COMMUNICATION FROM THE COMMISSION TO THE COUNCIL Follow-up to the Council Decision 2011/734/EU of 12 July 2011 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 (November 2012)
Date: 2012-11-30
Institutions: European Commission
Subjects: Greece, anti-crisis plan, budgetary control, debt reduction, financial aid, public debt, reflation, structural adjustment

EUROPEAN 
COMMISSION 

Brussels, 30.11.2012  
COM(2012) 739 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

Follow-up to the Council Decision 2011/734/EU of 12 July 2011 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  

(November 2012) 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

Follow-up to the Council Decision 2011/734/EU of 12 July 2011 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  

(November 2012) 

1. 

INTRODUCTION 

This  Communication  assesses  the  measures  implemented  by  Greece  to  comply  with  the 
Council Decision 2011/734/EU as amended on by 2012/211/EU of 13 March 20121. Together 
with  the  Commission  staff's  Compliance  Report,  prepared  in  liaison  with  the  ECB2,  the 
Communication  contributes  to  the  assessment  of  compliance  with  the  Memorandum  of 
Understanding  (MoU)3  in  the  context  of  the  financing  to  Greece  by  the  euro-area  Member 
States, through the European Financial Stability Facility (EFSF). This assessment is based on 
the  Commission  services'  2012  Autumn  Forecast  and  the  detailed  assessment  made  in  the 
review  of  the  economic  adjustment  programme,  conducted  by  the  Commission  services 
together with the IMF and ECB staff.  

2. 

THE COUNCIL DECISION OF 13 MARCH 2012 

On  13  March  2012,  the  Council  adopted  a  Decision,  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. This Decision itself amended the July 2011 Decision4, 
which  had  been  recast  to  consolidate  several  consecutive  amendments  of  Decision 
2010/320/EU of 10 May 2010.  

The March 2012 Decision was adopted at the inception of the second adjustment programme 
for  Greece.  The  Decision  required  Greece  to  adopt  a  number  of  specific  measures  with  the 
aim  of  achieving  a  general  government  primary  deficit  not  exceeding  1%  of  GDP  in  2012, 
and primary surpluses of at least 1.8% of GDP in 2013 and 4.5% of GDP in 2014. Following 
the PSI debt exchange, these targets were consistent with an overall deficit of 7.3% of GDP in 
2012;  4.7%  of  GDP  in  2013  and  2.2%  of  GDP  in  2014.  To  achieve  these  targets,  an 
improvement in the structural budget deficit of at least 10% of GDP was required over 2009-
14. 

1 
2 

3 

4 

OJ L 113, 25.4.2012, p. 8. 
‘The  Economic  Adjustment  Programme  for  Greece  –  November  2012,’  European  Economy–
Occasional  Paper  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 March 2012. 
Council Decision 2011/734/EU (recast) (OJ L 296, 15.11.2011, p. 38). 

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3. 

A MUCH WEAKER MACROECONOMIC ENVIRONMENT  

Economic  activity  is  currently  projected  to  be  much  weaker  than  expected  when  Decision 
2012/734/EU was adopted in March 2012. The Greek economy is in its fifth consecutive year 
of  recession.  According  to  the  Commission  services'  2012  Autumn  Forecast,  real  GDP  is 
projected  to  contract  by  6.0%  in  2012  and  by  4.2%  in  2013  -  against  4.7%  and  0.0% 
respectively  in  the  previous  Council  Decision  -,  followed  by  growth  of  only  0.6%  in  2014, 
and 2.9% and 3.7% in 2015 and 2016 respectively. In contrast, the Council Decision of March 
2012  was  based  on  growth  resuming  already  by  2013.  Nominal  GDP  is  now  forecast  to 
contract  by  5.4%  in  2013,  compared  with  a  forecast  contraction  of  only  0.4%  in  March  - 
before expanding by 0.2%, 3.2% and 4.9% in 2014, 2015 and 2016 respectively. 

