarios. For each pair, there are two average interest rate assumptions (4.5 and 5.5 percent).  

Specific assumptions: 
Scenario 1: nominal growth rate: 2 percent; primary surplus stable at 3.2 percent of GDP from 2013 on; privatisation: nil.   

Scenario 2: nominal growth rate: 3.5 percent; primary surplus stable at 5.5 percent from 2014 on; privatisation: nil. 

Scenario 3: nominal growth rate: 3.5 percent; primary surplus stable at 5.5 percent from 2014 on; privatisation: EUR 50 billion in 

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The economic adjustment programme for Greece 

4.2.  STRUCTURAL FISCAL REFORMS 

4.2.1. Public administration 

31. Reforms  in  the  institutional  framework  of  public  administration  are  ongoing.  Two  functional 
reviews of the central administration and of the existing social programmes have now been launched, 
albeit  with  substantial  delay  compared  to  initial  planning.  The  aim  is  to  identify  actions  that  will 
rationalise  the  system  and  to  quantify  potential  savings.  Both  reviews  are  being  conducted  by  the 
OECD  secretariat  and  should  lead  to  the  adoption  of  administrative  measures  by  end-2011,  and 
contribute to the medium-term sectoral plan on public administration and social spending.  

32. There  have  been  delays  in  the  upgrading  of  public  procurement  procedures.  However,  the 
Government has prepared a draft law creating a Single Public Procurement Authority (SPPA); the law 
is to be adopted by March. It should grant the SPPA the power to define public procurement policy, to 
coordinate the ministries with competences on public procurement and to issue binding guidelines on 
the application of public procurement rules. Savings that would result from the operation of the SPPA 
are also expected to be considered in the medium-term fiscal strategy. 

Box 4: Reforming the tax collection mechanism 

The improvement of the tax collection mechanism is a key feature of the programme and it is crucial for the 
achievement  of  such  a  demanding  fiscal  adjustment.  Reforms  in  the  tax  administration  area  are  gaining 
momentum,  with  several  steps  being  ongoing.  This  mainly  concerns  legislation  to  improve  the  efficiency  of  tax 
administration and controls, putting in place an effective project management arrangement and implementing an anti-
evasion plan to restore tax discipline and improve compliance.  

The  government  has  presented  a  draft  law,  to  be  adopted  by  Parliament  by  end-February.  It  focuses  on 
administrative  issues  of  the  tax,  audit  and  enforcement  mechanisms,  while  also  completing  the  new  framework  to 
combat  tax  evasion  and  fraud.  The  bill  includes  (i)  specific  measures  to  combat  tax  evasion  and  tax  avoidance, 
(ii) reorganization  of  the  audit  and  enforcement  mechanisms,  and  (iii)  improving  the  tax  legal  and  administrative 
framework. 

• 

• 

Fight  against  tax  evasion.  Within  a  three-year  framework,  the  bill  provides  for  the  creation  of  an  attorney-
general  for  economic  crime.  The  new  attorney  will  have  priority  jurisdiction  to  conduct  preliminary 
investigations, and supervise, coordinate and guide the conduct of tax investigations by staff (Financial Crime 
Unit,  tax  offices,  police,  Coast  Guard,  customs,  etc.).  Based  on  the  new  legal  and  institutional  framework 
provided, a number of specific measures against tax evasion are planned, such as criminal prosecution for the 
offense of withholding VAT; criminal prosecution for unpaid and overdue taxes owed to the State; suspension of 
court sentences upon appeal not allowed for major fraud crimes, non-permission for the conversion of penalties 
and fines for large evasion; enforcement of penalties prior to appeals; temporary imprisonment for tax-related 
crimes; priority in audits for high probability sectors and freelancers, and increase in the rate of the payment for 
cases assessed but appealed, from 25 to 50 percent of the verified amount. 

 Tax and audit services restructuring. The draft law provides for the reorganization of the directorate general 
for  tax  audits  and  its  transformation  in  an  operational  service,  instead  of  its  current  legislative  and  advisory 
status. The aim of the reorganization is the adaptation of the audit services in the use of modern audit tools with 
a  view  to  minimising  contact  between  the  supervisory  authorities  and  tax  payers,  new  methodologies  and 
international auditing standards; and also to enable the directorate general to centrally monitor the operation of 
the  decentralized  tax  audit  services.  To  this  end,  a  process  set  up,  for  the  assessment  of  tax  arrears  and  their 
separation  between  “recoverable”  and  non-recoverable”.  In  addition,  an  internal  affairs  department  is  set-up, 
with a view to collecting, processing, evaluating and using information and investigating cases of corruption. 

24 

 
 
4. Programme implementation and policy discussions 

•  Tax framework simplification. A number of provisions aimed at improving the taxation framework, correcting 
distortions  and  facilitating  entrepreneurship  are  also  introduced.  This  includes  the  reduction  in  the  corporate 
income  tax  rate,  from  24  to  20  percent  (fiscal  impact  in  2012);  the  extension  –  for  4  more  years  –  of  the 
provision  on  tax  credits  for  research  and  technology  expenditure  and  changes  in  VAT  statement  submission: 
instead  of  requiring  the  payment  of  the  full  amount  at  the  time  the  VAT  forms  are  submitted,  taxpayers  in 
hardship are allowed to pay only 40 percent of their due, with the remainder paid in two instalments.  

4.2.2. Pension and healthcare reforms 

33. The  National  Actuarial  Authority  (NAA)  pursues  its  efforts  to  quantify  the  impact  of  the 
pension  reform.  The  NAA  has  completed  the  long-term  projections  (2009-60)  on  pension 
expenditure by the largest pension schemes, and continues its work to extend the projections to other 
schemes. These projections will be subject to a peer review by the EU Economic Policy Committee. 
The  currently  available  data  suggest,  as  expected,  that  the  pension  reform  of  July  2010  has  gone  a 
long way towards moderating pension expenditure. Other than the completion of the projections, the 
next  phase  of  the  reform  concerns  the  supplementary  pension  schemes,  which  should  become 
notionally-defined  benefit  schemes.  If  after  the  supplementary  pension  scheme  reform,  projections 
indicate  that  the  projected  increase  in  the  total  public  pension  expenditure  exceeds  2.5  percentage 
points of GDP over 2009-60, the government is expected to adjust the main parameter of the pension 
system, so as to ensure that that benchmark is not exceeded. 

34. There has been a new impetus to a deep reform of the health sector. Many reform proposals are 
either under implementation, adoption or development. The overarching objective of the reform is to 
improve  the  cost  efficiency  of  the  system:  keep  public  health  expenditure  at  or  below  6  percent  of 
GDP,  while  maintaining  universal  access  and  improving  the  quality  of  care  delivery.  In  the  short-
term,  the  focus  will  be  on  macro-level  discipline  and  cost  control.  In  a  medium-term  perspective, 
deeper structural changes will be needed to contain spending in the context of the medium-term fiscal 
strategy while improving the governance of the system. 

Box 5. Reforming the healthcare system: improving efficiency and quality of health services 

Important steps have recently been taken to reform the health sector in order to increase the efficiency and 
quality of health services delivery. The reform aims to ensure a more rational use of services and medical goods, 
reduce  waste  and  corruption  and  increase  productivity.  Actions  planned  for  2011  are  expected  to  generate  at  least 
about  ½  percent  of  GDP  in  savings,  including  savings  of  more  than  EUR  2  200  million  in  pharmaceutical 
expenditure.  

Several measures have been implemented so far:  

• 

Increase in co-payments for outpatient visits to NHS facilities from EUR 3 to EUR 5 and improvements in the 
ability to collect payments. This should ensure an additional revenue of about EUR 30 million while increasing 
patients' awareness and reducing some unnecessary healthcare. A system of exemptions ensures that those most 
vulnerable  are  not  deterred  from  seeking  necessary  healthcare.  In  the  long-term,  when  a  well–functioning 
primary care system is put in place, the uniform EUR 5 co-payment can be replaced by a system whereby co-
payments for specialist care are made higher than those for primary care doctors and co-payments for emergency 
services  are  made  the  highest,  so  as  to  encourage  the  use  of  primary  care  and  reduce  the  use  of  unnecessary 
emergency care. Additional efforts are being made to ensure the appropriate billing of services provided to non-
residents when in Greece. 

•  The all-day functioning of hospitals has been extended to 65 (out of 130 hospitals). This is projected to result 

in additional hospital revenue of EUR 40 million, without a significant increase in costs.  

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The economic adjustment programme for Greece 

A  number  of  other  measures  are  being  implemented  in  the  area  of  pharmaceuticals.  These  measures  aim  at 
reducing unnecessary expenditure associated with over-prescription, waste and corruption: 

•  An  initial  price  list  published  in  September  2010  led  to  reduction  in  the  price  of  medicines  of  almost  20 
percent  leading  to  important  savings.  This  policy  action  may  have  led  to  savings  of  more  than  EUR  750 
million. The current price list is to be replaced by an updated and complete list inducing smaller but additional 
savings.  

•  Another  measure  is  the  publication  of  a  negative  list  of  medicines  not  reimbursed  by  the  social  security 
funds and which could result in savings up to EUR 140 million within one year. This is to be coupled with 
the definition of prescription guidelines and the development of a reference price system establishing a reference 
price  for  reimbursement  purposes.  The  government  needs  now  to  put  these  two  measures  into  practice  in  the 
coming months to ensure further savings from the reduction in unnecessary prescription of medicines (up to EUR 
300 million) and a reduction in the effective price paid by social security.  

•  The government has set the target of increasing the share of generics and off-patented medicines used in 
NHS hospitals to 50 percent. Further steps can be taken to ensure a faster and easier entry of generics in the 
market, ensuring prescription by active substance by doctors and generic substitution by pharmacies.  

• 

steps have been taken to extend the pilot e-prescription system from OAEE to other social security funds. 
The  pilot  e-prescription  system  for  medicines  has  led  to  a  reduction  in  the  number  of  prescriptions  and 
contributed to a reduction in the average value per prescription. The extension of e-prescription has nevertheless 
faced  delays  due  to  the  system  complexity  and  the  initial  costs  involved.  E-prescription  is  now  due  to  be 
extended to all funds by May 2011. E-prescription is expected to induce savings of EUR 1.4 billion. 

•  A  set  of  measures  have  been  legislated  to  induce  some  liberalisation  of  the  pharmacies  sector  (easing 
population-based  restrictions,  increasing  opening  hours,  allowing  new  pharmacists  to  form  partnerships  with 
incumbents)  and  reduce  the  effective  profit  margin  for  pharmacies  (through  a  system  of  rebates).  The  profit 
margin of wholesalers has been cut from 8 to 5.4 percent.  

The centralised public procurement of medical supplies is also high in the agenda. In 2010, seven central tenders 
were launched which are estimated to have resulted in savings of about EUR 300 million.  

Significant efforts have been taken to improve hospital computerisation including modern accounting and billing 
systems, bookkeeping of medical supplies in NHS hospitals, monitoring activity of NHS facilities, timely invoicing 
and hospital spending control.  

4.3. FISCAL FINANCING AND TREASURY MANAGEMENT 

35. The  T-bill  market  has  remained  active  and  issuances  were  successful.  The  Public  Debt 
Management Agency (PDMA) keeps organising regular T-bill auctions.  In the second half of 2010, 
auctions  were  held  every  month,  except  August  and  December.  The  short-term  issuances  were 
successful  despite  negative  sentiment  towards  longer  maturities.  Auctions  met  strong  demand  with 
bid-to-cover ratio ranging between 3.4 to 6.3. Foreign investors regularly bought one third of the total 
amount.  

36. Yields  on  short-term  securities  in  the  primary  market  remained  stable.  Since  May  2010,  the 
three-month T-bills have been sold at around 4 percent yield, while six-month papers were placed at 
and average yield of 4.7 percent. The fall in yields in the two October 2010 auctions was short-lived. 
The upward revision in the Greek government debt and contagion from other peripheral EU countries 
led to downbeat market sentiment again in late autumn. As a result, the shift from shortest maturities 

26 

 
 
4. Programme implementation and policy discussions 

to  longer  (six-month)  paper  was  slower  than  expected.  PDMA  intends  to  continue  shifting  to  six-
month  maturities in the course of 2011 and move to one-year bill issuance when market conditions 
permit. 

Graph 17. T-bill auctions since May 2010 
(amounts and yields)

Graph 18. Maturing debt, EUR billion 

n
o
i
l
l
i
b
R
U
E

3.0

2.5

2.0

1.5

1.0

0.5

0.0

4.05%

4.65%

26-week bills

13-week bills

4.90%

4.82%

4.54%

3.75%

3.98%

4.82%

4.10%

4.64%

4.10%

16

14

12

10

8

6

4

2

0

T-bills

Medium and long term debt

Jul-10

Aug-10

Sep-10 Oct-10 Nov-10 Dec-10

Jan-11

Feb-11

Jan-11 May-11

Sep-11

Jan-12 May-12

Sep-12

Source : PDMA 

Source : GAO

37. Refinancing needs are concentrated in the first eight months of 2011. Largest redemptions fall in 
March,  May  and  August  when  medium  and  long-term  debt  matures.  These  amounts  will  be  fully 
covered  by  international  assistance  loans.  However,  the  scheduling  of  disbursements  currently 
planned for 2011 for mid March, June, September and December requires prefinancing with T-bills 
and an accumulation of cash buffers. 

Box 6: Financing profile in a medium-term perspective 

The government debt financing profile is driven by maturity of outstanding debt and to a lesser extent by the 
cash deficits in each quarter. The euro-area and IMF loans are heavily frontloaded. By end March 2011, euro-area 
Member  States  and  the  IMF  are  expected  to  have  disbursed  EUR  53  billion  or  48  percent  of  the  total  package  of 
EUR 110 billion. The frontloading minimises the need to borrow from the markets in distressed conditions and gives 
Greece  sufficient  time  to  consolidate  public  finances,  implement  the  necessary  structural  reforms  and  recover  the 
investors' confidence. Greece is expected to regain market access and refinance at least three-quarters of its maturing 
medium and long-term debt in 2012 and to fully roll-over debts from the summer 2013 onwards.  

Both the euro-area and the IMF loans have an average maturity of around 4 years. The reimbursement of each 
tranche  of  the  euro-area  loans  starts  three  years  after  the  disbursement  and  is  spread  in  eight  quarterly  instalments 
over two years. The repayment of each tranche of the IMF loan starts slightly later: three years and one quarter after 
disbursement. IMF loans are also repaid in quarterly instalments over two years.  

