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(June 2011)
Date: 2011-07-01
Institutions: European Commission
Subjects: European Central Bank, Greece, budget deficit, debt reduction, euro area, gross domestic product, public administration, structural adjustment

EUROPEAN COMMISSION 

Brussels, 1.7.2011 
COM(2011) 422 final 

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 

(June 2011) 

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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 

(June 2011) 

1. 

INTRODUCTION 

This quarterly Communication assesses the measures implemented and planned by Greece to 
comply  with  Council  Decision  2010/320/EU.1  Action  taken  until  end-2010  was  assessed  in 
the  Communication  dated  24  February  2011.2  Together  with  an  accompanying  Commission 
staff's  report,  prepared  in  liaison  with  the  ECB,3  the  Communication  also  contributes  to  the 
assessment  of  compliance  with  the  MEFP  and  the  MoU,4  in  the  context  of  the  loan  facility 
agreement between Greece and other euro-area Member States. 

This  assessment  is  based  on  the  report  submitted  to  the  Council  and  the  Commission  by 
Greece,5 and on the the mission conducted by European Commission staff together with IMF 
and ECB staff, in the context of the economic adjustment programme which is being financed 
by bilateral loans by the euro-area Member States and an IMF's stand-by arrangement.  

2. 

THE COUNCIL DECISION OF 10 MAY 2010 

On 10 May 2010, the Council adopted Decision 2010/320/EU, under Articles 126(9) and 136 
TFEU, addressed to Greece, with a view to reinforcing and deepening the fiscal surveillance 
and giving notice to take measures for the deficit reduction judged necessary  to remedy the 
situation of excessive deficit by 2014.  

From  a  general  government  deficit  of  EUR  36  306  million  at  the  end  of  2009,  the  Council 
Decision  required  Greece  to  adopt  a  number  of  specific  measures  with  the  aim  of  keeping 
general government deficit below the following ceilings: 

•  EUR 18 508 million (8.0 percent of GDP, on the basis of the latest GDP data) in 2010; 

•  EUR 17 065 million (7.6 percent of GDP on the basis of the latest forecasts) in 2011; 

1 
2 
3 

4 

5 

OJ L 145, 11.6.2010, p. 6. 
COM (2011) 85 final. 
‘The Economic Adjustment Programme for Greece – Fourth Review,’ European Economy–Occasional 
Paper,  (2011).  The  reader  is  referred  to  that  document  for  a  more  detailed  assessment  of 
macroeconomic, financial, fiscal and structural reform developments. 
Memorandum  of  Economic  and  Financial  Policies,  and  Memorandum  of  Understanding  of  Specific 
Economic Policy Conditionality of 3 May, updated 23 February 2011. 
The  Economic  Adjustment  Programme  for  Greece  –  Report  submitted  in  accordance  with  Council 
Decision  –  May  2011.  The  report  was  submitted  by  the  Greek  government  on  17  June  2011.  It  is 
available at: http://ec.europa.eu/economy_finance/eu/countries/greece_en.htm. 

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•  EUR 14 916 million (6.5 percent of GDP) in 2012; 

•  EUR 11 399 million (4.8 percent of GDP) in 2013 and 

•  EUR 6 385 million (2.6 percent of GDP) in 2014.6 

The  Decision  clarifies  that  privatisation  proceeds  are  not  considered  in  the  effort  to  comply 
with ceilings. 

The  Decision  also  requires  that  the  annual  increase  in  the  general  government  consolidated 
gross debt does not exceed: 

•  EUR 34 058 million in 2010; 

•  EUR 17 365 million in 2011; 

•  EUR 15 016 million in 2012; 

•  EUR 11 599 million in 2013 and 

•  EUR 7 885 million in 2014.7 

The  Decision  was  amended  on  7  September  2010  (Decision  2010/486/EU),8  20  December 
2010  (Decision  2011/57/EU)9  and  7  March  2011  (Decision  2011/257/EU).10  The 
aforementioned ceilings for the general government deficit and the annual change in the debt 
level were kept unchanged. 

3. 

BUDGETARY EXECUTION  

3.1. 

