Recommendation for a COUNCIL DECISION amending Decision 2011/734/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: 2012-03-09
Institutions: European Commission
Subjects: EU control, Greece, budget deficit, budgetary control, debt reduction, financial aid, gross domestic product, public debt, structural adjustment

EUROPEAN COMMISSION 

Brussels, 9.3.2012  
COM(2012) 116 final 

Recommendation for a 

COUNCIL DECISION 

amending Decision 2011/734/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 

EN 

   EN 

 
 
 
 
  
 
EXPLANATORY MEMORANDUM 

Measures concerning the coordination and surveillance of the budgetary discipline of Greece 
and  the  setting  out  economic  policy  guidelines  for  Greece  are  defined  in  Council  Decision 
2011/734/EU on the basis of Articles 126(9) and 136 TFEU. 

Compliance  with  the  decision  is  relevant  not  only  in  the  context  of  the  excessive  deficit 
procedure, but also in the context of the financing to Greece by the euro-area Member States, 
through the EFSF. 

The government deficit (ESA95 basis) ceiling for 2011 established by the Council Decision 
was missed. For 2012, the government adopted a budget aimed at sticking to the target set in 
the Council decision and has adopted measures which would ensure a further reduction in the 
deficit in subsequent years.  

Economic activity in 2011-2014 is currently estimated and projected to be, much weaker than 
previously  exepcted  when  Council  Decisions  2010/320/EU  and  2011/734/EU  were  adopted. 
In February 2012, the Greek government announced measures aimed at reducing the primary 
deficit  in  2012,  including  the  adoption  of  a  supplementary  budget.  In  March  2012,  Greece 
executed a debt exchange operation which substantially reduced interest expenditure in 2012 
and in next years, and contributed to the sustainability of government debt. 

Given  this,  there  is  a  need  to  revise  the  annual  targets  while  keeping  the  deadline  for  the 
correction  of  the  excessive  deficit.  Targets  expressed  in  terms  of  the  primary  surplus  as  a 
percent of GDP of -1.0 in 2012, +1.8 in 2013 and +4.5 in 2014, appear appropriate given the 
deadline for the correction of the excessive deficit by 2014, and the need to improve the debt 
sustainabilty. 

There have been intensive discussions among Greece and the Commission services, the ECB 
and  the  IMF  staff,  on  the  update  of  the  policy  conditionality  in  the  Memorandum  of 
Understanding  of  the  economic  adjustment  programme  of  Greece.  These  discussions 
considered  not  only  the  fiscal  consolidation  measures,  but  also  the  need  to  enhance  the 
growth-friendly nature of these measures and to minimise any social impact. 

The Commission has adopted a Recommendation for a Council Decision amending decision 
2011/734/EU and has transmitted it to the Council. 

EN 

2 

   EN 

 
Recommendation for a 

COUNCIL DECISION 

amending Decision 2011/734/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 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union  (TFEU),  and  in 
particular Article 126(9) and Article 136 thereof, 

Having regard to the recommendation from the Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

Article  136(1)(a)  TFEU  foresees  the  possibility  of  adopting  measures  specific  to  the 
Member  States  whose  currency  is  the  euro  with  a  view  to  strengthening  the 
coordination and surveillance of their budgetary discipline. 

Article 126 TFEU establishes that Member States are to avoid excessive government 
deficits  and  sets  out  the  excessive  deficit  procedure  to  that  effect.  The  Stability  and 
Growth Pact, which in its corrective arm implements the excessive deficit procedure, 
provides the framework supporting government policies for a prompt return to sound 
budgetary positions taking account of the economic situation. 

On  27  April  2009,  the  Council  decided,  in  accordance  with  Article  104(6)  of  the 
Treaty establishing the European Community (TEC), that an excessive deficit existed 
in Greece. 
On  10  May  2010,  the  Council  adopted  Decision  2010/320/EU1  addressed  to  Greece 
under Article 126(9) and Article 136 TFEU 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  at  the  latest  by  the 
deadline  of  2014.  The  Council  established  2014  as  the  deadline  for  correcting  the 
situation of excessive deficit, and annual targets for the government deicit. 

Council Decision 2010/320/EU was substantially amended several times. Since further 
amendments  were  to  be  made,  it  was  recast,  on  12  July  2011,  by  Council  Decision 
2011/734/EU2 in the interests of clarity. 

Economic  activity  in  2011-2014  is  currently  estimated  and  projected  to  be,  much 
weaker  than  previously  exepcted  when  Council  Decisions  2010/320/EU  and 
2011/734/EU were adopted. Economic activity is estimated to have contracted in 2011 
by 6.8 percent. Currently, the Commission forecasts the real Greek GDP to contract by 
4.7  percent  in  2012,  to  stagnate  in  2013,  before  resuming  growing  by  2.5  percent  in 
2014.  In  nominal  terms,  GDP  contracted  by  5.2  percent  in  2011,  and  is  expected  to 
contract by 5.4 and 0.4 percent in 2012 and 2013, respectively, before expanding by 
2.5 percent in 2014. 

1 
2 

OJ L 145, 11.6.2010, p. 6. 
OJ L 296, 15.11.2011, p. 38. 