Relative to the forecast available in March, the Commission services' 2012 Autumn Forecast 
projects  a  significantly  larger  and  more  persistent  contraction  in  economic  activity  where  a 
falling domestic demand is compounded by the fiscal measures necessary to return the Greek 
budget onto a sustainable trajectory, and weak net exports. Several underlying factors explain 
these  developments.  First,  confidence  has  been  undermined  by  strong  uncertainty  on  the 
political  ownership  of  the  programme  during  the  double  parliamentary  elections  in  spring, 
which  resulted  in  delays  in  the  programme  implementation.  Uncertainty  regarding  Greece's 
situation  continued  to  affect  confidence  and  prevented  any  resurgence  in  investment  and 
exports.  Second,  a  weakening  world  economy  has  weighed  on  the  export  of  goods  and 
services.  Third,  the  combined  effect  of  the  delays  in  the  implementation  of  the  programme 
and the related disbursement, as well as tightened credit conditions after considerable outflow 
of money from the banking sector, resulting in tight private sector access to credit, aggravated 
the contraction in both private consumption and investment. Finally, the recent revision of the 
Greek national accounts, in October 2012, revealed a much steeper contraction of real GDP 
(real output fell by 4.9% in 2010 and 7.1% in 2011), as compared to the underlying figures in 
the Council Decision (a fall in output of 3.5% and 6.9% respectively in the same two years). 

Table 1. Macroeconomic scenario 
main features (2011-2016) 

Real GDP (growth rate)

Final domestic demand contribution*

Net trade contribution

Employment (growth rate)

Unemployment rate (percent of labour force)

Compensation of employees, private sector per head

Unit labour cost (growth rate)

HICP inflation 

HICP inflation at constant taxes

Current account balance (percent of GDP)

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

2011

-7.1

-10.1

2.4

-5.6

17.7

-3.9

-2.4

3.1

1.2

-11.7

-9.8

2012

2013

2014

2015

2016

-6.0

-9.0

3.3

-7.9

23.6

-8.9

-8.7

1.1

0.2

-8.3

-6.1

-4.2

-6.7

2.5

-2.1

24.0

-9.5

-5.0

-0.8

-1.3

-6.3

-3.9

0.6

-0.8

1.5

1.4

22.2

1.9

-0.4

-0.4

-0.6

-5.2

-2.7

2.9

1.8

1.1

2.0

20.6

2.2

-1.0

0.6

0.5

-3.4

-1.0

3.7

3.0

0.8

3.0

18.9

2.5

1.0

1.1

1.1

-2.1

0.3

Net external liabilities (percent of GDP)

-120.9

-94.4

-102.5

-105.6

-105.1

-102.5

* Excluding change in inventories and net acquisition of valuables

Source: European Commission  

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4. 

REMEDYING THE SITUATION OF EXCESSIVE DEFICIT  

4.1. 

Fiscal Policy in 2012 

Greece had been recommended to take measures for the deficit reduction judged necessary to 
remedy the situation of excessive deficit by 2014, ensuring an improvement in the structural 
balance  of  at  least  10  percentage  points  of  GDP  over  the  period  2009-14.  Greece  has  taken 
effective  action  in  2012  in  compliance  with  Council  decision  2011/734/EU  to  remedy  the 
situation of excessive deficit of the general government. 

The general government fiscal deficit itself has improved remarkably from 15.6% of GDP in 
2009 to 9.4% of GDP in 2011 and, according to the detailed staff assessment in Compliance 
Report,  to  6.9%  of  GDP  in  2012  with  a  primary  deficit  (deficit  excluding  interest 
expenditures)  of  1.5%  of  GDP.  For  the  year  as  a  whole,  the  overall  ESA-deficit  in  2012  is 
thus expected to be 0.4 percentage points of GDP better than the 7.3% of GDP government 
deficit (ESA95 basis) ceiling for 2012 established by the Council Decision. In nominal terms 
the 2012 general government deficit is expected to have reached €13.4 billion compared with 
a €14.8 billion deficit ceiling prescribed in th e Council Decision. The primary deficit however 
is expected to be slightly higher than the targeted 1.0% of GDP, in light of the deeper-than-
expected recession. 

Greece is estimated to have improved its structural deficit5 by 13.9 percentage points of GDP 
from  a  14.7%  deficit  in  2009  to  an  estimated  1.5%  deficit  in  2012.  According  to  the 
Commission  services'  2012  Autumn  Forecast,  the  cyclically  adjusted  budget  deficit  will 
improved  by  3.9  percentage  points  of  GDP  in  2012  alone.  The  underlying  fiscal  effort  in 
2009-2012  is  larger  than  the  10%  of  GDP  recommended  by  the  Council  Decision  for  the 
entire period 2009-2014.  