2010  

The ESA-based government deficit ceiling for 2010 was missed. While the deficit ceiling as 
established  in  the  Council  Decision  was  EUR  18 508  million  (or  8.0  percent  of  GDP)  for 
2010,  the  actual  deficit  was  EUR  24  193  million  (or  10.5  percent  of  GDP).  Most  of  the 
deviation  from  the  budgetary  target  was  already  anticipated  in  the  previous  quarterly 
communications,  and  partly  resulted  from  reclassification  of  public  entities  (0.8%  of  GDP). 
However, the actual deficit validated by Eurostat11 also exceeded by around 1 percent of GDP 
the  Commission's  estimates  of  February  2011.12  The  deviation  compared  to  the  previous 
estimate was the result of revenue shortfalls, worse-than-estimated balance of social security 
and an accumulation of payment in arrears in excess of previous estimates. 

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8 
9 
10 
11 
12 

The ratios to GDP are indicative. In the Council Decision, the ratios-to-GDP refer to the nominal GDP 
figures available in May: 8.0, 7.6, 6.5, 4.9 and 2.6 percent of GDP for 2010 to 2014, respectively.  
Taking  into  account  the  revised  debt  figure  for  2010  as  revised  in  April  2011  and  the  latest  nominal 
GDP projections, this corresponds to the following ceilings for the debt ratio: 143, 154, 158, 159 and 
157 percent of GDP for 2010 to 2014, respectively. 
OJ L 241, 14.9.2010, p.12.  
OJ L 26, 29.1.2011, p. 15. 
OJ L 110, 29.4.2011, p. 26. 
Eurostat News Release No 60/2011 of 26 April 2011. 
‘The Economic Adjustment Programme for Greece – Third Review,’ European Economy–Occasional 
Paper, 77 (February 2011).  

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The general government debt-to-GDP ratio at the end of 2010 reached EUR 328 588 million 
or  142.8  percent  of  GDP.  Compared  to  2009,  the  debt  increased  by  EUR  29 882  million, 
therefore, below the ceiling established by the Council.  

3.2. 

First quarter of 2011 

In the first quarter of 2011, the quarterly performance criterion for state primary spending, as 
established in the MEFP and MoU, was respected. The outcome was EUR 13.5 billion against 
a  ceiling  of  EUR  15  billion.  It  should  be  noted  that,  compared  to  previous  quarters,  during 
which the ceiling for state primary spending was defined on a cash basis, data now include the 
change  in  the  stock  of  arrears  owed  by  the  state.  According  to  available  information,  the 
amount  of  arrears  owed  by  the  state  at  the  end  of  the  first  quarter  of  2011  stands  at  above 
EUR 1.1 billion (compared to 0.9 billion in end-2010).13 

During the same period, the (modified) general government primary deficit reached EUR 806 
million, against the ceiling of EUR 2 billion. It was also the first time this criterion took into 
account the accumulation of arrears. 

Tables 1 and 2 contain detailed information on the budget implementation in January through 
March 2011, and also some data for May 2011. 

13 

There are also arrears in other government layers, like local governments or hospitals, which are not yet 
taken into account in the quarterly performance criteria. 

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Table 1: Budget implementation 
(January-March 2011) 

cash basis 
(EUR million) 

Total revenue 

Revenue before refunds 

Tax refunds 

Capital revenue 

NATO expenses 

Total expenditure 

2010 

Jan - Mar 

2011 
% 
change 
Jan-Mar 

Budget 
% 
change  

12 362 

11 732 

-5.1 

13 141 

11 931 

-9.2 

8.5 

5.6 

1 057 

825 

-21.9 

-23.7 

275 

609 

121.5 

27.7 

3 

17 

16 732 

16 435 

-1.8 

6.6 

1.9 

Primary expenditure 

12 373 

12 086 

-2.3 

Past-debts of hospitals 

Military payments and NATO 
Guarantees called (off general 
government) 

- 

- 

375 

50 

46 

10 

-78.3 

0.0 

Interest 

2 797 

3 237 

15.7 

20.4 

Capital expenditure 

1 516 

677 

-55.3 

State budget balance 

-4 370 

-4 703 

7.6 

Change in arrears 

- 

263 

- 

State primary spending 

13 935 

13 461 

-3.4 

Local government balance (*) 

Social security balance (*) 

Other 

- 

- 

- 

191 

605 

-9 

- 

- 

- 

0.6 

-3.9 

- 

- 

- 

- 

- 

- 

- 

-4 179 

General government 
(modified) balance 
General government 
(modified) primary balance 
(**) 
Source: General Accounting Office, Ministry of Finance of Greece and own 
calculations. 
(*) On the basis of Bank of Greece’s banking statistics. 
(**) Excludes State-owned enterprises and most extra-budgetary funds. 