In 2013-15, Greece will have to raise substantial funds in the market in the immediate post-programme period 
to  repay  the  euro-area  and  IMF  loans,  as  well  as  to  roll-over  other  liabilities.  Combined  with  the  projected 
budget deficit and short-term debt amortisation, the total refinancing needs according to current projections stand at 
around EUR 57 billion in 2013, EUR 81 billion in 2014 and EUR 73 billion in 2015, although sales of assets will 
reduce  financing  needs.  The  repayment  of  euro-area  and  IMF  loans  amount  to  EUR  10  billion  in  2013,  EUR  32 
billion in 2014 and EUR 38 billion in 2015.  

High financing needs in the immediate post-programme period have a negative impact on market confidence. 
Therefore, the euro-area Member States ministers agreed, in principle, to align the length of the Greek loan with the 
maturities  of  the  financing  provided  to  Ireland:  an  average  maturity  of  7½  years.  However,  at  the  time  of  writing, 

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The economic adjustment programme for Greece 

such a change has not yet been formally agreed. The charts below illustrates that an extension of the maturity of the 
Greek loans would avoid the hump in refinancing in the immediate post-programme years: 2014 and 2015.  The chart 
does  not  reflect  yet,  the  reduction  in  financing  needs  that  result  from  the  recently  announced  upscaling  of  the 
government’s privatisation plans. 

Graph 1. Refinancing profile for the Greek government debt 
(current conditions and extension of loan maturities) 

90

80

70

60

50

40

30

20

10

EUR billion

Market financing needs according to current 
arrangem ent (average m aturity of EU and IMF 
loans: 4 years)

Market financing needs if EU and IMF loans m aturities 
are extended to 7 1/2 years on average

2011

2013

2015

2017

2019

2021

2023

Source: Commission services 

4.4. FINANCIAL SECTOR POLICIES 

38. While providing for sufficient collateral buffer, a strategy was adopted by the Bank of Greece in 
cooperation with the ECB to reduce banks' reliance on Eurosystem credit. Borrowing from the 
ECB now represents nearly 20 percent of banks' liabilities. The last tranche of government guarantee 
scheme  under  which  banks  can  issue  repo-eligible  bonds  was  allocated  to  banks  in  December, 
increasing their pools of available collateral. However, due to market volatility, changes to the ECB 
provided collateral framework and any further downgrades of the sovereign debt grounds for further 
enhancement of the liquidity cushion in the system. To this extent, enhancing the existing guarantee 
scheme  by  additional  EUR  30  billion  appears  to  be  necessary.    Banks'  access  to  the  new  tranche 
should be made conditional on the adoption of medium-term funding plans. The plans should outline 
the bank-specific targets and measures to reduce reliance on the Eurosystem liquidity over 2-3 year 
time span. At the same time, these plans have to be consistent with the Programme macroeconomic 
and fiscal assumptions and the restructuring plans requested under the EU state aid rules. 

39. With the aggregate balance sheet at 210 percent of GDP, the size of the Greek banking system is 
not  excessive  compared  to  other  countries.    Nevertheless,  some  downscaling  seems  appropriate 
given  the  tense  situation  at  the  funding  side.  In  the  context  of  the  medium-term  funding  plans  the 
banks  will  have  to  indicate  how  they  to  phase  out  their  borrowing  from  the  ECB.    Furthermore,  to 
compensate for the state aid received the viability plans that the banks are expected to submit should 
contain measures that limit the banks' expansion. Deleveraging has, however, some drawbacks as the 
repercussions on the real economy have to carefully be taken into account.  

40. The Hellenic Financial Stability Fund is functioning and received its first tranche of  funding.  
The  Board  has  been  operating  since  October  but  staffing  of  the  HFSF  is  proceeding  slowly  due  to 
legal constraints. It should be completed by mid-2011. In the meantime, solutions have been worked 
out to transfer staff from the Bank of Greece or to outsource. In terms of funding, EUR 1.5 billion has 
been transferred to the HFSF account at the Bank of Greece. The remainder of the EUR10 billion will 
be  made  available  on  a  dedicated  government  account,  beginning  two  EUR  1  billion  instalments 
during  the  first  two  quarters  of  2011.  To  estimate  possible  future  needs  for  recapitalisation  by  the 

28 

 
 
 
4. Programme implementation and policy discussions 

HSFS  the  Bank  of  Greece  conducts  regular  solvency  forecast  exercises  for  the  Greek  commercial 
banks. 

41. The  efforts  have  intensified  to  strengthen  the  financial  sector  supervision.  Shortage  of 
appropriately  qualified  staff  remains  an  issue,  but  recruitment  is  expected  to  be  completed  by  June 
2011. At the same time, the Bank of Greece is committed to reduce remunerations of its employees as 
part  of  the  overall  fiscal  consolidation  effort.  The  supervision  of  the  insurance  sector  is  being 
enhanced since the Bank of Greece took it over in December 2010. In parallel to increasing human 
resources, it is undertaking a diagnostic assessment of insurance companies' solvency and reviewing 
the adequacy of existing policyholder guarantee schemes. 

4.4. GROWTH-ENHANCING STRUCTURAL REFORMS 

42. The adjustment programme for Greece contains a very wide agenda of structural reforms. The 
aim of structural reforms is to improve the supply-side conditions of the economy, increase internal 
competition and increase external competitiveness. Their implementation will facilitate the return of 
the  economy  to  potential  growth,  while  strengthening  this  potential.  Structural  actions  increase 
efficiency,  reduce prices  with benefits for consumers  and  help  shifting resources from  the domestic 
market to exports. Reforms need to take place in parallel as theoretical and empirical evidence shows 
that  a  comprehensive  reform  programme  leads  to  significantly  better  outcomes  than  a  sequential 
implementation  of  partial  reforms.  In particular,  a  simultaneous  implementation of reforms  helps  to 
overcome opposition from interest groups that benefit from specific restrictions and impose a burden 
on the whole Greek society. Moreover, the faster reforms are implemented, the sooner they will have 
an effective impact and contribute to jobs and growth. 

43. Following a slowdown in momentum in autumn, a new wave of structural reforms is underway. 
After a landmark pension reform before the summer, the reform  momentum lost traction in autumn 
2010  for  reasons  that  appear  related  to  the  November  local  elections,  changes  in  government  and 
limits  in  the  administrative  and  operational  capacity  of  the  Greek  state.  The  policy  commitments 
agreed in May and then revised in August and November planned for the implementation of several 
reforms by end-2010. Although some of these reforms are delayed compared to plans, a new wave of 
reforms is being implemented, under preparation or on the point of being legislated in areas such as 
labour  market,  competition  policy,  access  to  and  exercise  of  professions,  reduction  in  red-tape, 
investment and export promotion and restructuring of state-owned companies. 

4.4.1. Labour market reforms 

44. The new labour law adopted in December has been a major step forward. The reform undertaken 
aims  at  enhancing  the  dynamism  of  the  labour  market  and  improving  firms'  adaptability  to  market 
conditions with a view to enhance competitiveness and attract foreign investment. After a number of 
reforms adopted in July, the new labour law of December goes in the direction of moving the wage 
bargaining  system  towards  the  firm  level,  where  the  firm  growth  strategies  are  decided.  The 
government  is  of  the  view  that  the  new  law  will  be  effective  in  supporting  growth  and  promoting 
employment. While the mission shared the government's intention in this respect, it put forward that 
the  law  missed  ambition  in  a  number  of  respects  and  encouraged  the  government  to  adopt  the 
necessary legislative adjustment in case of need (see Box). 

45. The government view the new special firm-level collective agreement (SFLCA) as an instrument 
conducive  to  wage  decentralization,  targeted  to  firms  in  difficulties.  They  are  committed  to 
communicate  to  market  players  their  rights  as  regards  their  access  to  SFLCA,  to  follow  up  on 
implementation  and  to  build  the  change  in  mindset  favourable  to  the  use  of  SFLCA,  including  by 

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The economic adjustment programme for Greece 

reiterating the non-binding nature of the labour inspectorate report. Conversely, the authorities are of 
the view that the general elimination of the legal provisions allowing for the mandatory extension of 
collective  agreements  to  non-signatory  parties  is  both  politically  unfeasible  and  unnecessary  to 
improve competitiveness. 

Box 7: Labour market reforms  

In the course of 2010, Greece adopted two batches of labour market reforms. Already in July, Parliament voted 
legislative changes related to overtime pay rates, severance costs, and sub-minima wages for groups at risk, such as 
young  and  long-term  unemployed.  The  Government  and  the  social  partners  also  agreed  that  the  minimum  wage 
would be frozen until summer 2012, which is then expected to increase in line with euro-area inflation (a 1.5 percent 
increase  in  July  2012  and  1.7  percent  in  July  2012).  Although  a  longer  period  of  wage  freeze  would  have  been 
desirable,  the  agreement  marked  a  clear  change  compared  to  the  recent  years'  practice.  A  second  wave  of  labour 
market reforms was adopted in December.  

The  special  firm-level  collective  agreements  (SFLCA)  is  a  promising  step  towards  making  the  wage  setting 
system more adequate to reflect firm economic conditions. Until now, firm-level agreements could only improve 
wages  on  top  of  what  agreed  at  sector  level,  but  could  in  no  case  establish  less  favourable  wage  conditions. 
Moreover, the sector agreement use to be generally extended by the Government to all firms in the sector, even if to 
those  that  are  not  members  of  the  employers'  associations  signing  the  sector  agreement.  According  to  the  law  on 
SFLCA, employers and employees at firm level may now agree on remuneration conditions that are less favourable 
than those stipulated in sector agreements with the view to preserve jobs. This way, the law allows each firm to adjust 
remuneration conditions to their productivity, competitiveness and strategic decisions. The SFLCA may be signed by 
any firm, irrespective of their size and whether they are or not members of the employers' organisations that signed 
the sectoral agreements. 

Some facets of the labour law may significantly reduce the effectiveness of the SFLCA. First, SFLCAs can only 
be concluded between employers and unions. Considering the strong incidence of negotiation and transaction costs 
for small firms and the possibility that small firms lack a firm-level unions as a counterpart to sign the agreement, 
SFLCAs  may  not  de  facto  be  easily  available  to  a  substantial  number  of  firms  even  when  both  employers  and  a 
majority workers would be in favour. Second, the signature of an SFLCA requires a notification procedure to, and an 
opinion by, the Council of Social Oversight of the Labour Inspectorate (CSOLI). Although the CSOLI's opinion is 
not binding, it generates unnecessary red tape, and a negative opinion may create social and political stigma. The first 
(and  only,  so  far)  SFLCA  agreement  signed  in  Greece  after  the  new  law  was  passed  received  a  negative  opinion. 
Therefore, while the new law has a great potential to ensuring wages are in line with productivity and the specific 
conditions of each firm, these facets may need to be revisited in the short term to ensure the SFLCA are effective.  

Other features included in this law refer to: 

•  Collective  dispute  regulation  procedures.    Practice  revealed  that  the  mediation  and  arbitration  procedures  in 
Greece were often a source of upward wage drift, as unions had privileged acess to arbitration. After the reforms 
adopted  by  the  government,  both  employers  and  employee  may  request  arbitration  and  mediation  services.  To 
ensure impartiality, the board of the Mediation and Arbitration Organisation (OMED) has been reformed, freed 
from  government  influence  –  the  government  has  one  observer  in  the  OMED  board    with  no  voting  right  –, 
ensuring  paritary  representation  of  employers  and  employees  and  with  the  chairman  chosen  by  unanimity. 
Moreover, to promote social dialogue, mediation and arbitration is limited to basic pay disputes. 

•  Remuneration of part-time workers. Previous rules established the non-standard practice of a premium of 7.5 
percent to the hourly remuneration of part-time workers (of less than four hours per day). This premium has been 
abolished. The premium of 10 percent for part-time workers working overtime has also been abolished.  

•  Part-time shift work has been extended from six to nine months. 

30 

 
 
4. Programme implementation and policy discussions 

•  The probationary period for staff joining firms was comparatively short (two months) and is now extended to 
one  year.  This  allows  a  longer  period  in  the  establishment  of  a  longer-term  trustful  relationship  between 
employers and employees, and effectively reduces hiring costs. 

•  The maximum work period under temporary working agencies was short (12 months) and has bee raised to 3 

years.  

A third wave of labour reforms is now under preparation. This concerns fixed-term contracts, rules on working-time 
arrangements and the restructuring of the Labour Inspectorate. 

•  Although  the  conditions  for  fixed-term  contracts  in  Greece  do  not  appear  particularly  strict,  the  costs  for 
terminating these contracts before their term are substantially higher than elsewhere in the EU. Moreover, there is 
also the need to avoid firms from abusing the use of probationary periods (now longer than they used to be) as 
short-term fixed-contracts to cope with temporary needs. 

•  Changes in working-time regulations should enhance the adjustment of pay and working time at the firm level . 

•  The procedure to create firm-level trade unions is particularly long, extending in some case over more that 8 
months.  The  government  intends  to  accelerate  the  procedure  to  set  up  these  unions,  which  would,  inter-alia, 
facilitate the signing of SFLCA. 

•  The  Labour  Inspectorate  should  be  strengthened  and  resourced  with  qualified  staff,  so  as  to  ensure  better 

controls and higher efficiency levels in tackling undeclared work. 

4.4.2 Closed professions 

46. The opening of closed professions is a flagship reform of the whole programme and will test the 
government’s determination vis-à-vis incumbents. The reform is expected to increase competition 
in a long list of professions (more than 150) which were subject to rules on numerus clausus, fixed or 
recommended  prices,  geographic  restrictions  or  other  rules  which  protect  incumbents  and  hinder 
competition.  

•  Procedure.  Given  the  myriad  of  restriction  on  closed  professions,  the  government  decided  to 
adopt  a  two-pronged  approach.  For  lawyers,  notaries,  engineers,  architects,  auditors  and  (in  a 
specific  act)  pharmacists,  the  new  legislation  explicitly  removes  unwarranted  restrictions.  For 
other  professions,  the  new  act  establishes  the  principle  of  professional  freedom  rather  than 
explicitly  abrogating  each  of  the  unwarranted  restrictions  in  force.  Moreover,  the  law  to  be 
adopted  establishes  a  4-month  period  during  which  restrictions  that  are  justified  may  be 
reinstated  by  decree.  The  government  is  confident  that  this  approach  is  the  most  effective  in 
accelerating  liberalisation.  However,  the  mission  expressed  that  this  legislative  technique  may 
create  legal  uncertainty.  Moreover,  the  mission  was  of  the  view  that  it  was  crucial  that  the 
professional restrictions to be reinstated should be limited to the strict minimum and only when 
public interest is overwhelming.  