In the face of weaker economic activity, the government has adopted additional consolidation 
measures  limiting  the  impact  of  the  recession  on  public  finances.  These  included  lowered 
wages for special professions (judges, police, defence and university professors) from August 
2012  and  measures  to  reduce  the  overspending  in  the  health  sector.  Moreover,  the  Public 
Investment Budget was reduced by a considerable margin. This performance was facilitated 
by the introduction of better budgetary monitoring and controls, the introduction of medium-
term  budgeting  and  important  structural  reforms  in  the  healthcare  sector.  Smaller-than-
expected interest payments by almost 1.0% of GDP also assisted in this adjustment. 

The  fiscal  performance  was  achieved  without  a  significant  rise  in  arrears.  Although  the 
performance criterion and indicative target on non-accumulation of arrears of line ministries 
and hospital and general government by end-June and end-September were missed (see table 
2), the overall rise in arrears of EUR 1.6 billion since the beginning of the year is limited. The 
accumulation of arrears mainly took place in the health and defence sectors.  

5 

Structural  balance  is  defined  as  annual  cyclically  adjusted  balance  net  of  one-off  and  temporary 
measures. 

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Table 2. Fiscal quantitative performance criteria (EUR billion) 

Performance criteria

General government primary cash balance

State primary spending 
Ceiling of the accumulation of new domestic arrears 
by Hospitals and Line Ministries 

Central government debt 

New guarantees granted by the central government

Indicative target
Ceiling on the accumulation of new domestic arrears 
by the General Government 

Source: Commission services. 

end Mar 2012

end Jun 2012

end Sep 2012

Data 

Criterion 

Data 

Criterion 

Data 

Criterion 

1.2

13.1

0.5

289.9

0.0

-2.5

13.9

0.0

340.0

0.0

-2.5

26.4

0.7

308.0

-0.2

-6.0

29.2

0.0

340.0

0.0

-1.8

37.9

0.9

0.8

0.0

1.9

0.0

-5.0

43.1

0.0

340.0

0.0

0.0

According to the detailed staff assessment in the Compliance Report, the general government 
consolidated debt is expected to decline by €11.1 billion in 2012 agai nst € 26.957 billion set 
in  the  Council  Decision.  This  is  due  to  lower-than-expected  privatisation  receipts,  a  lower-
than-expected  consolidation  of  government  debt  and  worse-than-expected  cash-accruals  and 
other  interest  adjustments.  Owing  to  a  lower  nominal  GDP  following  the  statistical  data 
revision and in the light of worse macroeconomic prospects, the debt-to-GDP ratio is likely to 
rise in 2012 to 162.5%. 

4.2. 

Adjusting the fiscal medium-term path 

Given  the  deeper  and  longer-than-expected  economic  recession,  the  Commission  is 
recommending the Council to extend the fiscal adjustment path by two years and to set the the 
targets for the Greek fiscal accounts for the period 2013-2016, which should be defined on the 
basis of the primary balance in nominal terms.  

After a primary deficit of EUR 2,925 million (1.5% of GDP) in 2012, Greece should reach a 
primary balance in 2013 and primary surpluses of EUR 2,775 million in 2014 (1.5% of GDP), 
of  EUR  5,700  million  in  2015  (3%  of  GDP)  and  of  EUR  9,000  million  in  2016  (4.5%  of 
GDP)  (see  table  3).  The  measures  needed  to  reach  the  revised  targets  amount  to  EUR  9.2 
billion in 2013 with an additional EUR 4.3 billion in 2014. The revised path means that the 
general government budget balance would fall below 3% of GDP in 2016.  

Table 3. Primary Balance and GG Balance 2013-2016 

2012

2013

2014

2015

2016

March review targets

g

General government balance
Primary balance

Revised  targets
General government balance
Primary balance

Source: Commission services. 

-7.3
-1.0

-6.9
-1.5

-4.7
1.8

-5.4
0.0

-2.2
4.5

-4.5
1.5

-3.4
3.0

-2.0
4.5

The new fiscal path corresponds to an improvement in the cyclically-adjusted primary balance 
to GDP ratio from 4.1% in 2012 to 6.2% in 2013, 6.4% in 2014 and at least 6.4% of GDP in 

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2015  and  20166.  Measures  will  be  taken  by  the  authorities  in  the  course  of  the  regular 
budgetary processes over the next years. It is worth noting, however, that the projections on 
the remaining fiscal gap in outer years are inherently uncertain and depend to large extent on 
the strength of the recovery as well as yields from improvement in the tax and social security 
administrations. 