-806 

- 

- 

- 

- 

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Table 2: Budget implementation 
(January-May 2011) 

cash basis 
(EUR million) 

Total revenue 

Revenue before refunds 
Tax refunds 
Capital revenue 
NATO expenses 

Total expenditure 

Primary expenditure 
Past-debts of hospitals 
Military payments and NATO 
Guarantees called (off general 
government) 
Interest 
Capital expenditure 

2010 

Jan - May 

20 069 

21 508 
1 751 

309 
3 

29 169 
20 418 
- 

68 

56 

5 397 
3 230 

19 019 
20574 
2 234 
661 
18 

29 293 
21 292 
375 
66 

15 
5 844 
1 701 

State budget balance 

State primary spending  

- 9 100 

-10 274 

23 772 

23 449 

2011 
% 
change 
Jan-
May 

-5.2 
-4.3 
27.6 
113.9 

0.4 
4.3 
- 
- 

-73.2 
8.3 
-47.3 

12.9 

-1.4 

Budget 
% 
change  

8.5 
5.6 
-23.7 
27.7 

6.6 
1.9 

0.0 
20.4 
0.6 

-3.9 

Source: General Accounting Office, Ministry of Finance of Greece, and own 
calculations 

4. 

PROSPECTS FOR 2011 AND 2012-14 

According  to  projections  by  the  Commission,  the  IMF  and  ECB  staff  in  the  context  of  the 
fourth review mission of the economic adjustment programme (May 2010), the 2011 deficit 
would be in excess of 10 percent of GDP if no further measures were adopted. This means a 
fiscal gap of almost 3 percent of GDP on top of the deficit ceiling of 7½ percent of GDP.14 
There were also very large gaps for 2012 through 2014: 5 percent for 2012, 7 percent for 2013 
and almost 10 percent for 2014.  

The  gap  was  mainly  because  of  significant  revenue  shortfalls,  disappointing  tax  revenue, 
delays in implementation of fiscal measures in the budget for 2011, as well as a base effect 
from  the  worse-than-expected  2010  fiscal  outcome.  Also  some  measures  previously  agreed 
with the Commission, and included in the budget for 2011 are not going to be implemented 
(e.g.  equalisation  in  the  taxation  of  heating  oil and  diesel  for  transport  uses).  The  recession 
appears to have been deeper and longer than projected so far. Economic activity contracted in 
2010  by  4½  percent,  somewhat  more-than-projected  at  inception  of  the  programme  and 
subsequent  reviews.  For  2011,  Commission  services'  current  projection  is  3.8  percent  of 
contraction of the real GDP compared with 2.5% of the initial programme. 

According to the Greek organic budget law, the government is required to prepare a medium-
term  fiscal  strategy  for  2012–15.  In  the  context  of  this  strategy,  the  Greek  government 

14 

In the previous review of the adjustment programme, the Commission services had already identified a 
gap of at least ¾ of a percent of GDP.  

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announced the adoption of additional fiscal measures for 2011-2015 with the aim of reducing 
the  deficit  over  the  period.  These  measures  are  characterized  by  different  levels  of 
implementation  risks.  In  2011  and  2012,  this  risk  is  comparatively  low,  as  revenue  from 
improvements  in  tax  compliance  has  not  been  considered  and  the  most  part  of  the 
consolidation comes from broadening tax bases and increasing tax rates (EUR 3.1 billion in 
2011) and reductions in the public sector wage bill and in social expenses (expenditure cuts 
amount to EUR 3.4 billion in 2011). 

The  additional  measures  to  stick  to  the  deficit  ceiling  for  2011  and  the  medium-term  fiscal 
strategy  (MTFS)  through  2015  are  expected  to  include  the  following  (as  usual,  the  Greek 
government committed to discuss with the Commission, ECB and IMF, in case there was a 
need to revise these measures): 

– 

– 

– 

– 

Cuts  in  wage  bill  by  at  least  EUR  770  million  in  2011,  and  additional  EUR  600 
million  in  2012,  EUR  448  million  in  2013,  EUR  306  million  in  2014  and  EUR  71 
million  in  2015,  through  the  implementation  of  attrition  beyond  the  rule  of  1 
recruitment for 5 exits (1 for 10 in 2011); an increase in weekly working hours for 
public sector employees from 37.5 to 40 hours and reduction in overtime payments; 
reduction in the number of remunerated committees and councils; reduction in other 
additional  compensation,  allowances  and  bonus  schemes;  reduction  in  contractors 
(50  percent  in  2011  and  additional  10  percent  in  2012  and  onwards);  temporary 
freeze of automatic progression; the implementation of a new remuneration grid; the 
introduction of part-time public sector employment and unpaid leave; a reduction in 
the  number  of  admissions  to  military  and  policy  academies,  the  transfer  of  excess 
staff to a labour reserve paid on average at 60 percent of the base wage, and a cut in 
the productivity allowance by 50 percent. 