EN 

3 

   EN 

 
                                                 
(7) 

(8) 

(9) 

In February 2012, the Greek government announced measures aimed at reducing the 
primary deficit in 2012, including the adoption of a supplementary budget. Extensive 
discussions on these measures have taken place between the Hellenic authorities and 
the  Commission  services.  These  discussions  considered  not  only 
the  fiscal 
consolidation  measures,  but  also  the  need  to  enhance  the  growth-friendly  nature  of 
these measures and to minimise any social impact. 

In  March  2012,  Greece  launched  and  executed  a  debt  exchange  operation  which 
substantially  reduces  the  debt  level  and  interest  expenditure  in  2012  and  in  the  next 
years, and contributes to the sustainability of government debt. 

In  the  light  of  the  above  considerations,  it  appears  appropriate  to  amend  Decision 
2011/734/EU  in  a  number  of  respects,  including  the  fiscal  adjustment  path,  while 
keeping unchanged the deadline for the correction of the excessive deficit, 

HAS ADOPTED THIS DECISION: 

Decision 2011/734/EU is hereby amended as follows: 

1. 

In Article 1, paragraphs (2) and (3) are replaced by: 

Article 1 

'(2) 

The adjustment path towards the correction of the excessive deficit shall aim to 
achieve  a  general  government  primary  deficit  (deficit  excluding  interest  expenditure)  not 
exceeding EUR 2 037 million (1.0% of GDP) in 2012, and primary surpluses of at least EUR 
3 652  million  (1.8%  of  GDP)  in  2013  and  EUR  9 352  million  (4.5%  of  GDP)  in  2014. 
Following the debt exchange, these targets for the primary deficit/surplus are consistent with 
an overall deficit of EUR 14 811 million (7.3% of GDP) in 2012, EUR 9 462 million (4.7% of 
GDP) in 2013 and EUR 4 499 million (2.2% of GDP) in 2014. To this aim, an improvement 
in  the  structural  balance  of  at  least  10%  of  GDP  will  have  been  achieved  over  the  period 
2009-2014.  Proceeds  from  the  privatisation  of  assets  (financial  and  non-financial  assets),  as 
well  as  the  amounts  paid  to  Greece  by  the  euro-area  Member  States  from  future  income 
accruing  to  their  national  central  banks  on  their  Greek  government  bond  holdings  shall  not 
reduce the required fiscal consolidation effort and shall not be counted in the assessment of 
these targets. 

(3) 

The  adjustment  path  referred  to  in  paragraph  2  is  consistent  with  an  annual 
change in the general government consolidated debt of EUR -26 954 million in 2012, of EUR 
6 775 million in 2013 and of EUR 1 492 million in 2014.' 

2. 

In Article 2, the following paragraph is inserted after paragraph 7: 

'7a.  Greece shall adopt the following measures without delay  

(a) 

a reduction in pharmaceutical expenditure by at least EUR 1 076 million, in 2012; 

a  reduction  in  overtime  pay  for  doctors  in  hospitals  by  at  least  EUR  50 million  in 

(b) 
2012; 

a  reduction  in  the  procurement  of  military  material  by  EUR  300 million  (cash  and 

(c) 
deliveries) in 2012; 

EN 

4 

   EN 

 
 
 
 
(d) 
a reduction by 10 percent in the remuneration of elected and related staff at local level 
in 2012 and reduction in the number of deputy mayors and associated staff in 2013 with the 
aim of saving at least EUR 9 million in 2012 and 28 million in 2013 onwards; 

a  reduction  in  the  central  government's  operational  expenditure,  and  election-related 
(e) 
spending, by at least EUR 370 million (compared to the 2012 budget), of which at least EUR 
100  million  in  military-related  operational  expenditure,  and  at  least  EUR  70  million  in 
electoral spending; 

a reduction in operational expenditure by local government with the aim of saving at 

(f) 
least EUR 50 million in 2012; 

cuts  in  subsidies  to  residents  in  remote  areas,  and  cuts  in  grants  to  several  entities 
(g) 
supervised by the ministries, with the aim of reducing  expenditure  in 2012  by at least EUR 
190 million; 

a reduction in the public investment budget (PIB) by EUR 400 million in 2012. This 
(h) 
reduction  in  the  PIB  budget  will  not  have  any  impact  on  projects  that  are  co-financed  by 
structural funds (including TEN-T projects); 

changes  in  supplementary  pension  funds  and  pension  funds  with  high  average 
(i) 
pensions  or  which  receive  high  subsidies  from  the  budget,  and  cuts  in  other  high  pensions, 
with  the  aim  of  saving  at  least  EUR  450  million  in  2012  (net  after  taking  into  account  the 
impact on taxes and social contributions); 

cuts in family allowances for high-income households, with the aim of saving EUR 43 

(j) 
million in 2012; 

(k) 
ministerial decisions to complete the full implementation of the new wage grid in all 
the  pertinent  entities,  and  legislation  on  the  modalities  for  the  recovery  of  wages  paid  in 
excess from November 2011 afterwards.  