4.3. 

Fiscal compliance measures under the MTFS 2013-16 

In order to put an end to the present excessive deficit situation as rapidly as possible in line 
with  the  Council  Decision  2011/734/EU,  the  Greek  authorities  have  taken  decisive  steps  to 
consolidate  their  public  finances  in  2013  and  2014,  by  adopting  the  2013  budget  and  the 
Medium-Term Fiscal Strategy 2013-2016. 

On 11 November 2012, the budget for 2013 was adopted by the Greek parliament, including 
revenue and expenditure consolidation measures of more than €9.2 bil lion, over 5% of GDP, 
with  the  aim  to  reduce  the  primary  deficit  in  2013.  The  2013  budget  forms  part  of  the 
Medium-Term Fiscal Strategy (MTFS) 2013-2016 that was adopted by the Greek Parliament 
a few days earlier, on 7 November 2012.  

The MTFS and the relevant legislation to implement it set out a very sizeable and front-loaded 
fiscal consolidation underpinned by a comprehensive set of structural measures. The overall 
fiscal adjustment for 2013-2014 amounts to some 7.2% of GDP, with the measures in 2013 
representing 2/3 of this consolidation effort. It should pave the way for the achievement of a 
4.5% of GDP  primary surplus and  a  2.0% of  GDP government deficit by 2016. In terms of 
quality,  the  majority  of  the  adjustment  consists  in  expenditure  measures  that  will  be 
undertaken early in the programme.  

The 2013 Budget, the MTFS and individual measures have been thoroughly discussed by the 
Hellenic authorities with the Commission services in the context of the Economic Adjustment 
programme  and  the  financial  assistance  which  Greece  is  receiving.  These  discussions 
considered  the  fiscal  consolidation  measures  in  conjunction  with  the  reforms  which  they 
entail, with a view to secure a sustainable correction of the excessive deficit, the sustainability 
of the debt trajectory but also to take into account the implications for growth and the Greek 
society.  Throughout  these  discussions,  social  considerations  and  the  role  of  social  partners 
were  taken  into  account  in  the  design  and  implementation  of  the  measures  (e.g.  pension 
reforms have tried to protect the lowest income pensioners). 

The  fiscal  consolidation  measures  cover  the  whole  range  of  government  activity,  with  the 
main areas including: 

• 

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Increased sustainability of the pension system, by reducing the cost of pensions 
and  bringing  forward  the  full  effects  of  the  pension  reform.  The  pension 
measures  are  expected  to  generate  savings  of  about  EUR  5.3  billion  over  2013-14, 
about 2.8% of GDP. They represent about 2/5 of the overall package for 2013-2014. 
These  measures  complete  the  series  of  reforms  started  in  2010  with  the  pension 
reform  to  offset  the  very  rapid  increases  in  pensions  observed  in  the  2000-2009 
period.  The  general  pensionable  age  will  rise  from  65  to  67  with  proportionate 
changes in the age limits for almost all categories of retirees, thus bringing forward 

The equivalent figures for the cyclically-adjusted general government balance are estimated to be -1.3% 
of GDP in 2012, 0.7% of GDP in 2013, and 0.4% of GDP in 2014. 

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an element of the 2010 pension reform that was originally expected to start in 2015. 
All  the  seasonal  bonuses  on  main  and  supplementary  pensions  will  be  eliminated, 
while the monthly amount of main and supplementary pensions per beneficiary will 
be  reduced  progressively  (between  €1000-€1500  by  5  percent;  €1500-€2000  by  10 
percent; €2000-€3000 by 15 percent and above €3000 by 20 percent). There will also 
be  a  reduction  in  new  lump-sum  benefits  for  public  employees  and  for  all  SSFs. 
Pensions  for  special  wage  regimes  will  also  fall  following  cuts  in  wages  and  the 
elimination  of  automatic  wage  promotions.  Other  measures  include  an  increase  of 
contributions for farmers, reductions of pensions for elected staff, the introduction of 
means-testing of pensions for specific categories of beneficiaries, the elimination of 
special  pension  benefits  of  trade  unionists  and  cross-checks  to  remove  ineligible 
pension benefits. 