•  Contents.  The  draft  law  is  heading  in  the  right  direction  in  areas  such  as  the  new  way  of 
calculating  notaries'  fees,  abolishing  fixed  or  minimum  prices  for  the  other  professions. 
However, legal fees which will remain for tax and social contribution reasons or in cases where 
there is no explicit agreement between client and provider of service may constitute coordination 
tools for providers and hinder price competition. The fact that the law keeps existing territorial 
restrictions  to  the  practice  of  lawyers  is  a  disappointment  and  reveals  the  strength  of  interest 
groups. In relation to the professions not explicitly addressed in the new law and in relation to 
which some restrictions may be reinstated, the missions encouraged the government to consult 

v 

31 

European Commission 

The economic adjustment programme for Greece 

widely and take into account the wider economic interest rather than to yield to specific interest 
groups. 

Box 8: The reform of professional services  

There  are  valid  reasons  as  to  why  regulation  of  professional  services  is  needed.  Regulations  address  market 
failures such as asymmetry of information between customers and service providers, which requires practitioners to 
possess the necessary skills. They also address externalities, as some professional services might have an impact on 
third parties. In addition, some professional services produce public goods that are of value for the society in general, 
hence the need for regulation.  

Finding the amount of regulation that is commensurate with the protection of the general interest objectives at 
stake  is  challenging.  Restrictions  on  price  setting,  advertising,  entry  requirements,  limits  on  multi-disciplinary 
activities,  geographical  or  territorial  limits  to  the  exercise  of  a  profession,  have  in  many  instances  adverse  side 
effects.    Fixed  minimum  or  maximum  prices  deprive  service  providers  of  the  possibility  of  competing  on  price  or 
their  price/quality  ratio  and  render  the  establishment  of  new  competitors  less  attractive.  Recommended  prices  also 
facilitate co-ordination between service providers and mislead consumers about reasonable price levels. Restrictions 
based  on  quality  concerns  –  such  as  a  minimum  amount  of  hours  needed  to  provide  a  service  –  often  fail  to 
acknowledge  that  there  are  more  effective  ways  to  ensure  good  performance.  Quantitative  and  geographical 
restrictions hinder the freedom of establishment, thereby limiting the overall number of service providers and curbing 
competition.  Given  the  need  to  trade  off  public  interest  with  competition,  a  proportionality  test  is  necessary. 
However,  in  many  countries,  the  proportionality  is  often  assessed  by  professional  chambers  that  are  biased  and 
protect interest groups.   

Greece  stands  out  in  the  group  of  developed  countries  for  imposing  higher  requirements  on  regulated 
professions. Indicator based evidence–e.g. the International Regulation Database–shows that the degree of regulation 
of professional services in Greece is one of the highest in the OECD. To illustrate, Greek lawyers are subject to a 
much  higher  degree  of  regulation  relative  to  the  OECD  average:  Greece  has  been  one  of  the  very  few  advanced 
economies  with  fixed  minimum  prices  and  with  a  complete  ban  on  advertising.  There  are  also  geographical 
restrictions: Greek lawyers are allowed to practice within a specific area only, not in the whole national territory. The 
most important restrictions on engineers and architects concern minimum fees and the method of payment of fees. 
As  in  lawyers,  current  regulations  provide  for  minimum  fees  not  subject  to  contractual  agreement.  Current 
regulations also prescribe a specific procedure whereby the Technical Chamber collects the fee owed by the client: 
clients are not entitled to pay fees directly to professionals. Greek auditors are subject to minimum hours to conduct 
a statutory audit and to maximum annual working hours. Lastly, notaries are by far the most regulated profession. 
The profession is heavily regulated in terms of the access to and exercise of the profession. On access, there are strict 
requirements including nationality, exams, and minimum and maximum age requirements to enter the profession.  In 
terms  of  market  conduct,  the  profession  has  all  possible  forms  of  restrictions:  on  the  number  of  notaries;  ban  on 
multidisciplinary activities; geographical restrictions; ban on commercial communications; mandatory membership in 
a regional notaries association and heavily regulated prices: currently among the highest in the EU countries with a 
Latin notary system.  

There  is  a  wide  scope  of  opportunity  to  lift  restrictions  in  the  Greek  regulated  professions  without 
compromising quality and consumer protection. Evidence shows that in countries with low degrees of regulation, 
there are proportionally higher numbers of practitioners generating a relatively higher overall turnover. Liberalisation 
also comes along with substantial moderating effects on prices and higher quality for consumers.   

4.4.2 Energy and transport 

47. Reforms  to  liberalise  the  wholesale  electricity  market  are  underway.  After  sluggish  progress  in 

recent years, the government is now taking several steps, although further progress is needed: 

32 

 
 
4. Programme implementation and policy discussions 

•  Measures  to  open  up  the  lignite-fired  electricity  sector  are  in  progress.  The  government 
proposed  new  instruments  to  open  up  the  lignite-fired  electricity  market  by  means  of  sales  of 
drawing  rights  arrangements  in  existing  and  future  plants  of  the  Public  Power  Corporation 
(PPC).  The  Commission's  in-depth  assessment  of  these  measures,  including  market  testing,  is 
foreseen  to  be  finalised  by  mid-February.  A  swift  action  by  the  government  would  allow  the 
implementation of these measures to commence as foreseen by end-March 2011.  

•  The awarding of hydro reserves management needs to be further specified. Access to hydro 
reserves for competitors is essential to achieve fair market conditions with regard to flexibility 
and competitive back-up capacity. The government intends to award the management of hydro 
reserves  to  an Independent  Commission  for  Hydro  Reserves  Management  under  the  envisaged 
independent  transmission  operator  (ITO).  However,  the  motivation  for  combining  the 
management of hydro reserves with network operation functions still requires further discussion. 
Regarding the scenario of splitting the current Hellenic Transmission System Operator (HTSO) 
into  a  network  operator  and  a  market  operator,  it  needs  to  be  specified  whether  the  hydro 
reserves  management  could  be  entrusted  to  the  market  operator.  In  relation  to  hydro  reserves 
management,  Greece  also  needs  to  take  the  necessary  measures  to  comply  with  the  Water 
Management Directive.   

•  The  government  started  to  implement  a  new  system  of  regulated  tariffs.  The  energy 
component  of  regulated  tariffs  is  expected  to  be  transformed  gradually  to  reflect  wholesale 
market prices, except for vulnerable customers. The government has adopted a revised definition 
of vulnerable customers and introduced a new social tariff for this category of consumers. As a 
next step, it is foreseen to abolish tariff regulation for non-residential customers by end-2011.  

•  The unbundling of network activities is experiencing delays. The government has submitted 
information  on  the  related  assets  and  personnel  to  prepare  the  unbundling  of  network  from 
supply  activities  in  the  electricity  sector;  this  is  now  being  assessed  by  the  European 
Commission. The government's proposal of the organisational design of the ITO remains open 
and requires further consultation.   

48. Transport liberalisation has a great growth-enhancing potential. Moreover, reforms in the state-
owned  transport  sector  are  also  an  important  element  of  the  fiscal  consolidation  strategy.  Since  the 
summer 2010, a number of laws have been approved in relation to road freight, railways and urban 
transport. However, in some of  these areas, there have been delays or transition periods that reduce 
the effectiveness of the measures. With regards to the long-due railway restructuring, state aid issues 
are still pending, while the respective business plan lacks a solid and credible mechanism to promptly 
correct  deviations  from  the  plan.  Tourism  passenger  transport  services  (buses,  coaches  and 
limousines)  have  been  a  closed  sector  with  no  new  entrants  for  several  years.  The  government  has 
committed to remove restrictions in the concession of new licenses.  

4.4.3 Investment, export and R&D promotion 

49. The new investment law has been passed but its implementation and fiscal implications need to 
be  monitored.  The  law  consists  of  an  incentive  framework  for  general  entrepreneurship, 
technological development, regional cohesion and large-scale investments. The main instruments are 
tax  credits,  favourable  loans,  leasing  of  capital  investment  and  limited  investment  grants, 
differentiating between various classes of investment according to regions and company size. The law 
aims  at  supporting  private  investments  and  the  adoption  of  new  technologies  by  companies 
while defining a new framework for regional catching-up and development. The effectiveness of the 
law in particular regarding the additionality of investment and the type of investments/sectors which 
will  get  financial  support  will  depend  on  implementing  decrees  not  yet  adopted.  The  mission  has 

v 

33 

 
European Commission 

The economic adjustment programme for Greece 

insisted that, while the investment law may contribute to growth and investment in coming years, its 
implementation will have to avoid distorting investment incentives and creating sector privileges. The 
fiscal incentives also need to comply with the medium-term fiscal consolidation strategy. 

50. The new law on fast-track licensing procedures is underway. The aim of the law is to speed up and 
facilitate licensing procedures for technical professions, manufacturing activities and business parks. 
This may be achieved through tight mandatory deadlines for the completion of the approval procedure 
and  tacit  approval  in  case  of  deadlines  not  being  adhered  to.  Although  the  law  is  complex,  it  is 
innovative and addresses the right issues. However,  the effectiveness of the measures will hinge on 
well-specified implementing acts to be adopted in the next months. 

51. The promotion of exports comprises new marketing strategies and should be complemented by 
anti-red tape measure. The government presented a national export strategy to improve the external 
marketing  of  Greek  products,  including  the  development  of  a  national  brand  and  an  improved 
information  network  for  exporters.  A  strategy  to  accelerate  the  bureaucratic  burden  for  exporters  is 
not yet visible, though this should be tackled in legislation that the government committed to adopt in 
Q2 2011, with the aim of simplifying the process of clear exports and imports.  

52. The  government  needs  to  give  priority  to  a  comprehensive  strategy  of  promoting  R&D  and 
innovation.  Action in this area, which ought to be an important pillar in any growth-oriented policy 
framework,  has  been  slow  over  recent  months.  It  is  therefore  important  that  the  government  gives 
renewed  impetus  to  R&D  policies  by  finalising  an  evaluation  of  all  R&D  and  innovation  related 
actions  and  presenting  an  action  plan  aiming  at  enhancing  the  quality  of,  and  better  utilising  the 
synergies between, public and private R&D and innovation activities.     

4.4.4 Other reforms to improve business environment and strengthen competition  

53. Progress  to  comply  with  the  competition-enhancing  Services  Directive  has  been  mixed.  The 
required  legislative  changes  have  been  adopted  only  partially  and  important  acts  are  still  pending, 
such as the legislation on retail stores or cross-border services in tourism. Work is particularly delayed 
in the wholesale sector which seems to still require screening for restrictions covered by the Directive. 
The government has presented a list of priority sectors where legislation is expected to be adopted by 
the  end  of  the  second  quarter  2011.  In  respect  of  the  point  of  single  of  contact  (PSC)  –  a  tool  to 
simplify licensing procedures – a significant amount of information has been made available to new 
service  providers.  However,  the  adoption  of  the  necessary  acts  that  allow  the  completion  of  all  the 
required procedures online is lagging behind. The mission expressed concern in respect of the use of 
online  procedures  related  to  the  recognition  of  professional  qualifications,  the  distinction  between 
established providers and those providing services cross-border as well as the required simplification 
of procedures. 

54. Progress in the land and commercial registries has been slow. The absence of a proper functioning 
land registry has often been an obstacle to investment and the uniform collection of property taxes. In 
the  case  of  state-owned  properties,  legal  disputes  of  land  and  real  estate  property  also  constitute  a 
barrier  to  privatisation.  So  far,  only  an  estimated  18  percent  (6.5  million)  of  land  rights  have  been 
registered in Greece. The government is, however, increasing resources into the land registry, so that 
until 2015, another 8 million rights will be digitised and the entire project is finalised by 2020. The 
General  Commercial  Registry  (GEMI)  is  foreseen  to  become  operational  in  April  2011,  as  soon  as 
outstanding technical arrangements within the government and with the Hellenic Union of Chambers 
will be put in place. 

55. Studies on sectoral growth drivers and an action plan to remove restrictions to business need to 
be made operational. The government presented preliminary results of studies on the contribution of 

34 

 
 
4. Programme implementation and policy discussions 

the tourism and retail sectors to growth and jobs. The results need to be further specified as to propose 
concrete policy measures to overcome the identified legislative, administrative and other obstacles for 
competition  and  market  entry  in  these  sectors.  The  government  is  working  on  an  action  plan  to 
remove 30 of the most important remaining barriers to business activity, investment and innovation. 
This plan, which includes several measures in addition to those already addressed in the adjustment 
programme  and  covers  both short-term  and  longer-term  action,  is planned  to be  fianlised  and  made 
public by end-February. 

56. The  Government  has  tabled  a  law  to  reform  and  strengthen  the  Greek  Competition 
Commission.  The  new  law  establishes  a  new  method  of  appointment  of  the  President  and  Vice-
President  by  Parliament,  and  mandates  that  are  decoupled  from  the  electoral  cycle.  The  draft  law 
provides for the staggering of the HCC board’s mandates as a way of reconciling continuity and the 
need to rotate and replace the board members. It also sets more realistic deadlines for the investigation 
and issuance of decisions, as complex and important cases require detailed investigation. It empowers 
the HCC to reject complaints and set priorities to increase its efficiency. While the mission supported 
the  intentions  of  the  new  law,  it  expressed  concerns  that  the  premature  termination  of  the  current 
mandate  of  the  President  and  other  full-time  board  members  is  in  contradiction  with  HCC  as  an 
independent agency and may effectively defeat the stated objective of strengthening HCC's level of 
independence.  

4.4.5 Education 

57. An  independent  taskforce  of  education  policy  experts  is  being  set  up.  So  far,  education  has  not 
been  tackled  by  the  adjustment  programme.  Nonetheless,  the  system  has  been  costly  without 
providing a good quality service to the Greek society. The education sector has a critical role to play 
in terms of increasing the medium- to long-term growth. While the Ministry of Education has often 
stated  its  intention  to  recruit  several  thousands  of  teachers  (primary  and  secondary)  and  professors 
(tertiary),  such  an  intention  should  fit  in  the  overall  recruitment  restrictions  (1-to-5),  without 
undermining  the  importance  of  quality,  efficiency  and  effectiveness  of  the  system.  Available 
indicators  show  that  Greek  teachers  and  professors  have  a  much  lighter  workload  and  teach 
substantially less hours than in other EU countries.  

v 

35 

Annex 1: Assessment of compliance with required action for the third review 

Table A-1: Fiscal consolidation 

Actions in the Memorandum of understanding on specific policy conditionality (MoU) 
(actions by end-December 2010) 

Comments 

Government achieves the quantitative performance criteria for 2010 and endeavours to reach 
the government deficit target on an ESA95 basis. 