(l) 
the  amendement  of  Articles  3  and  21  of  Law  4038/2012  so  that  the  conditions  to 
extend the instalment plans for overdue taxes and social contributions are revised: instalment 
plans  will  only  apply  to  existing  overdue  amounts  below  EUR 10 000  for  individuals  and 
EUR  75  000  for  corporations.  Tax  payers  applying  for  an  extended  instalment  plan  should 
disclose all their financial statements to the tax authorities. 

a 

framework 

law,  with 

functioning  of 
(m) 
secondary/supplementary  public  pension  funds  aimed  at  stabilising  pension  expenditure, 
guaranteeing the budgetary neutrality of these schemes, and ensuring medium- and long-term 
sustainability of the system.'  

revision  of 

in-depth 

the 

an 

3. 

In Article 2, paragraph 8 is amended as follows: 

(a) 

point (a) and (b) are replaced by the following: 

'(a) 
a  reform  of  the  secondary/supplementary  pension  schemes  designed  in  consultation 
with  the  European  Commission,  ECB  and  IMF,  and  validated  by  the  EU  Economic  Policy 
Committee as regards its estimated impact on long-term sustainability. The parameters of the 
new  secondary  notional  defined-contribution  system  ensure  long-term  actuarial  balance,  as 
assessed by the National Actuarial Authority. 

EN 

5 

   EN 

 
an adjustment of pharmacies' profit margins and the introduction of regressive profit 

(b) 
margins with the aim of reducing the overall profit margin to below 15 percent.' 

(b) 

the following points are added: 

'(c) 

the finalisation of the on-going functional review on social programmes; 

(d) 
decisions  to  provide  for  the  Implementing  Regulation  of  the  SPPA  (Single  Public 
Procurement  Authority);  the  SPPA  starts  its  operations  to  fulfil  its  mandate,  objectives, 
competences and powers as defined in the law on the SPPA and the Action Plan agreed with 
the European Commission in November 2010; appointment of the members of the SPPA; 

the identification  of  the  schemes for which  lump sums  paid  on retirement are out of 

(e) 
line with contributions paid, and adjustment of the payments. 

a reduction of the pharmaceutical wholesalers' profit margins to converge to 5 percent 

(f) 
upper limit. 

the necessary tendering procedures to implement a comprehensive and uniform health 

(g) 
care information system (e-health system). 

the  appointment  of  all  legal,  technical  and  financial  advisors  for  the  privatisations 

(h) 
planned for 2012 and 2013.' 

4. 

In Article 2, paragraph 9, point (a) is replaced by:  

'(a) 
the finalisation of the review of public spending programmes. This review shall draw 
on external technical assistance and focus on pensions and social transfers (in a manner that 
will  preserve  basic  social  protection),  defence  spending  without  prejudice  to  the  defence 
capability  of  the  country  and  restructuring  of  central  and  local  administrations;  a  further 
rationalization  of  pharmaceutical  spending  and  operational  spending  of  hospitals,  and  of 
welfare cash benefits will also be specified; 

(b) 
the adoption of a tax reform simplifying the  tax system, eliminating exemptions and 
preferential  regimes,  including  broadening  bases,  thus  allowing  a  gradual  reduction  in  tax 
rates  as  revenue  performance  improves.  This  reform  relates  to  the  personal  income  tax, 
corporate  income  tax  and  VAT,  property  taxes,  as  well  as  social  contributions,  and  will 
maintain the relative tax burden from indirect taxes; 

(c) 

the revision of the legal values of real estate to better align them with market prices; 

(d) 
the  discontinuation  of  payments  in  cash  and  cheque  in  tax  offices  which  should  be 
replaced by bank transfers, so that staff time is freed-up to focus on more value added work 
(audit, collection enforcement and taxpayer advice); 

(e) 
reduction  by  12  percent,  on  average  in  the  'special  wages'  of  the  public  sector,  to 
which  the  new  wage  grid  does  not  apply.  This  will  apply  from  1  July  2012  on  and  deliver 
savings  of  at  least  EUR  205  million  (net  after  taking  into  account  the  impact  on  taxes  and 
social contributions).' 

5. 

In Article 2, the following paragraphs are added: 

EN 

6 

   EN 

 
'(10)  Greece shall adopt the following measures by the end of September 2012: 

a  draft  budget  for  2013  in  line  with  the  primary  surplus  target  established  in  Article 

(a) 
1(2); 

rules  and  procedures  for  centralised  purchasing/framework  contracts  for  frequently 
(b) 
purchased supplies or services at central government level with the obligation for ministries 
and  central  government  bodies  to  source  via  these  contracts  and  optional  use  for  regional 
entities. 

(11)  Greece shall adopt the following measures by the end of December 2012: 

the  final  adoption  of  the  budget  for  2013  in  line  with  the  primary  surplus  target 

(a) 
established in Article 1(2); 

legislation streamlining the procedure for submission and approval of supplementary 

(b) 
budgets.' 

This Decision shall take effect on the day of its notification.  

Article 2 

This Decision is addressed to the Hellenic Republic. 

Done at Brussels,  

Article 3 

For the Council 
The President 

EN 

7 

   EN