Cuts  in  the  state's  operation  expenditure  by  at  least  EUR  190  million  in  2011,  and 
additional EUR 92 million in 2012, EUR 161 million in 2013, EUR 323 million in 
2014  and  EUR  370  million  in  2015,  through  the  implementation  of  e-procurement 
for  all  public  procurement;  rationalization  of  energy  expenses  by  public  services; 
reduction  in  rental  expenses  following  more  efficient  use  of  public  property; 
reduction  of  all  telecommunication  expenses,  abolition  of  free  distribution  of 
newspapers; cuts in operational expenditure in the ordinary budget, across the board; 
implementation  of  benchmarks  in  public  spending  following  a  one-year  full 
operation of MIS for the general government expenditure. 

Cuts in extra-budgetary funds' expenses and transfer to other entities by at least EUR 
540 million in 2011, and additional EUR 150 million in 2012, EUR 200 million in 
2013,  EUR  200  million  in  2014  and  EUR  150  million  in  2015,  through  the 
assessment  of  the  mandate,  viability  and  expenses  of  all  entities  subsidized  by  the 
public  sector  and  their  mergers  and  closure;  merger/closure  and  reduction  in 
subsidies 
institutions); 
reduction in  State  grants to entities outside general government,  and an action plan 
on closing, merging and downsizing entities. 

institutions  (schools,  higher  education 

to  educational 

Savings  in  state-owned  enterprises  by  at  least  EUR  414  million  in  2012,  and 
additional EUR 329 million in 2013, EUR 297 million in 2014 and EUR 274 million 
in  2015,  through  increase  in  revenue  of  OSE,  OASA  and  other  enterprises,  the 
implementation of restructuring plans and privatisation in Hellenic Defence Systems, 
Hellenic  Aeronautical  Industry,  Hellenic  Horse  Racing  Corporation;  sale  of 

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– 

– 

– 

– 

– 

enterprises'  assets  associated  with  non-core  activities;  reduction  in  personnel 
expenses; reduction in operational expenses and mergers and closure of enterprises. 

Cuts in operational defence-related expenditure by at least EUR 133 million in 2013 
and additional EUR 133 million in 2014 and EUR 134 million in 2015 , on top of the 
reduction  in  military  equipment  procurement  (deliveries)  of  EUR  830  million  from 
2010 to 2015. 

Cuts  in  healthcare  and  pharmaceutical  expenditure  by  at  least  EUR  310  million  in 
2011, and additional EUR 697 million in 2012, EUR 349 million in 2013, EUR 303 
million in 2014 and EUR 463 million in 2015, through the implementation of a new 
'health  map'  and  associated  reduction  in  hospitals  expenses;  a  re-evaluation  of 
mandate  and  expenses  of  non-hospital  supervised  entities;  the  implementation  of 
central procurement system; reduction of average cost per case through case mixing; 
reduction  in  the  services  provided  to  the  non-insured  (gate-keeping  function); 
introduction of charges for services provided to foreign citizens; the operation of the 
National Organization for Primary Healthcare (EOPI); the scanning by IKA of hand-
written prescriptions; the expansion of the list of pharmaceuticals that do not require 
prescriptions; new prices of medicines; the establishment of insurance price by social 
security sector and the full implementation of e-prescription. 

Cuts  in  social  benefits  by  at  least  EUR  1 188  million  in  2011,  and  additional  EUR 
1 230 million in 2012, EUR 1 025 million in 2013, EUR 1 010 million in 2014 and 
EUR  700  million  in  2015,  through  adjustment  in  supplementary  pension  schemes 
and subsequent freeze through 2015; a freeze in the base pensions; the reform of the 
disability pension system; a census of pensioners and cross-checking of personal data 
with  full  implementation  of  social  security  number  and  upper  cap  on  pensions;  a 
rationalization  of  criteria  for  pensioners  (EKAS);  a  rationalisation  of  benefits  and 
beneficiaries of OEE-OEK and OAED; cuts in the lump-sums paid on retirement; the 
cross-checking of personal data from introduction of ceilings for employers who can 
join  OAED  schemes;  a  reduction  in  the  core  pension  of  OGA  and  in  the  lower 
pension thresholds of other social security funds and tightening of criteria based on 
the  permanent  residence;  reduction  in  expenses  on  social  benefits  though  cross-
checking of data; uniform regulation of health benefits for all social security funds; 
uniform  contracts  with  private  hospitals  and  medical  centres;  the  review  of  social 
benefits in cash and in kind leading to the abolition of the least effective; an increase 
in the special pensioner contribution (Law 3863/2010) for pensioners whose monthly 
pension  exceeds  EUR  1 700;  an  increase  in  the  special  social  contribution  paid  by 
pensioners  below  60  years  old  with  monthly  pensions  above  EUR  1 700;  the 
introduction  of  special  tiered  contribution  for  supplementary  pensions  above  EUR 
300 per month and reduction in transfers to NAT (sailors' pension scheme) and the 
OTE pension scheme and concomitant reduction in pensions. 