Permanent reductions in the public sector wage bill. After the substantial increase 
observed  in  the  2000-2009  period  and  following  the  significant  cuts  on  wages 
operated in  the  past, the  government is now planning a further series of permanent 
reductions  in  wages  of  about  EUR  1.3  billion  (0.7%  of  GDP)  over  2013-14.  This 
category of savings represents 10% of the overall fiscal package for 2013-2014. The 
rationalization  of  the  wage  bill  of  employees  under  special  wage  regimes  (judges, 
diplomats,  doctors,  professors,  armed  forces  and  police,  airport  personnel,  and 
general secretaries, will be carried out through progressive cuts in the monthly wages 
with effect from August 1, 2012 (with the following marginal reduction schedule: 2 
percent below EUR 1000; 10 percent for EUR 1000-1500; 20 percent for EUR 1500-
2500; 30 percent for EUR 2500-4000; and 35 percent above EUR 4000). These cuts 
will be then complemented in 2014 by the elimination of automatic wage promotions 
for  the  armed  forces  expected  to  yield  yearly  at  least  EUR  88  million.  Another 
important  measure  is  the  elimination  of  seasonal  bonuses of  employees  at  the  state 
and local governments and in legal entities of public and private law, accompanied 
for the 2013-2016 period by the suspension of the payment of the performance bonus 
in all the public sector.  

Other  wage-related  measures  include  the  rationalization  of  the  State  wage  bill 
(including reduction in the wage bill for consultant doctors, and a hiring freeze at the 
Ministry of Citizen protection and Ministry of Education), application of the uniform 
wage grid for public servants to the parliamentary staff, the abolition of exceptions 
from the public sector wage grid reform introduced in 2011. The MTFS also aims at 
reducing the local government wage bill. The public sector workforce is also being 
reduced by decreasing the intakes of professional academies, non-permanent teachers 
both  at  the  secondary  level  of  education  and  in  universities  and  technical  colleges 
and through a further reduction of fixed term contracts by 10 percent. Lastly, 27 000 
civil service employees will be placed into the mobility scheme by November 2013, 
including  by  abolishing  positions  of  certain  categories  of  employees  or  associated 
with  closed/merged  entities  and  by  addressing  disciplinary  cases  (including  via 
outright  dismissals).  2000  of  these  employees  have  been  moved  to  the  scheme  in 
November 2012 already. 

The rationalisation of social benefits (other than pensions) is expected to deliver 
savings for about EUR 300 million  (0.2%  of  GDP)  over  2013-14. The  measures 
adopted include the rationalisation of benefits for uninsured, introduction of means-
testing for family allowances, reduction in subsidies to farmers, increase of the age 
condition  for  recipients  of  an  income-tested  supplement  to  low  pensions  (EKAS), 

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• 

• 

• 

• 

cuts  in  special  unemployment  benefits,  rationalisation  of  transportation  benefits  for 
selected categories of patients are aimed at improving the targeting and actual impact 
of  social  benefits  on  lower-income  households,  in  line  with  the  recommendations 
delivered by the technical assistance partners (OECD). The measures strengthen the 
requirements to receive social assistance while improving their targeting to the most 
vulnerable sectors of society. The package includes also the introduction of two new 
social programmes, aimed at cushioning the impact of high unemployment rates and 
contraction in disposable income on the population. 

improvements 

in  healthcare 

Cost  reductions  and  efficiency 
including 
pharmaceutical  expenditure.  Cost  savings  in  pharmaceuticals  spending  make  up 
some  2/3  of  these  overall  reductions  in  healthcare  amounting  to  about  EUR  1.0 
billion  (0.6%  of  GDP)  over  2013-14.  Savings  stem  from  further  development  of 
incentives and obligations to use generic medicines, a revised co-payment structure 
for  medicines,  exempting  only  a  restricted  number  of  medicines  related  to  specific 
therapeutic treatments, the regular revision of medicine prices based on the three EU 
countries  with  the  lowest  prices,  and  the  application  of  automatic  claw-back 
mechanism to pharmaceutical producers. The latter will guarantee that the outpatient 
pharmaceutical  expenditure  does  not  exceed  the  targets  of  EUR  2  440  million  in 
2013 and EUR 2 000 million in 2014, to be in line with the overall target of 1.0% of 
GDP  by  2014,  while  maintaining  supplies  to  patients.  Reductions  in  hospitals' 
expenditures,  increase  in  co-payments  in  hospitals  and  for  prescriptions  of  drugs 
from 2014 onwards and the streamlining of the hospital network will also contribute 
to the expenditure reductions.  