Partially observed. 

Criterion 

Reference value 

ESA-based 
government deficit 

EUR 18.0 billion 

(Council Decision) 

Comments 

Failed. 

Outcome 
EUR 22 billion 
(estimate - complete 
data will be reported by 
ELSTAT by end March 
and validated and 
published by Eurostat 
on 22 April.) 

Government primary 
balance (cash basis) 

State primary 
payments  

Central government 
debt  

Annual increase in 
the general 
government 
consolidated gross 
debt 

EUR -5.7 billion 

EUR -5.5 

Met. 

EUR 67 billion 

EUR 61.1 billion  Met. 

EUR 342 billion. 

EUR 340 billion 

Met. 

EUR 34.1 billion 

EUR 29 billion 

Met. 

(Council Decision) 

Guarantees 

EUR 2 billion 

EUR 1.3 billion 

Met. 

(indicative) 

Payment arrears 

EUR 0 (indicative) 

EUR 3 billion. 

Failed. 

36 

 
 
 
Parliament  adopts  the  final  budget  for  2011  targeting  a  further  reduction  in  the  general 
government deficit, which in ESA95-based terms will not exceed EUR 17 065 million. 

Observed. 

The final 2011 budget provides information and projections on the entire general government 
sector. 

The final budget includes the following measures: 

Carryovers into 2011 of measures adopted in May 2010: 

Observed. 

Expenditure cuts: 

wage bill (seasonal bonuses and allowances): at least EUR 400 million; 

pensions (seasonal bonuses): EUR 500 million; 

specific reduction in highest pensions: EUR 150 million; 

All these measures were legislated and implemented in the course of 2010. 
New estimates for: 
- cuts in wage bill (seasonal bonuses and allowances): EUR 460 million; 
- specific reduction in highest pensions: EUR 310 million 
- luxury goods tax: EUR 20 million; 
- incentives to regularise land-use violations: EUR 250 million.  

Revenue increases: 

VAT: at least EUR 750 million; 

excises on fuel: at least EUR 250 million; 

excises on tobacco: at least EUR 250 million; 

excises on alcohol: at least EUR 50 million; 

luxury good tax: at least EUR 50 million 

incentives to regularise land-use violations (Ηµι-υπαίθριοι), yielding at least EUR 150 million 
and increased amounts in 2012 and 2013. 

37 

 
 
 
Observed. 
All these measures were legislated and implemented in the course of 2010.  
New estimates for: 
- reduction in intermediate consumption: EUR 350 million 
- reduction in the wage bill through fraud reducing measures: EUR 0. 

Measures previously agreed and legislated: 

Expenditure cuts: 

reduction  in  intermediate  consumption  by  at  least  EUR  300  million  compared  to  the  actual 
2010 level, on top of savings envisaged in the context of  reforming public administration and 
the reorganisation of local government; 

implement  legislation  reforming  public  administration  and  reorganising  local  government 
with the aim of reducing costs in comparison to current levels by at least EUR 1 500 million 
in 2013, of which at least EUR 500 million in 2011; 

reduction  in  domestically-financed  spending  in  investment  by  at  least  EUR  500  million 
compared to the actual 2010 level, while increasing revenue by giving priority to investment 
projects financed by EU structural and cohesion funds; 

freeze in the indexation of pensions, with the aim of saving at least EUR 100 million; 

reduction  in  the  wage  bill  through  fraud-reducing  measures  and  the  establishment  of  the 
single payment authority by at least EUR 100 million; 

reduction in pharmaceutical expenditure by social security funds by EUR 500 million owing 
to a reduction in pre-tax drug prices; and by hospitals by at least EUR 350 million.  

38 

 
 
 
Observed. 
All these measures were legislated and implemented in the course of 2010. 
New estimates for the expansion of the base of the real estate tax by updating assets 
values: EUR 135 million. 

Revenue increases: 

temporary  crisis  levies  on  highly  profitable  firms,  yielding  at  least  EUR 1 000  million  per 
year in 2011, 2012 and 2013; 

enforce the presumptive taxation of professionals, with a yield of at least EUR 700 million in 
2011 and increasing returns in 2012 and 2013; 

start phasing in a green tax, with a yield of at least EUR 150 million in 2011; 

expand  the  base  of  the  real  estate  tax  by  updating  asset  values  to  yield  at  least  EUR  270 
million additional revenue; 

collect  revenue  from  the  licensing of gaming:  at  least  EUR  500  million  in  sales of  licences 
and EUR 200 in annual royalties; 

increase taxation of wages in kind, including by taxing car lease payments: at least EUR 150 
million; 

introduce book specification of income for tax purposes yielding at least EUR 50 million; 

initiate  the  collection  of  a  special  tax  on  unauthorised  establishments  (Αυθαίρετα)  (at  least 
EUR 300 million per year). 

39 

 
 
New measures: 

Expenditure cuts:  

further reduction in operational expenditure by at least 5 percent yielding savings of at least 
EUR 100 million; 

Observed. 

further reduction in transfers yielding savings for the government as a whole of at least EUR 
100  million.  The  beneficiary  public  entities  will  ensure  the  concomitant  reduction  in 
expenditure so that there is no accumulation of arrears; 

means-testing of family  allowances  from  January 2011 on  yielding  savings  of  at  least  EUR 
150 million (after deduction of the respective administrative costs) ; 

Observed. 

reduction  in  deliveries  of  military  equipment  by  at  least  EUR  500  million  compared  to  the 
actual 2010 level; 

Planned. 

To be assessed by end-year. 

further reduction in pharmaceutical expenditure by social security funds by EUR 900 million 
owing to a further reduction in drug prices and new procurement procedures and by hospitals 
(also including expenditure in equipment) by at least EUR 350 million; 

Observed.  

changes  in  the  management,  pricing  and  wages  of  public  enterprises  yielding  savings  of  at 
least EUR 800 million; 

Observed. 

New estimate: EUR 500 million. 

40 

 
 
 
Revenue increases: 

equalisation of taxation on heating oil and diesel oil from 15 October 2011 on, with the aim of 
fighting  fraud  and  yielding  at  least  EUR  400  million  in  2011  net  of  specific  measures  to 
protect the less prosperous population strata; 

Not yet applicable. 

The  act  to  equalise  the  taxation  of  heating  oil  and  diesel  oil  have  not  yet  been 
legislated. The specific tax benefit to heating oil to be revoked applies only in autumn 
and winter (from 15 October to April); a delay in the adoption the act until now has 
no material impact on tax revenue and tax expenditure. 

increase in the reduced rates of VAT from 5.5 to 6.5 percent and 11 to 13 percent, yielding at 
least  EUR  880  million;  and  reduction  in  the  VAT  rate  applicable  to  medicines  and  hotel 
accommodation from 11 to 6.5 percent with a cost not exceeding EUR 250 million; 

Observed. 

New estimates for: 
- increase in the reduced rates of VAT: EUR 480 million  

intensification of the fight against smuggling on fuel (at least EUR 190 million); 

increase in court trial fees (at least EUR 100 million); 

the implementation of an action plan to accelerate the collection of tax arrears (at least EUR 
200 million); 

speeding up tax penalty collection (at least EUR 400 million); 

collection of revenue that results from the new framework of tax disputes and trials (at least 
EUR 300 million); 

revenue  from  the  renewal  of  telecommunication  licences  that  are  about  to  expire  (at  least 
EUR 350 million); 

revenue from concession licences (at least EUR 250 million). 

The measures against tax evasion and reforming the tax administration are included 
in the tax bill, which is expected to be adopted by Parliament by end-February. The 
one-off  measures,  namely  the  telecommunication  licences  and  the  concessions 
licences, are expected to yield according to the estimates in November.    

41 

 
The final budget contains: 

Observed. 

detailed  expenditure  ceilings  for  each  line  ministry,  local  governments,  and  social  security 
funds  consistent  with  the  general  government  deficit  target.  For  the  medium-term  fiscal 
framework for 2012-14, this will be specified in the March 2011 strategy paper; 

information on monthly revenue per category, and expenditure per Ministry. Updated figures 
will be regularly made available online. 

42 

 
 
 
 
Table A-2: Structural fiscal reforms 

Actions in the Memorandum of understanding on specific policy conditionality (MoU) 
(actions by end-December 2010) 

Comments 

Fighting waste in public enterprises: 

Government  adopts  a  restructuring  plan  for  the  Athens  transport  network  (OASA).  The 
objective of the plan is to reduce operational losses of the company and make it economically 
viable. State subsidies shall not exceed 40 percent of operational cost in conformity with EU 
practices.  The  plan  includes  cuts  in  operational  expenditure  of  the  company  and  tariffs 
increases. The required actions are implemented by end March 2011. 

Ongoing, delayed. 

A plan has been circulated for comments to the EC/IMF/ECB. There are still 
shortcomings in terms of fiscal impact and enforcement mechanisms. The law on 
OASA's restructuring has been submitted to Parliament in mid-February. 

Government adopts an act that limits recruitment in the whole general government to a rule of 
not more than 1 recruitment for 5 exits, without sectoral exceptions. Government prepares a 
human  resource  plan  in  line  with  this  rule.  The  rule  also  applies  to  staff  transferred  from 
public enterprises under restructuring to government entities. 

Government  prepares  a  detailed  privatization  plan  for  the  divestment  of  state  assets  and 
enterprises  with  the  aim  of  raising  at  least  EUR  7  billion  during  the  period  2011-2013,  of 
which  at  least  EUR  1  billion  in  2011.  The  restructuring  and  privatization  programme  will 
span the state’s holdings in rail, road transport, airports, ports, utilities, the gaming industry 
and  real  estate.  Proceeds  from  privatisation  are  to  be  used  to  redeem  debt  and  do  not 
substitute fiscal consolidation efforts. 

Accounting and control: 

Government  ensures  that  the  central  registry  for  public  enterprises  is  operational,  and  that 
public  enterprises'  financial  statements  are  available  on  the  website  of  the  Ministry  of 
Finance. 

Observed  

Law 3899/2010 establishes that government recruitments in the course of 2011-13 
need to fit in the rule of not more than 1 recruitment for 5 exits. 

However, there is no comprehensive human resource plan yet. Also the absence of 
regular and timely compilation of staff movements (entries, exits and transfers) 
means that the enforcement of the rule cannot be monitored.  

Observed 

The government has announced the assets it intends to privatise in the course of 
2011-13. This list is to be revised given the more ambitious privatisation plans.  

Partially observed.  

The central registry has been created by a circular of 10 November 2010 sent to all 
public enterprises and entities, but is not yet fully operational. 

Public enterprises' financial statements have been made published, since September 
2010. 

43 

 
 
 
Government  centralises  the  financial  supervision  of  public  enterprises  at  the  Ministry  of 
Finance  –  Special  Secretariat  for  Public  Enterprises.  Operational  supervision  of  public 
enterprises is ensured by the relevant ministries. 

Observed. 

Military spending: 

The new EMPAE (National Medium-Term Military Procurement Programme), to be adopted 
by  Government,  plans  for  a  reduction  in  expenditure  in  the  medium  term  that  durably 
contributes to fiscal consolidation, without prejudice to national defence capability. 

Not yet applicable as the National Medium-Term Military Procurement Programme 
has not yet been adopted. 

To improve the fiscal framework: 

Partially observed. 

Government  implements  legislation  to  strengthen  the  fiscal  framework.  The  following 
elements should be part of the reform: introduce a medium-term fiscal framework based on 
rolling  three-year  expenditure  ceilings  for  central  government,  social  security  and  local 
governments; strengthen the position of the Finance minister vis-à-vis line ministries in both 
budget  preparation  and  execution  phases  (giving  him/her  veto  power  on  spending decisions 
and execution); introduce a compulsory contingency reserve in the budget, corresponding to 5  
percent  of  total  appropriations  of  government  departments  other  than  wages,  pensions  and 
interest;  the  use  of  the  contingency  reserve  will  be  decided  by  the  Finance  Minister; 
Parliament does not modify the overall size of the budget at the approval stage, and focuses 
on  the  composition  of  public  expenditure  and  revenue,  and  reliability  of  projections  for 
expenditure and revenue; introduce stronger expenditure monitoring mechanisms, particularly 
by  implementing  an  appropriate  control  of  spending  commitments,  through which  spending 
entities  (line  ministries,  local  authorities,  social  security  funds,  hospitals  and  other  legal 
entities,)  will  report  on  a  monthly  basis  to  the  Treasury  on  their  outstanding  expenditure 
commitments  against  their  authorised  appropriations  in  the  budget  law.  To  this  end,  the 
General Secretariat of Information Systems starts developing a special information system, to 
be  complete  by  June  2011,  interconnecting  all  public  entities  with  the  General  Accounting 
Office (GAO), to provide real-time data; introduce a revenue rule for the general government, 
according  to  which  the  allocation  of  higher-than-expected  revenues  should  be  specified  ex 
ante in the budget; creation of a budget office attached to Parliament providing independent 
advice and expert scrutiny on fiscal issues, and reporting publicly on the budgetary plans and 
execution  of  the  spending  entities  of  the  general  government,  and  on  macroeconomic 
assumptions used in the budget. 

44 

 
 
 
To complete the pension reform: 

The  National  Actuarial  Authority  provides  by  15  December  2010  interim  long-term 
projections  of  pension  expenditure  up  to  2060  under  the  July  2010  legislation  covering  the 
main pension schemes (IKA, OGA, OAEE and OPAD). 

Observed.  

Long-term projections have been provided by the NAA for IKA, OGA and OAEE (in 
December 2010) and OPAD (in January 2011). 

These projections will now be scrutinised by the Commission services and peer-
reviewed by the EU Economic Policy Committee (EPC) 

To modernise the healthcare system: 

Ongoing. 

Government  adopts  a  comprehensive  reform  of  the  healthcare  system  and  modifies  the 
allocation of health-related tasks among ministries. 

The overarching objective is to keep public health expenditure at or below 6 percent of GDP, 
while maintaining universal access and improving the quality of care delivery. 

In the short-term, the main focus should be on macro-level discipline and cost-control.  