Cuts in other expenditure by at least EUR 150 million in 2011, and additional EUR 
250 million in 2012, EUR 175 million in 2013, EUR 170 million in 2014 and EUR 
160  in  2015,  through  cuts  in  expenses  by  local  government  financed  by  state 
subsidies. 

Cuts  in  expenditure  by  the  public  investment  budget  (domestically-financed  public 
investment,  investment-related  grants)  and  administrative  costs  associated  with  the 
National  Strategic  Reference  Framework  (ESPA)  by  EUR  950  million  in  2011,  of 

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– 

– 

– 

– 

which  EUR  350  million  will  be  permanent,  and  additional  EUR  154  million 
(administrative costs) in 2012. 

taxation 

Increases in taxes by at least EUR 2017 million in 2011, and additional EUR 3 678 
million in 2012, EUR 156 million in 2013 and EUR 685 million in 2014, through an 
increase in VAT rate on restaurants and bars from 13 to 23 percent from September 
2011 on; increase in property taxes; reduction of income tax-free threshold to EUR 
8 000  and  establishment  of  a  progressive  solidarity  contribution;  increases  in 
tax 
presumptive 
exemptions/expenditures;  changes  in  tax  regime  for  tobacco  products  with  an 
accelerated  payment  of  excise  duty  and  in  tax  structure;  an  excise  on  soft  drinks; 
excises on natural gas and liquefied gas; abolition of the tax advantage for heating oil 
(for  enterprises  from  October  2011  on,  and  progressively  for  households  from 
October  2011  to  October  2013);  an  increase  in  the  vehicles  tax;  an  emergency 
contributions  on  vehicle,  motorbikes  and  pools;  increase  fines  of  unauthorised 
buildings and settlement of planning infringements; the taxation on private boats and 
yachts; a special levy on high-value real estate; and special levy on smoking spaces. 

self-employed; 

reduction  of 

levies  on 

and 

Improvements in tax compliance by at least EUR 878 million in 2013, and additional 
EUR 975 million in 2014 and EUR 1147 million in 2015. 

Increases in social contributions by at least EUR 629 million in 2011, and additional 
EUR 259 million in 2012, EUR 714 million in 2013, EUR 1 139 million in 2014 and 
EUR  504  in  2015,  through  the  full  implementation  of  a  single  unified  payroll  and 
insurance  contribution  payment  method;  an  increase  in  contribution  rates  for  OGA 
and ETAA beneficiaries; the establishment of OAEE beneficiary solidarity fund; the 
adjustment  of  unemployment  contribution  for  private  sector  employees;  the 
introduction of unemployment contribution for self-employed; and a contribution for 
unemployed  paid  the  employees  of  the  public  sector,  including  state-owned 
enterprises, local government and other public entities. 

Increases  in  local  government  revenue  by  at  least  EUR  105  million  in  2012  and 
additional  170  million  in  2013,  EUR  130  million  in  2014  and  EUR  145  million  in 
2015,  through  an  increase  in  revenues  from  tolls,  fees,  rights  and  other  revenue 
streams following the merging of local administrations; and an increase in local tax 
compliance  following 
tax  clearance  certificate 
requirement. 

introduction  of  a 

local 

the 

5. 

PROGRESS WITH STRUCTURAL REFORMS  

Progress has been proceeding in structural fiscal reforms, though in some cases slower than 
planned. Reforms in the tax administration area are gaining momentum with several actions 
ongoing. Action  taken so far by the government concerns mainly  legislation to improve the 
efficiency of tax administration and controls, putting in place an effective project management 
arrangement and implementing an anti-evasion strategy to restore tax discipline and improve 
compliance. The relevant law, adopted by Parliament in March 2011, is part of the broader 3-
year strategy against tax evasion.  