Reduction in the operational expenditure of the government. Measures of about 
239 million in 2013 and additional EUR 225 million in 2014 amounting to about 0.5 
billion (0.3% of GDP) include the gradual implementation of e-procurement  for all 
public  administration,  25  percent  reduction  in  discretionary  non-wage  spending, 
reduction in subsidies to internal ferry boats and in grants to Extra-budgetary Funds 
outside the general government, elimination of grants to farmers' trade unions linked 
to  assistance  in  applying  for  EU  financial  aid  and  tightening  spending  rule  for  the 
Green Fund. 

Reducing  and  re-profiling  operational  defence-related  expenditure.  The  cuts  in 
2013-2014 in military procurement amount to about 340 million, which complements 
reductions in military equipment procurement already implemented in the past. Other 
measures include a reduction in operational expenditures through closure of military 
camps and a reduction of the intake into military academies. Savings for about EUR 
400 million (0.2% of GDP) are expected over 2013-2014. 

Promoting  savings  in  and  stronger  monitoring  of  state-owned  enterprises 
(SOEs),  through  increase  in  revenue,  reduction  in  transfers  to  SOEs  outside  the 
General  Government,  operational  and  personnel  expenses 
the 
harmonization of the wage grid of all state-owned enterprises of public law with the 
one in place in the rest of the public sector), for a  total amount  of  more  than  EUR 
350  million  over  2013-14  (0.2%  of  GDP).  In  order  to  ensure  the  achievement  of 
those savings, a new monitoring and enforcement framework has been introduced by 
2013  that  will  fix  specific  targets  for  the  financial  results  of  each  SOE  and  impose 
sanctions to enforce and prevent any deviations from the target.  

(through 

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• 

• 

• 

• 

Cost  reductions  and  efficiency  improvements  in  education  expenditure  by  at 
least  EUR  86  million  in  2013,  and  additional  EUR  37  million  from  2014  onwards, 
through reduction in funding for entities outside of the General Government budget 
for  education,  rationalisation  of  the  network  of  higher  education  institutions  and 
reduction in expenses for central and regional education administrations. These cost 
reductions  need  to  be  in  line  with  the  Action  Plan  for  the  improvement  of  the 
effectiveness  and  efficiency  of  the  education  system  which  the  Government  is 
committed  to  implementing  and  should  not  have  an  adverse  impact  on  the  smooth 
rolling out of the educational reforms co-funded by EU Structural Funds. 

Reductions  in  state  transfers  to  local  governments,  through  cuts  in  transfers  for 
ordinary  expenses  and  investment  of  local  governments  for  a  total  of  EUR  220 
million  over  2013-14.  In  order  to  enforce  the  achievement  of  these  savings,  an 
internal stability pact based on balanced budgets is strengthened by putting in place a 
system  of  monitoring  municipalities'  expenses,  setting  economic  disincentives  in 
case of deviations from the intra-year targets, and removing the possibility for deficit 
financing. Savings expected are of at least EUR 100 million in 2013 and additional 
EUR 120 million from 2014 onwards (0.1% of GDP over the period 2013-14). 

Reductions  in  capital  expenditure  (domestically-financed  public  investment,  and 
investment-related  grants)  for  a  total  of  EUR  300  million  over  2013-2014  0.2%  of 
GDP). To reduce the negative impact on the GDP of those cuts, the government has 
committed to cut projects with lower value added and especially those less capital-
intensive.  

A  comprehensive  reform  of  direct  taxation  and  the  tax  administration  and 
increases in taxes, aimed at addressing existing distortions. This set of measures 
represents about ¼ of the overall package as it aims to collect EUR 1 668 million in 
2013  and  EUR  1  820  million  from  2014  onwards  (1.9%  of  GDP)..  A  major  tax 
reform is being introduced which should produce savings of almost EUR 1.6 billion 
in  2014.  The  reform  of  the  tax  administration  should  also  support  stronger  tax 
collection  Among  other  tax  measures  figure  increases  in  the  fee  for  lawsuits,  an 
increase  of  tax  on  ship-owners'  assets,  reduction  of  VAT  refunds  for  farmers, 
reduction  of  diesel  excise  duty  subsidy  provided  to  farmers,  equalization  of  the 
excise tax on LPG and motor diesel oil by raising the LPG tax, equalization of social 
security  contributions  (by  raising  the  ceiling  for  employees  first  employed  before 
1993  to  that  of  employees  first  employed  after  1993),  a  reform  of  tobacco  excise 
taxation, imposing 30 percent taxation on OPAP's gross gaming revenue, 10 percent 
on lottery winnings and increase of the tax rate on savings interest from 10 up to 15 
percent..  