Parliament  has  adopted  a  first  package  of  reforms  proposed  by  the  government  in 
February  2011.  Policies  cover  a  number  of  areas  including:  pharmaceuticals 
reimbursement,  reduction  of  profit  margin  of  wholesalers  and  pharmacies,  new 
population  criteria  for  the  establishment  of  pharmacies  and  working  hours  of 
pharmacies, public procurement of medical supplies and medicines merging of most 
of  the  existing  health  fund  (under  the  new  Health  Agency  EOPYY),  allocation  of 
healthcare tasks to the Ministry of Health. 

Regarding pharmaceuticals, the government implements measures yielding savings of at least 
EUR 2 billion relative to the 2010 level, at least EUR 1  billion of which would materialise 
already in 2011. This would bring average public spending on outpatient pharmaceuticals to 
about 1 percent of GDP (in line with the EU average) by the end of 2012. 

Ongoing. 

See below. 

More specifically, the following measures are implemented by end of 2010: 

ensure  full  implementation  of  a  uniform  e-prescribing  system,  by  extending  the  system 
currently used by OAEE to all the social security funds providing health insurance; 

define  (through  EOF)  and  publish  prescription  guidelines  for  physicians  on  the  basis  of 
international prescription guidelines;  

Ongoing. 

There is progress but not yet a full implementation of a uniform and fully integrated 
e-prescribing system for medicines by the social security funds and health facilities. 
IKA  is  monitoring  e-prescribing  through  scanning  prescriptions.  In  the  NHS,  60 
hospitals have electronic patient prescription. 

Ongoing. 

EOF has proposed 30 guidelines to the relevant Ministry and until end March EOF 
will have produced about 100. 

45 

 
 
social security funds establish a process to regularly assess the information obtained through 
the  e-prescribing  system  and  vis-à-vis  prescription  guidelines.  Assessment  will  be  done 
through a common dedicated unit under the authority of Health Benefit Coordination Council 
(SYSPY)  with  support  of  IDIKA.  Relevant  sanctions  and  penalties  will  be  enforced  as  a 
follow up to the assessment and as foreseen by existing rules and legislation;  

a  yearly  report  on  medicine  prescription  is  published  and  feedback  is  provided  to  each 
physician  on  a  regular  basis  (at  least  annually).  The  report  and  feedback  analysis  look  at 
prescription behaviour with reference to the most costly and mostly used medicines.  

publish  the  complete  price  list  for  the  medicines  in  the  market,  using  the  new  pricing 
mechanism.  This  list  will  be  published  by  December  2010  and  replace  the  partial  list 
introduced in September. It will be updated quarterly.  

announce  that  caps  to  the  price  reductions  used  when  the  price  list  was  first  introduced  in 
September 2010 will be lifted by March 2011.  

apply the negative list of non-reimbursed medicines and the list of over-the-counter medicines 
prepared by the EOF.  

Ongoing. 

OPAD, IKA and OAEE have each their own unit to assess information and elaborate 
reports.  

Ongoing. 

OPAD, OAEE and IKA are providing individual reports to physicians. The medical 
prescription is monitored only in 60 out of 130 NHS hospitals. 

Delayed. 

The  December  update  of  the  new  price  list  for  medicines  is  still  due.  Postponed  to 
March 2011. 

Not yet applicable. 

Still planned for March 2011. 

Observed. 

The negative price list of non-reimbursed medicines is to be published shortly. 

finalise the new positive list of reimbursed medicines using the new reference price system.    Ongoing, delayed. 

using the information made available through e-prescribing and scanning, Government collect 
the agreed rebate from pharmaceutical companies;  

introduces a monitoring mechanism allowing for developments in pharmaceutical expenditure 
to be assessed on a monthly basis.  

Technical  work  on  the  positive  list  of  reimbursed  medicines  and  the  full  reference 
price system has finished. However, until the price list is published (in March –see 
above), the reference price system can not be applied.  

Ongoing. 

Pharmaceutical companies have only paid a small amount of the total rebate due to 
social  security  funds.  They  brought  a  legal  case  against  the  government  to  deem 
illegal the request of the government to collect unpaid rebates over the last five years.  

Observed. 

The  system  to  compile  monthly  data  on  NHS  revenues,  expenditure  (including  on 
pharmaceuticals) and activity has been finalised. Information is provided by 106 (out 
of 130) hospitals. 

46 

 
 
If  the  implementation  of  the  above  measures  is  insufficient  to  achieve  the  targeted  savings, 
both in 2011 and for the medium term, the government will implement additional measures, 
following discussions with the European Commission, the ECB and the IMF staff. 

Not yet applicable. 

An assessment of the impact of measures will be made in the context of programme reviews 

Government enforces the payment of existing co-payments for regular outpatient services in 
all  public  hospitals  and  health  centres  and  extends  the  'all  day'  functioning  of  hospitals 
(afternoon  shift)  in  order  to  develop  and  improve  healthcare  services  and  increase  revenue. 
Government  increases  and  enforces  the  co-payment  of  outpatient  services  from  EUR  3  to 
EUR 5 and extends co-payments to unwarranted visits to emergency departments. 

Government  ensures  greater  budgetary  and  operational  oversight  of  healthcare  spending  by 
the Finance Minister, and the publication of audited accounts for hospitals and health centres 

Government  creates  an  independent  task  force  of  health  policy  experts  whose  task  is  to 
produce, by end May 2011, a detailed report (blue print) for an overall reform of the health 
system to improve efficiency and effectiveness in the health system (both public and private). 
This  task  force  has  access  to  all  available  information  and  receives  adequate  administrative 
support. It will produce an interim report by March 2011. 

Observed. 

Ongoing. 

The Ministry of Health has launched a web-based platform (esy.net) for gathering 
and assessing monthly data from NHS’s hospitals. By mid-February, more than 80 
out of 130 NHS hospitals are publishing detailed financial accounts, including the 
payment obligations generated in 2011.   

Observed. 

The  Government  has  created  an  11-member  task  force.  It  is  chaired  by  Prof.  Elias 
Mossialos. It has started working. 

47 

 
 
Table A-3: Financial sector regulation and supervision 

Actions in the Memorandum of understanding on specific policy conditionality (MoU) 
(actions by end-December 2010) 

Comments 

The  Hellenic  Financial  Stability  Fund  is  fully  operational  and  adequately  staffed  (by  end 
January  2011).  Staff  is  recruited  under  the  fastest  and  most  flexible  existing  recruitment 
procedure. 

Partially observed. 

There are still delays in staff recruitment. 

Government ensures that the EUR 25-billion extension of the government-guarantees on bank 
bonds is available by the end of November 2010. 

Observed. 

ATE announces a rights issue before end-November 2010. 

The Bank of Greece commits to reduce remuneration of its staff in light of the overall effort 
of fiscal consolidation.  

Observed. 

No information available. 

This item was initially included under actions until end September 2010. 

48 

 
 
 
Table A-4: Other structural reforms 

Actions in the Memorandum of understanding on specific policy conditionality (MoU) 
(actions by end-December 2010) 

Comments 

To strengthen labour market institutions: 

Government  reforms  the  mechanism  for  collective  bargaining  at  the  firm  level  in  close 
cooperation with social partners. The new law establishes that firm-level agreements prevail 
over  those  under  sector  and  occupational  agreements  without  undue  restrictions  (for  this 
purpose,  Law  1876/1990,  Article  10  is  amended).  The  conclusion  of  firm-level  collective 
agreements should not be restricted by law, notably by requirements regarding the minimum 
size  of  firms  entitled  to  engage  in  collective  bargaining  (for  this  purpose  Law  1876/1990, 
Article 6.1.b is amended). 

Government  amends  Law  1876/1990  (Articles  11.2  and  11.3)  to  eliminate  the  extension  of 
sector and occupational agreements to parties not represented in negotiations. 

Government adopts an act, in line with Article 73 of Law 3863/2010, revising the mediation 
and arbitration system and introducing symmetric access to arbitration if parties disagree with 
the proposal of the mediator without exceptions. The Mediation and Arbitration Organisation 
(OMED) shall be free from government influence; this shall be reflected in the composition 
of  the  board  of  directors.  Its  Chairman  is  elected  by  unanimity  by  the  employers  and 
employees  representatives.  The  new  act  indicates  that  mediators  and  arbitrators  pay  due 
attention to cost competitiveness. 

Observed. 

Law  3899/2010  establishes  that  firms  and  their  employees  may  sign  special  firm-
level  collective  agreements  (SFLCA)  that  deviate  in  peius  from  from  sector 
agreements.  

SFLCAs may be signed by any firm irrespective of their size. 

SFLCAs are notified to the Council of Social Oversight of the Labour Inspectorate, 
(CSOLI)  which  provides  a  non-binding  opinion.  The  CSOLI  opinion  on  the  first 
SFLCA was negative. 

Not observed. 

If the sector and occupational agreements are systematically extended to all firms in 
the sector, the incentives to bargaining parties are distorted and defeat the purpose of 
SFLCA. 

Observed. 

The new OMED board is in the process of being constituted. 

Government  amends  legislation  to  extend  the  probationary  period  for  new  jobs  to  one  year 
(Law 3863/2010, Article 74.2). 

Government  eliminates  temporal  limits  in  the  use  of  temporary  working  agencies.  For  this 
purpose, relevant laws are amended. 

Observed. 

Government adopts legislation to remove impediments for greater use of fixed-term contracts.  Not observed. 

49 

 
Government eliminates the provision that establishes higher hourly remuneration to part-time 
workers. For this purpose Law 1892/1990, Article 38 is further amended. 

Observed. 

Government  amends  current  legislation  (Law  3846/2010,  Article  7)  to  allow  for  a  more 
flexible working-time management, … 

Not observed. 

… including part-time shift work (Article 2.3). 

To reform and modernise public administration: 

Functional reviews 

Government proceeds with two independent functional reviews of the public administration 
at central level and of all existing social programmes, which will be conducted by the OECD.  
The first review on public administration will be coordinated by the Ministry of Interior. The 
second  review  on  social  programmes  will  be  coordinated  by  the  Ministry  of  Labour.  The 
review of the central administration involves all ministries (first phase) and key subordinated 
public  entities  (second  phase).  The  review  of  all  existing  social  programmes  will  be 
comprehensive and will affect all relevant ministries. The terms of reference of both reviews, 
and a precise time schedule for the second phase of the central administration review, will be 
agreed  between  both  ministries  and  the  OECD  after  consultation  with the  European 
Commission, IMF and ECB staff. 

The  review  on  central  administration  will  be  merged  with  the  Ministry  of  Interior’s  own 
reorganisation programme. The review will: take stock of the resource use (human resources 
and procurement) to carry out government functions; identify actions to rationalise the several 
departments, ensure efficiency and generate productivity gains, and quantify savings. 

The review of existing social programmes will: assess the effectiveness and appropriateness 
of existing social and welfare programmes; identify the least effective programmes, and  

quantify savings. 

Observed. 

Ongoing, delayed.  

Agreement on the terms of reference between Greece and the OECD (contractor) has 
been delayed, due to legal fine-tuning. The separate contracts for the two functional 
reviews are expected to be signed in late February. Meanwhile, the government has 
launched  the  process  with  the  creation  of  the  appropriate  mapping  teams  and 
steering/coordination committees for the review of the central administration.  

50 

 
 
 
 
 
 
Local administration 

Government  adopts  the  required  decrees  for  the entry  into  force  of  the  local  administration 
reform  (Kallikrates  reform).  The  reform  yields  savings  of  EUR  500  million  in  2011  and 
additional  EUR  500  million  per  year  in  2012  and  2013  for  the  general  government  as  a 
whole. 

Observed. 

Government adopts a decree disallowing local governments to run deficits at least until 2014. 
To  ensure  that  savings  contribute  to  the  reduction  in  the  government  deficit.  Government 
reduces  transfers  to  local  government  in  line  with  planned  savings  and  transfers  of 
competences to local government.  

Public sector wages and human resource management 

The Ministry of Finance together with the Ministry of Interior complete the establishment of 
a Single Payment Authority for the payment of wages in the public sector. The Ministry of 
Finance  prepares  a  report  (to  be  published  by  end  January  2011),  in  collaboration  with  the 
Single  Payment  Authority,  on  the  structure  and  levels  of  remuneration  and  the  volume  and 
dynamics  of  employment  in  the  general  government.  The  report  presents  plans  for  the 
allocation of human resources in the public sector for the period up to 2013. It specifies plans 
to reallocate qualified staff to the tax administration, GAO, the labour inspectorate, regulators 
and Hellenic Competition Commission. 

Partially observed. 

The  draft  report  includes  a  diagnosis  on  wages  and  employment  data  in  the  public 
sector. 

It does not contain plans for the allocation of human resources in the public sector for 
the period up to 2013.  

Government establishes a process to simplify the remuneration system in the public sector. It 
shall apply to all public sector employees. This should lead to a system where remuneration 
reflects productivity and tasks. Government ensures that there is no increase in the wage bill 
in the public sector as a result of the reform. 

Not observed. 

ASEP accelerates staff selection-related procedures for the areas which are a priority in the 
implementation of this memorandum. 

Observed. 

Public procurement 

Not observed. 

Government provides timetable and details for the development of e-procurement and signs 
the respective contract for the provision of IT platform. 

The contract for the provision of the IT platform has not been signed; the timetable 
for the development of e-procurement will only be defined after the signature of the 
contract.  

51 

 
 
To strengthen competition in open markets  

Services directive  

Government ensures that the point of single contact (PSC): provides relevant information on 
all  sector-specific  and  cross-cutting  formalities  and  procedures  (such  as  company/trade 
registration and permits relating to the providers' premises); distinguishes between procedures 
applicable  to  service  providers  established  in  Greece  and  those  applicable  to  cross-border 
providers (in particular for the regulated professions). 

Government:  ensures  adequate  links  between  the  PSC  and  other  relevant  authorities 
(including professional associations); allows the online completion of procedures covering at 
least, the procedures in the distribution services, tourism, education and construction sectors; 
allows for payment of administrative fees at a distance 

Government carries out a risk assessment of procedures focusing on priority service sectors 
with  a  view  to  adopting  solutions  for  electronic  identification,  electronic  signature  and 
electronic documents in conformity with Commission Decision 2009/767/EC. 

Government  presents  a  progress  report  outlining  available  online  procedures,  steps  to  be 
taken over the next two quarters to finalise the electronic completion of procedures, setting 
clear deadlines by service sector and procedure. 