Budgetary institution reforms are progressing with the set up of the Parliamentary Budgetary 
Office  and  the  appointment  of  its  head  and  staff,  as  well  the  reorganisation  of  the  General 

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Accounting Office. Progress has been also made in ensuring a timely provision of fiscal data, 
although  quality  and  scope  need  to  improve  further.  Fiscal  management  on  the  expenditure 
side of the budget also needs to improve, in particular with the commitments registry in each 
ministry and other-than-state entities. While publication of data on arrears has been launched, 
improvements in the scope and coverage of data set are necessary.  

Progress has been made with the healthcare reform - a first package of reforms having been 
adopted in mid-February 2011 and its implementation is ongoing, including the operation of 
the  database  ESY.NET,  which  ensures  the  availability  of  revenue/expenditure  data  for  most 
hospitals.  However,  a  number  of  fiscal  structural  measures  have  been  delayed,  including 
simplifying  the  public  sector  remuneration  system  and  making  fully  effective  the  Single 
Payment Authority (SPA). Albeit with some delay, the preparation of the functional reviews 
of central administration and social programmes is also making progress. 

6. 

PRIVATISATION 

Important  steps  have  been  agreed  to  strengthen  and  accelerate  the  privatisation  programme. 
The Greek government is one of the European sovereigns with the richest portfolio of assets. 
This portfolio includes listed and non-listed companies, concessions and real estate: buildings 
and commercially-viable land. Most of these assets have not provided any relevant revenue; 
loss-making  state-owned  enterprises  have  actually  been  a  source  of  costs  borne  by  the 
taxpayers.  Privatising  those  assets  will  contribute  to  reduce  the  government  balance-sheet 
with a small, if any, cost, in terms of future revenue, and may actually reduce costs. At the 
same  time,  privatisation  promotes  the  economic  activity  and  foreign  direct  investment.  The 
government has identified key assets to be privatised (work is still necessary to establish real-
estate portfolios for privatisation) and a provisional calendar of privatisation was agreed. To 
accelerate the procedure, and ensure the irreversibility of the whole process, the appropriate 
governance  is  being  put  in  place:  a  privatisation  fund  managed  by  an  independent  and 
professional board will be established shortly. The Commission and the Eurogroup will have 
the right to appoint one observer each to the board.  

Sticking  to  the  fiscal  consolidation  and  privatisation  plans  will  contribute  to  bringing  the 
government debt ratio-to-GDP to a sustainable path. Although Greece will have to persevere 
in fiscal austerity and the reduction in the debt ratio will extend for many years, the inflexion 
in  the  debt-to-GDP  ratio  should  contribute  to  improve  the  market  confidence  in  the  Greek 
economy. 

7. 

CONCLUSION  

The government deficit (ESA95 basis) ceiling for 2010 established by the Council Decision 
was missed. However, in 2010, the deficit ratio fell by almost 5 points as compared to 2009. 
The government debt ratio has increased from 127.1 percent of GDP at the end 2009 to 142.8 
percent in 2010.  

For 2011, further action is necessary to stick to the deficit ceiling. Therefore, the government 
has elaborated a set of durable measures that will reduce the deficit in subsequent years. In the 
context of the medium-term fiscal strategy, permanent fiscal consolidation measures of about 
10  percent  of  GDP  have  been  identified,  to  ensure  the  achievement  of  deficit  targets  up  to 

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2014,  and  that  the  debt-to-GDP  ratio  is  put  on  a  sustainable  downward  path.  A  scaled-up 
privatisation plan is expected to reduce the debt ratio by almost 20 percentage points of GDP 
in five years. 

All  in  all,  despite  the  2010  fiscal  slippage,  Greece  is  taking  the  necessary  actions  to 
implement the required policies and to remain on track, with a view of putting an end to the 
excessive deficit by 2014, as required by the Council Decision. 

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ANNEX I:  MEASURES REQUIRED BY THE COUNCIL DECISION, TO BE ADOPTED BY END-MARCH 2011. 

Measures (as required by Article 2(4) of the Council Decision) 
“Greece shall adopt the following measures by the end of March 2011: 
(a) (abrogated) 

(b) publication of comprehensive long-term projections of pension expenditure up to 2060 as 
set  out  in  the  July  2010  legislative  reform.  The  projections  shall  encompass  the 
supplementary  (auxiliary)  schemes,  based  on  a  comprehensive  set  of  data  collected  and 
elaborated by the National Actuarial Authority. The projections shall be peer-reviewed and 
validated by the Economic Policy Committee; 

(c)  the  government  clears  payment  of  arrears  accumulated  in  2010  and  reduces  those  of 
previous years; 

(d) a medium-term budgetary strategy plan which identifies permanent fiscal consolidation 
measures of at least 8 % of GDP (some of which have already been identified in May 2010), 
plus  a  contingency  reserve,  that  will  ensure  the  achievement  of  deficit  targets  up  to  2014, 
and that the debt-to-GDP ratio is put on a sustainable downward path. The strategy plan will 
be  published  for  public  consultation  before  end  March.  The  medium-term  strategy  plan 
includes, in particular: prudent macroeconomic forecasts; baseline revenue and expenditure 
projections  for  the  state  and  for  the  other  government  entities;  a  description  of  permanent 
fiscal  measures,  their  timing  and  their  quantification;  annual  spending  ceilings  for  each 
ministry and fiscal targets for other government entities through 2014; post-measures fiscal 
projections for general government in line with the deficit and debt targets; longer term debt 
projections  based  on  prudent  macroeconomic  projections,  stable  primary  surpluses  from 
2014 on; and privatisation plans. The medium-term strategy plan will be articulated with the 
ongoing healthcare and pension reforms and with specific sectoral plans. The sectoral plans 
(draft plans to be available by end March), will cover in particular: tax policy reforms; state-
owned enterprises; extra budgetary funds (legal entities of the public sector and earmarked 
accounts);  public  wage  bill;  and  public  administration;  social  spending;  public  investment 

State of progress 

--  
Partially observed.  
The long-term projections submitted by the National Actuarial Authority 
cover the four major pension funds, which account for expenditure of 9.4 
percent of GDP in 2009 or 2/3 of total pension expenditure in that year, 93 
percent of total active insured population and 93 percent of total pensioners in 
Greece. The available projections do not cover all the auxiliary funds, welfare 
funds, a few public corporations' funds and marine fund. 

Not observed. 
Expenditure pending payment to suppliers and beyond their due data have 
increased in the first quarter of 2011. Data provided by the Greek Ministry of 
Finance indicate that arrears at end-March 2011 amount to EUR 1.1 billion 
for the state; this is an increase of at least EUR 263 million since end-
December. There are also arrears in other government layers, like local 
governments or hospitals, which are not yet taken into account in the 
quarterly performance criteria. For the government as a whole arrears at end-
March 2011 amount EUR 6 billion. 

Not observed yet. 
The medium-term fiscal strategy is expected to be adopted by end-June 2011. 

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and military spending. Each sectoral plan will be managed by interministerial taskforces; 
(e) an anti-evasion plan which includes quantitative performance indicators to hold revenue 
administration accountable; legislation to streamline the administrative tax dispute and 
judicial appeal processes and the required acts and procedures to better address misconduct, 
corruption and poor performance of tax officials, including prosecution in cases of breach of 
duty; and publication of monthly reports of the five anti-evasion taskforces, including a set 
of progress indicators; 
(f)  a  detailed  action  plan  with  a  timeline  to  complete  and  implement  the  simplified 
remuneration system; preparation of a medium-term human resource plan for the period up 
to 2013 in line with the rule of 1 recruitment for 5 exits, also specifying plans to reallocate 
qualified staff to priority areas; and publication of monthly data on staff movements (entries, 
exits, transfers among entities) of the several government departments; 

(g)  implementation  of  the  comprehensive reform  of  the  health  care  system  started  in  2010 
with  the  objective  to  keep  public  health  expenditure  at  or  below  6  %  of  GDP;  measures 
yielding savings on pharmaceuticals of at least EUR 2 billion relative to the 2010 level, of 
which at least EUR 1 billion in 2011; improvement in the accounting and billing systems of 
hospitals, through: finalising the introduction of double-entry accrual accounting systems in 
all  hospitals;  the  use  of  the  uniform  coding  system  and  a  common  registry  for  medical 
supplies; the calculation of stocks and flows of medical supplies in all the hospitals using the 
uniform coding system for medical supplies; and the timely invoicing of treatment costs (no 
later than 2 months) to Greek social security funds, other Member States and private health 
insurers; and ensure that at least 50 % of the volume of medicines used by public hospitals 
by  the  end  of  2011  is  composed  of  generics  and  off-patent  medicines  by  making  it 
compulsory for all public hospitals to procure pharmaceutical products by active substance; 

Partially observed. The final  text  of  the  law  as  adopted by  Parliament  was 
significantly amended, compared with the draft previously discussed with the 
Commission  services.  Some  of  the  features  of  the  initial  draft,  such  as  the 
indirect audit methods were left outside the law. 