Government adopts changes to existing (sectoral) legislation in key services sectors such as 
tourism, retail and private education services. New legislation should: facilitate establishment 
by abolishing or amending requirements which are prohibited by the Services Directive and 
significantly  reducing  requirements,  including  those  relating  to  quantitative  and  territorial 
restrictions,  legal  form  requirements,  shareholding  requirements,  fixed  minimum  and/or 
maximum  tariffs  and  restrictions  to  multidisciplinary  activities;  facilitate  the  provision  of 
cross-border services, so that providers of cross-border services are required to comply with 
specific  requirements  of  the  Greek  legislation  only  in  exceptional  cases  (when  admitted  by 
Articles  16  or  17  of  the  Services  Directive);  provide  legal  certainty  for  providers  of  cross-
border services  by setting out in the respective (sectoral) legislation which requirements can 
and which requirements cannot be applied to cross-border services. 

Ongoing. 

Acts for the completion of all the required procedures online are pending. Concerns 
persist  in  respect  of  the  use  of  online  procedures  related  to  the  recognition  of 
professional  qualifications,  the  distinction  between  established  providers  and  those 
providing services cross-border as well as the simplification of procedures.  

Observed. 

Ongoing with delay.  

The legislative changes have been partially adopted. As of 1 February 2011, the Joint 
Ministerial Decision on outdoor trade, open markets and retail stores was about to be 
published in the official gazette. However, other acts were still pending, such as the 
legislation  on  cross  border  services  in  tourism.  Work  is  particularly  delayed  in  the 
wholesale  sector  which  requires  screening  for  restrictions  covered  by  the  Services 
Directive. 

52 

 
 
 
 
Government  specifies,  for  priority  service  sectors  that  are  key  for  growth,  a  timetable  for 
adopting sectoral legislation by end Q2 2011 that ensures compliance with the requirements 
of the Services Directive. 

Observed. 

The Government has selected the following priority areas: i) agriculture; ii) transport 
services  not  excluded  by  the  directive;  iii)  employment;  iv)  technical  services;  v) 
sanitary facilities; vi) welfare and vii) other services. 

Restricted professions  

Government proposes legislation to remove restrictions to competition, business and trade in 
restricted  professions  including:  the  legal  profession,  to  remove  unnecessary  restrictions  on 
fixed  minimum  tariffs,  the  effective  ban  on  advertising,  territorial  restrictions  on  where 
lawyers can practice; the pharmacy profession, to promote more flexible opening hours and 
reduce minimum profit margins (see also measures to modernise the healthcare system); the 
notary  profession,  to  reduce  fixed  tariffs  and  increase  the  number  of  notaries;  architects, 
covering fixed minimum tariffs; engineers, covering fixed minimum tariffs; auditing services, 
covering fixed tariffs. 

Government  requests  the  Hellenic  Competition  Commission  to  issue  an  opinion  on  the 
proposed legislation. 

Government ensures the effective implementation of EU rules on recognition of professional 
qualifications  and  compliance  with  ECJ  rulings  (including  those  related  to  franchised 
diplomas).  It  presents  to  the  European  Commission  a  list  of  pending  applications  and  a 
timetable  for  dealing  with  these  applications.  In  particular,  pending  applications  for 
recognition of professional qualifications (in particular those related to franchised diplomas) 
should  be  immediately  processed,  with  the  first  decisions  on  those  applications  to  be 
submitted to the European Commission by the end of 2010. 

Partially observed. 

On  31  December  2010,  the  government  submitted  draft  legislation  on  closed 
professions. The draft was broadly in compliance with the requirement; restrictions to 
multidisciplinary  activities  and  to  commercial  communications  are  expected  to  be 
regulated by Presidential Decree in the first quarter of 2011.  

The  law  as  voted  by  Parliament  on  17  February  still  requires  assessment,  as  it 
deviates  in  some  respects  from,  and  is  less  ambitious  than,  the  draft  tabled  by 
government. 

On  pharmacies  the  Parliament  adopted  on  9  February  2011,  legislation  that: 
i) reduces the minimum number of inhabitants for the establishment of a pharmacy; 
ii)  increases  the  number  of  pharmacies  open  on  Saturday  morning,  Monday  and 
Wednesday afternoon in urban areas and 
iii)  indirectly  reduces  the  profit  margin  of  pharmacies  by  an  average of 3.5  percent 
down to 20 percent from the current 23.5 percent.  

Observed. 

Ongoing. 

On 30  December 2010  the government  informed  the  Commission  that there were  a 
total of 825 pending applications for recognition, of which, 314 had been examined 
by  the  Council  for  the  Recognition  of  Qualifications.  Of  those,  222  applications 
concerned franchised diplomas. 

Detailed information on pending applications (e.g., professions covered, time needed 
to issue a decision, etc.) is needed to fully comply with the requirement.  

53 

 
 
Transport 

Building on the recently adopted railway reform law (Law 3891/2010), Government adopts a 
business plan on the restructuring of the railways sector in a viable manner. By implementing 
the  business  plan,  the  train  operator  (TRAINOSE)  and  infrastructure  manager  (OSE)  break 
even. 

The restructuring measures envisaged in the business plan imply state aid in favour of OSE 
Group and TRAINOSE, which will be notified to the Commission by the end of 2010. The 
business plan will be adapted to ensure compliance with State aid rules. The next review will 
report on adaptations brought to the business plan to ensure its compatibility with State aid 
rules. 

The business plan provides an overall fiscal impact analysis, including investment and debt 
and  establishes  monitoring  and  enforcement  mechanisms  that  ensure  prompt  correction  of 
deviations vis-à-vis the plan. 

Sectoral growth drivers 

Government  presents  a  report  analysing  the  potential  contribution  of  the  tourism  sector  to 
growth  and  jobs.  It  should  identify  legislative,  administrative  and  other  obstacles  hindering 
competition and market entry to the realisation of sector potential. 

Government presents a report analysing the potential contribution of the retail sector to price 
flexibility, growth and jobs. It should identify legislative, administrative and other obstacles 
hindering competition and market entry to the realisation of sector potential. 

Ongoing.  

State aid issues not yet cleared. 

Ongoing. 

Preliminary  results  of  these  studies  were  presented  to  the  EC/IMF/ECB  staff  on  9 
February. The studies are expected to be made public in April.   

54 

 
 
Business environment 

Government adopts legislation to simplify and accelerate the process of licensing enterprises, 
industrial activities and professions. For this purpose, it revises inter alia Law 3325/2005, and 
makes the spatial plan and Law 3333/05 for business areas operational, with the subsequent 
issuance of the required ministerial decisions and presidential decrees in Q1-2011. 

Ongoing. 

The  draft  licensing  law  is  in  inter-ministerial  consultation.  Its  effectiveness  will 
depend on the implementing regulations.  

Requirements to make the spatial plan and Law 3333/05 operational have been met.. 

Government  adopts  an  action  plan  for  a  business-friendly  Greece  with  a  timetable  for  the 
removal  of  30  of  the  most  important  remaining  restrictions  to  business  activity,  investment 
and innovation. 

Government  adopts  a  law  modifying  the  existing  institutional  framework  of  the  Hellenic 
Competition  Commission  (HCC)  with  the  aim  of  abolishing  the  notification  system  for  all 
agreements falling within the scope of Article 1 of Law 703/1977, to give the HCC the power 
to  reject  complaints,  to  increase  the  independence  of  HCC  members,  and  to  establish 
reasonable deadlines for the investigation and issuance of decisions. 

Government makes the General Commercial Registry (GEMI) operational. (*). 

(*)  By  end  December  2010:  the  data  migration  from  the  chambers'  registries  to  the  GEMI 
database  is  finalised;  the  joint  ministerial  decisions  on  procedures,  conditions  and  technical 
modalities  are  adopted;  the  one-stop-shop  services  are  provided  by  KEP's  chambers  of 
commerce and notaries. Any other required steps, including the automatisation of one-stop-
shop services, are finalised by March 2011. 

Ongoing. 

The  government  is  finalising  an  action  plan  to  remove  30  of  the  most  important 
barriers  to  business  activity,  investment  and  innovation.  The  plan,  which  includes 
several actions in addition to those in the MoU, is divided in two sections depending 
on their timeline: short-term and longer-term actions.   

Ongoing. A draft acts has been assessed by the Commission services and is expected 
to be passed by Parliament before end March.. 

Delayed. 

The GEMI is foreseen to become operational in April 2011.  

Government accelerates the land registry and prepares a progress report and an action plan. 

Observed. 

55 

 
 
Energy 

Government presents its detailed plans for the liberalisation of the energy market, including 
opening up lignite-fired electricity generation to third parties in line with EU law. 

Government adopts a plan for phased transitory cost-based access to lignite-fired generation, 
taking  into  account  the  decommissioning  of  the  power  plants  scheduled  under  the 
Government's Energy Plan to meet the 20-20-20 target. This access will remain in place until 
effective implementation of the liberalisation has taken place. 

Observed. 

The  government  has  been  discussing  alternative  measures  with  the  European 
Commission  (DG  Competition)  to  address  the  lignite  case  as  Greece  requested  a 
review  of  the  2009  Commission  Decision.  Public  Power  Corporation  (PPC)  would 
grant  the  requested  access  of  40  percent  of  lignite-fired  capacity  to  competitors  by 
drawing rights. These measures would include transitory mechanisms and subject to a 
market test/consultation until end February 2011.  

Government adopts a plan to either award the hydro reserves management to an independent 
body or to assign this role to the independent system operator. 

Government  adopts  a  mechanism  to  ensure  that  the  energy  component  of  regulated  tariffs 
reflects,  gradually  and  at  the  latest  by  June  2013,  wholesale  market  prices,  except  for 
vulnerable consumers. Government adopts a revised definition of vulnerable consumers and a 
tariff for this category of consumers. 

To  ensure  that  network  activities  are  unbundled  from  supply  activities,  as  foreseen  in  the 
second  and  third  energy  liberalisation  packages,  Government  identifies  the  assets  and 
personnel  associated  with  the  electricity  transmission  system  and  the  electricity  distribution 
system. 

To promote investments and exports: 

Government carries out an in-depth evaluation of all R&D and innovation actions, including 
in various operational programmes, in order to adjust the national strategy and limit the use of 
government subsidies and guarantees. 

Ongoing. 

The government intends to award the hydro reserves to the independent transmission 
operator.  

Observed. 

Ongoing. 

The  government  has  submitted  information  to  the  Commission on 2  February  2011 
which now requires an in-depth assessment. 

Not observed.   

Observed. 

Government  creates  an  external  advisory  council,  to  consider  how  to  foster  innovation, 
strengthen  links  between  public  research  and  Greek  industries  and  the  development  of 
regional industrial clusters. 

The government has created a National Council for Research and Technology, with 
10 members from academia. 

56 

 
 
 
 
 
Government takes measures to facilitate FDI and investment in innovation in strategic sectors 
(green industries, ICT, etc.) as well as measures to promote exports. These actions focus on 
removing  rigidities  and  administrative  constraints  and  must  be  in  line  with  the  fiscal 
consolidation requirements. 

Observed 

The Investment law was adopted by Parliament on 21 January 2011.  

Export  promotion  measures  were  presented  on  28/01/2011  but  no  clear  strategy  to 
alleviate the administrative burden for exporters is visible so far.   

To raise the absorption rates of structural and cohesion funds 

Government  meets  targets  for  payment  claims  in  the  absorption  of  structural  and  cohesion 
funds set down in the table below. Compliance with the targets shall be measured by certified 
data.  

Observed. 

Payment claims in the absorption of structural funds in 2010 
(EUR million) 

Fund 

Reference 
value 

Outcome 

Comment 

European Regional and Cohesion 
Funds 

European Social Fund 

Total 

Observed. 

2330 

2372.4  Met. 

420 

2720 

447.6  Met. 

2820.0  Met. 

In  addition,  Government  achieves  an  annual  target  of  submitting  10  major  projects 
applications to the Commission. In meeting absorption rate targets, recourse to non-targeted 
de minimis state aid measures should be gradually reduced. 

12 applications for major projects have been submitted in 2010. 

Non-targeted de minimis state aid measures are progressively reduced. 

Government presents a report on the activities of the task force assessing progress in ensuring 
the  rapid  implementation  and  absorption  of  structural  funds,  and  proposing  improvements 
when necessary. 

Observed.  

57 

 
 
Without prejudice to the Greek Constitution, Government adopts legislation to tackle delays 
in the implementation of public works and investment projects in general. Legislation should: 
shorten  and  simplify  judicial  procedures  challenging  contract  awards  or  land  expropriation 
decisions; shorten deadlines to get permits by the Central Archaeological Council in Athens; 
simplify and shorten procedures to complete studies on environmental impact and to get the 
approval of environmental terms for infrastructure projects. 

Partially observed, delayed. 

A draft bill to tackle delays in judicial procedures challenging contract awards or land 
expropriation  decisions  is  under  consultation  and  expected  to  be  adopted  in  the 
course of February 2011.  

Law  3905/2010  of  23  December  2010  includes  provisions  on  the  signature  of  a 
protocol  between  the  ministries  of  Culture  and  Infrastructure  for  each  co-funded 
major project.  

A draft bill on studies for environmental impact and approval of environmental terms 
is under preparation and expected to be adopted before end March.. 

58 

 
 
This table assesses the provision of data that are specifically required in the MoU. It does not cover data that are regularly transmitted and published by 
Greece under the European statistical system transmission programme, like annual and quarterly GDP accounts, inflation data, or other macroeconomic 
statistics. 

Annex 2: Provision of data 

To be provided by the Ministry of Finance 

Comment 

Preliminary monthly data on the state 
budget execution (including breakdown by 
main categories of revenue and expenditure 
and by line ministry). 

(Data compiled by the Ministry of Finance) 

Updated monthly plans for the state budget 
execution for the remainder of the year, 
including breakdown by main categories of 
revenue and expenditure and by line 
ministry. 

(Data compiled by the Ministry of Finance) 

Monthly, 15 days after 
the end of each month; 
these data should also 
be included in 
subsequent 
transmissions in case 
of revision. 

Observed. 

Monthly, 30 days after 
the end of each month. 

Not observed. 

59 

 
 
 
 
Preliminary  monthly  cash  data  on  general 
government entities other than the state. 

(Data compiled by the Ministry of Finance) 

Monthly, 30 days after 
the end of each month, 
these  data  should  also 
be 
in 
included 
subsequent 
transmissions  in  case 
of revision. 

Partially observed. 

Monthly, 30 days after 
the  end  of  each  month 
(starting in June 2010). 

Not observed 

Weekly  on  Friday, 
reporting 
the 
previous Thursday. 

on 

Observed. 

in 

including 

government, 

nominal  wage 

Monthly  data  on  the  public  wage  bill  (of 
a 
general 
breakdown 
and 
allowances  paid  to  government  employees 
per line ministry and public entity), number 
of  employees  (including  a  breakdown  per 
ministry  and  public  entities  outside  the 
central  government)  and  average  wage 
(including  the  relative  shares  of  the  base 
wage, allowances and bonuses).  

(Data  compiled  by 
Interior and Finance) 

the  Ministries  of 

Weekly  information  on  the  Government's 
cash  position  with  indication  of  sources 
and  uses  as  well  of  number  of  days 
covered. 

(Data compiled by the Ministry of Finance) 

60 

 
 
Data  on  below-the-line  financing  for  the 
general government. 

(Data compiled by the Ministry of Finance)  

Data  on  expenditure  pending  payment 
general 
(including 
government, 
local 
government,  social  security,  hospitals  and 
legal entities. 

the 
the  State, 

arrears) 
including 

of 

(Data compiled by the Ministry of Finance 
on the basis of basic data from the several 
line ministries ) 

Data  on  public  debt  and  new  guarantees 
issued by the general government to public 
enterprises and the private sector. 

(Data compiled by the Ministry of Finance) 

Data  on  public  enterprises:  revenue,  costs, 
payroll, number of employees 

(Data compiled by the Ministry of Finance) 

Monthly,  no  later  than 
15  days  after  the  end 
of  each  month;  these 
data  should  also  be 
included  in  subsequent 
transmissions  in  case 
of revision. 

Quarterly,  within  55 
days  after  the  end  of 
each quarter.  

Observed. 

Observed, but quality issues remain. 

Monthly,  within  one 
month. 

Observed. 

Monthly,  within  three 
weeks  of  the  end  of 
each month for the ten 
largest 
enterprises. 
Quarterly  within  three 
weeks  of  the  end  of 
each  quarter  for  the 
other enterprises. 

Partially observed. 

Number of employees, not available. 

61 

 
the 
Monthly  statement  of 
through off-budget accounts. 

transactions 

(Data  compiled  by 
Finance and Education) 

the  Ministries  of 

Monthly  statements  of  the  operations  on 
the special accounts. 

(Data compiled by the Ministry of Finance) 

Report  on  progress  with  fulfilment  of 
policy conditionality. 

(Report  prepared  by 
Finance) 

the  Ministry  of 

Monthly data on healthcare expenditure by 
the social security funds with a lag of three 
weeks  after  the  end  of  the  respective 
quarter. 

(Data compiled by the Ministries of Labour 
and Health) 

Monthly,  at  the  end  of 
each month. 

Not observed. 

Monthly,  at  the  end  of 
each month. 

Observed. 

Quarterly  before 
respective 
starts. 

the 
review 

Monthly,  within  three 
weeks  of  the  end  of 
each  month.  Staring 
with  data  for  January 
2011  for  IKA,  OAEE, 
OGA  and  OPAD,  and 
from April 2011 on for 
the other funds 

Observed. 
Report transmitted after the review. 

Not yet applicable. 

62 

 
 
Assets  and  liabilities  of  the  Bank  of 
Greece.  

Weekly,  next  working 
day. 

To be provided by the Bank of Greece 

Assets and liabilities of the Greek banking 
system - aggregate monetary balance sheet 
of credit institutions. 

Evolution of the external funding provided 
by  Greek  banks 
their  subsidiaries 
to 
abroad. 

External  funding  flows  for  the  banking, 
corporate and government sector, including 
also  expected  developments  in  the  12 
months ahead. 

Report  on  banking 
situation. 

sector 

liquidity 

Report  on 
stability indicators. 

the  evolution  of  financial 

Report on results from the regular quarterly 
solvency stress tests. 

Detailed report on the balance sheet of the 
Financial  Stability  Fund  with  indication 
and explanation of changes in the accounts. 

Monthly, 30 days after 
the end of each month. 

Monthly, 15 days after 
the end of each month. 

Monthly, 30 days after 
the end of each month. 

Weekly,  next  working 
day. 

Quarterly,  15  days 
after  the  end  of  each 
quarter  depending  on 
data availability. 

Quarterly,  15  days 
after  the  end  of  each 
quarter  depending  on 
data availability. 

Weekly,  next  working 
day. 

Observed. 

Partially observed.  

Frequency not respected 

Partially observed. 

Forward looking element missing.  

Observed. 

Not observed. 

63 

 
Annex 3: Macroeconomic forecast 

Table A1: USE AND SUPPLY OF GOODS AND SERVICES (volume)

Annual % change

1. Private consumption expenditure
2. Government consumption expenditure
3. Gross fixed capital formation
4. Final domestic demand 
5. Change in inventories + net acquisitions of 
    valuables
6. Domestic demand
7. Exports of goods and services 
7a.  - of which goods
7b.  - of which services
8. Final demand 
9. Imports of goods and services 
9a.  - of which goods
9b.  - of which services
10. Gross domestic product at market prices

Contribution to change in GDP

11. Final domestic demand
12. Change in inventories + net acq. of valuables
13. External balance of goods and services 

2009

-1.8
7.6
-10.4
-2.0

-0.5
-4.1
-20.1
-18.0
-21.6
-6.9
-18.6
-18.5
-18.9
-2.4

-2.3
-2.4
2.2

2010

2011

2012

2013

2014

-4.1
-9.0
-17.4
-7.1

-0.5
-7.2
0.6
2.0
-0.5
-6.1
-12.0
-15.8
4.3
-4.2

-8.0
-0.1
3.9

-4.6
-8.5
-7.5
-5.7

-0.5
-5.6
6.3
6.5
6.1
-3.7
-6.0
-7.4
-1.2
-3.0

-6.2
0.1
3.1

0.5
-6.0
-2.6
-1.0

-0.2
-0.7
5.9
6.4
5.6
0.5
-1.5
-1.5
-1.5
1.1

-1.0
0.3
1.8

1.1
-1.0
1.1
0.8

-0.2
0.7
7.3
6.5
8.0
2.0
1.5
1.5
1.3
2.1

0.8
0.0
1.4

1.2
-0.3
1.2
1.0

-0.2
1.0
6.7
6.1
7.2
2.1
2.1
2.1
2.0
2.1

1.0
0.0
1.1

Table A2: USE AND SUPPLY OF GOODS AND SERVICES (value)

Annual % change

2009

2010

2011

2012

2013

2014

1. Private consumption expenditure
2. Government consumption expenditure
3. Gross fixed capital formation
4. Final domestic demand
5. Change in inventories + net acquisition of valuables
6. Domestic demand
7. Exports of goods and services 
7a.  - of which, goods
7a.  - of which, services
 8. Final demand
 9. Imports of goods and services 
9a.  - of which goods
9a.  - of which, services
10. Gross domestic product at market prices 
11. - of wich, external balance of goods and services
12. Balance of primary income with rest of the world
13. Gross national income 
14. Compensation of employees
15. Gross operating surplus and mixed income
16. Gross value added at basic prices 
16a. - of which, labour costs, including self-employed
17. Taxes net of subsidies (18-19)
18. - taxes on products
19. - subsidies on products
20. Gross domestic product at market prices 

-0.7
9.8
-11.4
-0.9

-2.9
-20.2
-18.9
-21.2
-5.9
-19.1
-20.2
-13.9
-1.1

0.5
-0.6
1.3
-0.9
0.0
1.6
-9.3
-9.0
14.0
-1.1

0.4
-12.9
-15.2
-4.3

-4.5
5.7
7.6
4.3
-3.0
-8.4
-12.1
7.7
-1.3

-0.1
-1.4
-4.7
-3.3
-3.9
-4.7
19.4
19.0
-15.7
-1.3

-2.4
-8.9
-6.6
-4.0

-4.1
7.5
7.7
7.4
-2.3
-5.0
-6.5
0.2
-1.5

-0.1
-1.6
-2.9
-3.4
-3.2
-2.7
9.5
9.4
2.6
-1.5

0.9
-5.7
-1.1
-0.4

0.0
7.0
7.7
6.6
1.3
0.3
0.3
0.2
1.5

0.0
1.5
0.2
1.4
0.9
0.2
4.7
4.7
2.6
1.5

1.7
0.0
0.2
0.0

1.6
9.2
8.2
10.0
3.1
3.5
3.6
3.2
2.9

0.0
2.9
0.4
5.3
3.3
1.0
0.6
0.7
2.6
2.9

2.3
0.9
2.9
2.2

2.3
8.6
7.8
9.2
3.5
4.2
4.2
4.0
3.3

0.0
3.3
1.1
5.5
3.7
1.5
0.6
0.6
2.6
3.3

64 

 
 
 
 
 
 
 
 
% change in implicit price deflator

2009

2010

2011

2012

2013

2014

Table A3: COSTS AND PRICES

1. Private consumption expenditure
2. Government consumption expenditure
3. Gross fixed capital formation
3a.  - of which, construction 
3b.  - of which, equipment 
4. Final domestic demand

6. Domestic de mand
7. Exports of goods and services 
7a.  - of which, goods
7b.  - of which, services
8. Final demand
9. Imports of goods and services 
9a.  - of which, goods
9a.  - of which, services
10. Gross domestic product at market prices
11. Terms of trade of goods and services
11a. - of which, terms of trade of goods
11b. - of which, terms of trade of services

12. HICP

1.1
2.1
-1.1
0.5
-0.4
1.1
-
1.2
-0.2
-1.1
0.5
1.0
-0.6
-2.1
6.2
1.3
0.4
1.0
-5.3

1.3

4.6
-4.3
2.7
3.3
3.1
3.0
-
3.0
5.0
5.5
4.8
3.3
4.0
4.5
3.3
3.0
1.0
1.0
1.4

4.7

2.4
-0.4
1.0
1.0
0.9
1.8
-
1.6
1.2
1.1
1.3
1.5
1.0
1.0
1.4
1.6
0.2
0.1
-0.1

2.2

0.3
0.4
1.6
1.8
1.4
0.6
-
0.7
1.1
1.2
1.0
0.7
1.8
1.8
1.7
0.4
-0.7
-0.6
-0.8

0.5

0.6
1.2
1.7
1.6
2.0
0.9
-
0.9
1.8
1.6
1.8
1.1
2.0
2.1
1.8
0.8
-0.3
-0.5
0.0

0.7

1.1
1.2
1.6
1.8
1.7
1.2
-
1.3
1.8
1.6
1.9
1.4
2.1
2.1
1.9
1.2
-0.2
-0.5
0.0

1.0

Table A4: LABOUR M ARKET AND LABOUR COST

Annual % change

2009

2010

2011

2012

2013

2014

1. Gross value added at 1995 basic prices
2. Employment ('000)
3. GVA per occupied person 
4. Compensation of employees (per employee)
5. Unit labour costs (1995=100)

6. Total population
7. Population of working age (15-64 years)
8. Total labour force

11. Total e mployment
11a. - of which, employees
11b. - of which, self-employed

-1.8
-0.7
-1.1
2.3
3.4

0.2
-0.1
1.2

-0.7
-0.7
-0.9
-0.2

-3.7
-2.8
-0.7
-1.8
-1.1

0.2
-0.1
0.6

-2.8
-2.8
-3.0
-2.4

-2.2
-2.7
0.3
-0.2
-0.5

0.2
0.4
0.2

-2.7
-2.7
-2.7
-2.6

13. Unemployment

24.7

34.8

21.3

0.0
0.1
-0.1
0.1
0.2

0.2
0.4
0.2

0.1
0.1
0.1
0.0

1.3

1.3
0.9
0.4
0.1
-0.3

0.2
0.4
0.2

0.9
0.9
0.3
2.0

1.5
1.2
0.3
0.3
0.0

0.2
0.4
0.2

1.2
1.2
0.8
1.8

-3.5

-5.2

 
 
 
 
Table  B1: USE AND SUPPLY OF GOODS AND SERVICES (value , in EUR billion)

lev els

2009

2010

2011

2012

2013

2014

1. Private consumption expenditure
2. Government consumption expenditure
3. Gross fixed capital formation
4. Final dome stic de mand (1+2+3)
5. Change in inventories + net acquisition of valuables as % of GDP 
6. Dome stic demand (4+5)
7. Exports of goods and services 
7a.  - of which, goods
7a.  - of which, serv ices
8. Final de mand (6+7)
9. Imports of goods and services 
9a.  - of which goods
9a.  - of which, serv ices
10. Gross dome stic product at marke t price s ( 8-9 )
11. - of wich, ex ternal balance of goods and serv ices
12. Balance of primary income with rest of the world
13. Gross national income  at marke t price s (10+12)
14. Compensation of employees
15. Gross operating surplus and mixed income
16. Gross value  adde d at basic price s ( 14 + 15 )
16a. - of which, labour costs, including self-employed
17. Taxes net of subsidies (18-19)
18. - tax es on products
19. - subsidies on products
 20. Gross dome stic product at marke t price s ( 16 + 17 )

174.4
45.4
40.1
259.9

258.3
44.3
18.5
25.8
302.6
69.5
56.8
12.7
233.1

-6.4
226.7
87.3
122.6
209.9
134.1
25.7
26.1
0.3
233.1

175.1
39.6
34.0
248.7

246.8
46.8
19.9
26.9
293.6
63.6
50.0
13.7
230.0

-6.5
223.4
83.1
118.6
201.7
127.7
30.7
31.0
0.3
230.0

170.9
36.1
31.7
238.7

236.6
50.3
21.5
28.9
287.0
60.4
46.7
13.7
226.5

-6.7
219.8
80.7
114.6
195.3
124.4
33.6
33.9
0.3
226.5

172.4
34.0
31.4
237.8

236.7
53.9
23.1
30.8
290.5
60.6
46.9
13.7
230.0

-6.9
223.0
80.9
116.2
197.1
124.6
35.2
35.5
0.3
230.0

175.3
34.1
32.3
241.7

240.6
58.8
25.0
33.8
299.4
62.7
48.6
14.1
236.7

-7.1
229.6
81.2
122.3
203.5
125.8
35.4
35.8
0.3
236.7

179.3
34.4
33.2
246.9

246.0
63.9
27.0
37.0
309.9
65.3
50.6
14.7
244.6

-7.3
237.2
82.1
129.0
211.1
127.6
35.7
36.0
0.3
244.6

Table  B2: LABOUR M ARKET AND LABOUR COST (in EUR billion unle ss othe rwise stated)

lev els

2009

2010

2011

2012

2013

2014

1. Gross value added at 1995 basic prices
2. Employment ('000)
3. GVA per occupied person (1:2)
4. Compensation of employees (per employee)
5. Unit labour costs (4:3) (1995=100)