Partially observed. 
There is a report describing the situation in relation to public employment and 
public  wages.  However,  this  report  does  not  contain  policy  options  of  a 
timeline for streamlining the remuneration grids. 

Partially observed.  
Government  passed  Law  3918/2011  on  structural  changes  to  the  healthcare 
system  and  other  provisions  which  introduces  a  number  of  changes  in  the 
system governance and in the way some services are purchased and provided 
(e.g.  procurement  system)  and  regulated  (e.g.  pharmacies).  The  Law  also 
merges the health insurance function of the four biggest funds (IKA-ETAM, 
OGA,  OPAD  and  OAEE)  and  creates  the  National  Health  Services 
Organisation  (EOPYY)  for  the  purchasing  of  healthcare  services  for  those 
insured under those funds. 
In  February  2011,  about  20  hospitals  did  not  have  a  proper  /  modern  ICT 
system.  For  the  others,  the  Ministry  of  Health  had  created  a  web  platform 
ESY.net  which  act  as  was  a  system  to  integrate  information  (financial, 
administrative  and  activity  information)  from  all  hospitals.  This  information 
is gathered monthly and sent to Ministries of Health and of Finance. 
132 hospitals have now moved to the double-entry accrual accounting system 
for monthly expenses and revenues. 119 hospitals produced balance sheets for 
2009, and 121 for 2010, but some have not yet done so. 
In February, EKEVYL and EPI had created a common coding system for all 
medical supplies to be used by NHS hospitals together with a web platform to 
monitor the requests by hospitals.  
The  process  of  modernising  ICT  systems  in  view  of  a  fully  integrated  and 
automated system is ongoing. 
In December 2010 a circular required a quarterly report (October-December 
2010)  of  the  cost  of  drugs  from  all  hospitals  including  the  volume  and  cost 
with generics. Another circular set the goal to increase the share of generics 
in NHS hospitals to 50 percent by 2011. The share of generics is so far 12.4 

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(h) with the aim of fighting waste and mismanagement in state-owned companies and yield 
fiscal savings of at least EUR 800 million, an act that: cuts primary remuneration in public 
enterprises  by  at  least  10  %  at  company  level;  limits  secondary  remuneration  to  10  %  of 
primary remuneration; establishes a ceiling of EUR 4 000 per month for gross earnings (12 
payments  per  year);  increases  urban  transport  tariffs  by  at  least  30  %;  actions  that  reduce 
operational  expenditure  in  public  companies  between  15  %  to  25  %;  and  an  act  for  the 
restructuring of the OASA; 
(i)  a  new  regulatory  framework  to  facilitate  the  conclusion  of  concession  agreements  for 
regional airports; 
(j)  establishment  of  an  independent  taskforce  of  education  policy  aiming  at  increasing  the 
efficiency  of  the  public  education  system  (primary,  secondary  and  higher  education)  and 
reach a more efficient use of resources; 

(k) adoption of a law to establish the Single Public Procurement Authority in line with the 
Action  Plan;  and  development  of  an  e-procurement  IT  platform  and  setting  up  of 
intermediate  milestones  in  line  with  the  Action  Plan,  including:  testing  a  pilot  version, 
availability of all functionalities for all contracts and phasing-in of the mandatory use of e-
procurement system for supplies, services and works contracts; 

(l)  an  act  specifying  the  qualification  and  responsibilities  of  accounting  officers  to  be 
appointed  in  all  line  ministries  and  major  government  entities  with  the  responsibility  to 
ensure  sound  financial  controls;  appointment  of  financial  accounting  officers;  and 
acceleration of the process of establishing commitment registries and operational registries 
covering the whole general government (except the smallest entities). 

percent of total. 

Observed.  

Law  3920/2011  on  OASA's  restructuring  was  adopted  on  22 
February 2011.  

Observed. 
Law 3913/2011 was adopted on 16 February 2011. 

Observed. 

Ongoing. 

The  draft  law  on  the  Single  Public  Procurement  Authority  is  in  compliance 
with  the  action  plan  agreed  between  the  Commission  and  Greece  in 
September 2010. The contract to provide an e-procurement platform has not 
been signed. 

Partly observed. 

The  financial  accounting  officers  have  been  appointed  but  are  not  fully 
operational  yet.  The  commitment  registries  are  not  yet  operational  in  all 
government entities. 

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