6. Total population
7. Population of working age (15-64 years)
8. Total labour force
9. Calculated activ ity rate (%) (3:2)
10. Total employment
11. Total e mployme nt
11a. - of which, employees
11b. - of which, self-employed
12. Calculated employment rate (6:2)
13. Une mployme nt (8 - 11)

  13a. Calculated unemployment rate (%) (8:5)

159.1
4757.7
33.4
28.2
84.3

11260.4
7222.1
5228.8
72.4
4757.7
4757.7
3096.0
1661.7
65.9
471.1

9.0

153.2
4625.0
33.2
27.7
83.4

11282.9
7214.9
5260.2
72.9
4625.0
4625.0
3003.1
1621.9
64.1
635.2

12.1

149.9
4501.6
33.3
27.6
83.0

11305.5
7243.8
5272.3
72.8
4501.6
4501.6
2922.0
1579.6
62.1
770.7

14.6

149.9
4504.5
33.3
27.7
83.1

11328.1
7272.7
5285.5
72.7
4504.5
4504.5
2925.0
1579.6
61.9
781.0

14.8

151.8
4544.9
33.4
27.7
82.9

11350.7
7301.8
5298.7
72.6
4544.9
4544.9
2933.7
1611.1
62.2
753.8

14.2

154.1
4597.4
33.5
27.8
82.8

11373.4
7331.0
5311.9
72.5
4597.4
4597.4
2957.2
1640.2
62.7
714.6

13.5

66 

 
 
 
 
 
C1: FISCAL ACCOUNTS AND FORECAST

2009

2010

2011

2012

2013

2014

Total re ve nue
Indirect taxes
Direct taxes
Social contributions
Sales
Other current resources
Capital transfers received

Total e xpe nditure
Intermediate consumption
Compensation of employees
Social transfers other than in kind
Interest
Subsidies
Other current expenditure
Gross fixed capital formation 
Other capital expenditure

37.79
11.10
8.17
13.10
1.72
2.37
1.33

53.16
7.11
13.51
20.85
5.28
0.15
1.73
3.38
1.14

40.18
12.95
7.79
12.81
1.87
2.66
2.10

49.68
5.24
12.37
20.39
6.42
0.10
1.59
2.69
0.90

%  GDP

41.92
13.63
8.36
12.54
1.88
3.59
1.92

50.15
4.62
12.36
21.22
6.48
0.13
1.56
2.63
1.14

41.45
14.19
8.16
12.16
1.85
3.24
1.86

49.51
4.69
12.00
20.92
7.36
0.13
1.82
2.34
0.25

40.87
13.99
8.29
11.89
1.80
3.08
1.83

49.39
4.86
11.45
20.73
7.93
0.13
1.47
2.46
0.38

Ge ne ral Gove rnme nt balance  (ESA 95) 

-15.4

-9.5

-8.2

-8.1

-8.5

Measures identified in May 2010, to be revised

Unide ntifie d fis cal cos nolidation me as ure s

Ge ne ral Gove rnme nt balance  (Targe ts ) 

-

0.8

-7.5

1.5

1.6

0.1

3.7

-6.4

-4.8

Total re ve nue
Indirect taxes
Direct taxes
Social contributions
Sales
Other current resources
Capital transfers received

Total e xpe nditure
Intermediate consumption
Compensation of employees
Social transfers other than in kind
Interest
Subsidies
Other current expenditure
Gross fixed capital formation 
Other capital expenditure

Levels (in EUR billion)

93.17
30.03
18.07
29.71
4.33
6.17
4.86

115.20
12.14
28.68
47.27
14.89
0.23
3.69
6.23
2.08

95.75
31.13
19.09
28.64
4.28
8.20
4.39

114.55
10.54
28.23
48.47
14.81
0.30
3.57
6.01
2.61

96.11
32.90
18.93
28.18
4.29
7.50
4.31

114.80
10.88
27.83
48.50
17.07
0.30
4.22
5.43
0.57

97.53
33.38
19.79
28.37
4.29
7.35
4.36

117.86
11.61
27.31
49.46
18.92
0.30
3.50
5.86
0.90

88.82
26.09
19.20
30.79
4.03
5.58
3.13

124.94
16.71
31.76
49.01
12.42
0.34
4.07
7.94
2.69

39.85
13.81
7.54
11.67
1.74
3.28
1.81

48.32
4.94
10.89
19.32
8.09
0.12
1.63
2.44
0.89

-8.5

-0.4

5.9

-2.6

98.24
34.05
18.59
28.76
4.29
8.08
4.47

119.13
12.19
26.84
47.63
19.94
0.30
4.01
6.02
2.20

Ge ne ral Gove rnme nt balance  (EDP) 

-36.15

-22.03

-18.81

-18.69

-20.33

-20.89

Measures identified in May 2010, to be revised

-

3.38

0.34

-1.00

Unide ntifie d fis cal cos nolidation me as ure s

1.741

3.770

8.930

14.503

Ge ne ral Gove rnme nt balance  (Targe ts ) 

-17.07

-14.92

-11.40

-6.39

 
 
 
C2: GRO SS DEB T

Gove rnme nt de ficit (le ve l)
Gros s  de bt (le ve l)
Change in gross debt
Stock -flow adjus tme nt

Gros s  de bt ratio
Change in the ratio
Contributions:
Primary balance  (+ is  a de ficit)
“Snow-ball” e ffe ct
Of which:

Interest expenditure
Real growth effect
Inflation effect

Stock -flow adjus tme nt

2009

-36.2
298.0
36.6
0.5

126.8
16.5

10.1
6.2

5.3
2.7
-1.7
0.2

2010

2011

2012

2013

2014

levels (EUR billion)

-22.0
327.1
29.0
7.0

-18.8
350.1
23.0
4.2

%  GDP

-14.9
365.4
15.3
0.4

-11.4
377.0
11.6
0.2

-6.4
383.6
6.6
0.2

141.0
14.2

153.3
12.2

157.6
4.3

158.0
0.4

155.6
-2.4

3.1
8.1

6.4
5.4
-3.6
3.0

1.7
8.6

6.5
4.4
-2.2
1.8

-0.9
5.1

7.4
-1.6
-0.7
0.2

-3.2
3.5

7.9
-3.2
-1.2
0.1

-5.5
3.0

8.1
-3.3
-1.8
0.1

68 

 
 
 
Government deficit (cash basis) and net SOE's borrowing
Debt amortization (bonds & T-bills)

of which short-term debt 
of which long-term debt 2
Public sector financing need 
Rollover of short-term debt
Rollover of long-term debt
Gross government debt issuance 
of which short-term borrowing 3
of which long-term borrowing 

Privatisation receipts 4

Bank sup p ort scheme 5 
      Financial Stability Fund
      Dedicated account
Financing gap 

Loan disbursements

of which IMF

  of which EU
Source:  GAO, Commission services.

Annex 4: Financing needs and sources 1 

S UM

2010
10Q2-13Q2 May-Jun
3,7
11,4
2,1

58,1
171,1
84,3

91,8
229,2
107%
48%
129,0
90,0
44,1

1,0
10,0
1,5
8,5

109,2

110,0
30,0
80,0

-

9,3
15,2
0%
0%
2,0
2,0
0,0

0,0
0,0
0,0

13,1

20,0
5,5
14,5

Q3
7,1
4,1
3,3

0,8
11,2
198%
0%
6,5
6,5
0,0

Q4
3,9
5,4
5,0

0,4
9,4
78%
0%
4,0
4,0
0,0

2011
Q1
5,4
16,1
6,4

9,7
21,5
106%
0%
6,8
6,8
0,0

Q2
6,8
13,9
4,8

9,1
20,7
167%
0%
8,0
8,0
0,0

-

-

-

-

0,0
0,0
0,0

4,7

9,0
2,5
6,5

1,5
1,5
0,0

7,0

9,0
2,5
0,0

1,0
0,0
1,0

15,7

15,0
4,1
17,5

1,0
0,0
1,0

13,7

12,0
3,3
8,7

Q3
7,2
16,0
8,9

7,1
23,2
109%
0%
9,7
9,7
0,0

1,0
1,0
0,0
1,0

13,5

8,0
2,2
5,8

Q4
2,9
13,3
10,2

3,1
16,2
78%
0%
8,0
8,0
0,0

2012
Q1
3,7
22,2
7,5

14,7
25,9
67%
74%
15,9
5,0
10,9

Q2
3,9
14,7
5,0

9,7
18,6
200%
76%
17,4
10,0
7,4

Q3
5,1
16,3
8,0

8,3
21,4
113%
76%
15,3
9,0
6,3

Q4
2,1
12,3
10,0

2,3
14,4
80%
89%
10,1
8,0
2,1

2013
Q1
3,1
9,8
8,0

5,8
12,9
100%
100%
9,8
8,0
5,8

Q2
3,1
15,6
5,0

11,6
18,7
100%
100%
15,6
5,0
11,6

-

-

-

-

-

-

-

1,0
0,0
1,0

9,2

5,0
1,4
3,6

1,0
0,0
1,0

11,0

10,0
2,7
7,3

1,0
0,0
1,0

2,2

6,0
1,6
4,4

1,0
0,0
1,0

7,1

6,0
1,6
4,4

1,0
0,0
1,0

5,3

2,0
0,5
1,5

0,5
0,0
0,5

3,6

6,0
1,6
4,4

0,0
0,0
0,0

3,1

2,0
0,5
1,5

1. Data in this table are subject to revision.
2. Adjusted for buy-backs conducted by the Public Debt Management Agency and settlement of arrears via bond issuance.
3. Tentative schedule is based under conservative assumptions that only 3 and 6 months securities will be issued, which increases the roll-over needs. 
4. Financing plan conservatively includes EUR 1 bn of privatisation proceeds. Plan will be revised to reflect the new commitment by the Greek authorities to upscale privatisation proceeds.
5. Disbursements to bank support scheme are subject to developments in financial sector.

69 

 
 
Annex 5: Statement by the European Commission, the ECB and IMF on 
the Third Review Mission to Greece 

Staff  teams  from  the  European  Commission  (EC),  European  Central  Bank  (ECB),  and  International 
Monetary  Fund  (IMF)  visited  Athens  during  January  27  to  February  11  for  the  third  review  of  the 
government’s economic program, which is being supported by a EUR 80 billion loan from Euro area 
countries and a EUR 30 billion Stand-By Arrangement with the Fund. 

The objectives underpinning the program are to restore fiscal sustainability, safeguard financial sector 
stability,  and  boost  competitiveness—to  create  the  conditions  for  sustained  growth  and  employment. 
Maintaining  social  fairness  in  shouldering  the  burden  of  adjustment  in  the  program  also  remains  of 
paramount concern and this will continue to guide the direction of policies in the period ahead. 

Our  overall  assessment  is  that  the  program  has  made  further  progress  toward  its  objectives.  While 
there have been delays in some areas, the underlying fiscal and broader reforms necessary to deliver the 
program’s  medium-term  objectives  are  being  put  in  place.  However,  major  reforms  still  need  to  be 
designed  and  implemented  to  build  a  critical  mass  necessary  to  secure  fiscal  sustainability  and 
economic recovery. 

Regarding  the  outlook,  the  recession  has  to  date  been  close  to  what  was  anticipated.  Underlying 
inflation has remained low in the face of rising commodity prices. Downward movement of unit labor 
costs  should  support  gains  in  competitiveness.  Encouragingly,  exports  have  performed  well  recently. 
We continue to expect the economy to stabilize late in 2011. 

In  the  fiscal  area,  against  the  sharp  macro  headwinds,  the  authorities  delivered  a  6  percent  of  GDP 
fiscal  adjustment  in  2010,  reducing  the  deficit  to  about  9½  percent  of  GDP.  This  is  an  impressive 
achievement,  but  some  tensions  were  evident  in  budget  implementation,  in  particular  shortfalls  in 
revenue  collections,  and  problems  with  spending  control.  The  program  has  been  designed  to  address 
these problems, and the work is progressing. 

The  government  has  begun  to  specify  a  medium  term  budget  strategy,  which  will  define  time-bound 
actions to realize the full fiscal adjustment through 2014. The reforms are complex and cover among 
other  issues  taxation,  health,  public  employment,  and  state  enterprise  reforms.  The  government  is 
appropriately  allowing  time  for  consultation  with  social  partners  before  moving  beyond  the  design 
phase  to  begin  implementation.  The  government’s  full  commitment  to  this  complicated  process  of 
institutional change, not least determination to resist vested interests, will be critical to success. 

Concerning  financing,  the  government  continues  to  work  toward  securing  a  gradual  return  to  bond 
markets  at  affordable  interest  rates.  Strong  program  implementation,  with  financial  support  from  the 
international  community,  remains  key  to  achieving  this.  It  is  equally  important  that  the  government 
notably scales up its privatization program, and more generally realizes better returns from its extensive 
portfolio of assets. Work is proceeding to establish a comprehensive inventory of the government’s real 
estate assets, and to define a phased action plan. 

As  to  the  financial  sector,  tight  liquidity  and  rising  non-performing  loans  are  putting  strains  on  the 
banking  system  and  credit  is  contracting.  Encouragingly,  private  banks  have  recently  enjoyed  some 
success in raising capital. It is essential that the government makes progress in addressing the stability 
and  efficiency  of  the  banks  under  its  control.  The  Eurosystem  has  been  a  key  source  of  liquidity 
support  for  the  system,  and  this  is  allowing  banks  to gradually  move  towards  a  sustainable  medium-
term  funding  model.  The  Financial  Stability  Fund  is  available  to  provide  support  to  banks  in  the 
system, if needed. 

70 

 
 
 
 
Structural  reforms  are  making  progress.  Legislation  covering  aspects  of  the  labor  market,  the 
liberalization  of  closed  professions,  healthcare  reform,  licensing,  and  the  competition  authority  has 
either been passed, or soon will be. The authorities’ focus must now be on implementing these laws, to 
make sure the new frameworks are effective as soon as possible. To secure economic recovery, early 
progress  on  structural  reforms  remains  critical.  The  government  must  ensure  that  reforms  are 
sufficiently ambitious and comprehensive to tackle the deep seated structural challenges facing Greece. 
The next steps will focus on, among other things, reviving the tourist industry, removing administrative 
barriers to exports, and strengthening public procurement. 

Next  Steps.  Approval  of  the  conclusion  of  the  third  review  will  allow  the  disbursement  of  EUR  15 
billion  (EUR  10.9  billion  by  the  euro  area  Member  States,  and  EUR  4.1  billion  by  the  IMF).  The 
mission for the next program review is scheduled for May, 2011. 

71