The overall quality of the measures included in the MTFS is high. The MFTS leads to a 
permanent correction of those expenditure items which saw an excessive increase since 2000. 
The  MTFS  implies  a  substantial  shift  in  spending  composition  away  from  entitlement 
spending and wages, with cuts in pensions and public wages accounting for about 2/3 of the 
total  yields  of  the  package.  Part  of  the  reductions  in  operational  expenditures  has  been 
underpinned by structural measures, such as the introduction of e-procurement and mobility 
of  personnel  and  a  comprehensive  functional  review  of  the  central  administration.  Together 
with the adjustment on pensions and wages the package includes also feasible although less 
sound policies such as cuts in domestic investments. Despite these reductions, domestically-
financed investment is expected to increase significantly over the medium-term. It should also 

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be noted that the MTFS does not include savings which are likely to be generated from a host 
of administrative measures, as they entail more complex implementation steps and hence are 
subject to higher delivery risks. The implementation of these measures is nevertheless crucial 
to further increase the efficiency of public spending and they will be part of the Memoranda 
of cooperation between the Ministry of Finance and the other line Ministries. 

Table 4. Fiscal measures in the MTFS 2013-14 

(cumulative impact, % of GDP)

2013

2014

Public Administration Restructuring

Subnational Governments

Public Sector Wage bill

Pensions

Social Benefits

Health

Defence

Education

Rationalization of SOEs

Rationalization of National PIB

Changes in tax system 

0.1

0.0

0.6

2.6

0.1

0.2

0.2

0.0

0.1

0.1

0.9

0.3

0.1

0.7

2.8

0.2

0.6

0.2

0.1

0.2

0.2

1.9

Total package

Source: Commission services. 

5.1

7.2

4.4. 

Structural measures with budgetary relevance 

In addition and to support the fiscal policy measures described in the previous section, Greece 
has taken a number of structural policy measures with budgetary relevance. 

The privatisation plan represents a source of significant potential revenues to be used for debt 
reduction, but has so far not generated the expected receipts. The programme was disrupted 
by  the  two  elections,  but  the  some  momentum  has  been  regained  since  September  2012. 
Cumulative  receipts  by  December  2012  are  expected  to  be  only  some  EUR  1.7  billion, 
although  several  assets  are  expected  to  be  ready  for  sale  in  the  first  half  of  2013.  The 
parliament has recently abolished the golden share (25%) in the State-owned companies to be 
privatised in the coming years, which could increase proceeds expected from some of these 
assets. Cumulative privatisation receipts by the end of 2013 are expected to be around EUR 
3.4 billion, rising to EUR 10.4 billion by the end of 2016. Doubts on the effectiveness of the 
governance of the privatisation process however continue to persist, which called for setting 
better  incentives  to  deliver  higher  proceeds,  while  contributing  to  better  industry  practices, 
more investment and net job creation. 

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Table 5. Expected Privatisation Receipts 
By the end of: 

Cumulative receipts 
since June 2011  
(€ billion) 

2012 
2013 
2014 
2015 
2016 

1.7 
4.1 
6.0 
8.0 
10.4 

A  comprehensive  income  tax  reform  will  broaden  the  tax  base  and  thus  help  share  more 
equally the tax burden. The reform is expected to enter into force from January 2013 with the 
full budgetary impact expected to be realised in 2014. The reform, which was originally to be 
adopted earlier in autumn 2011, is now a concrete initiative, which is expected to be revenue-
positive (rather than revenue-neutral as originally planned). The tax revenue implications of 
the reforms have been taken into account in the MTFS. The tax reform focuses on a new tax 
system  for  the  self-employed,  which  does  not  any  longer  allow  a  tax  allowance  and  the 
reshaping of the corporate income tax from dividends to profits taxation. The tax reform also 
aims at eliminating special tax regimes and tax expenditures in order to share the burden of 
taxation more widely. Some risks exist in the finalisation of the reform, as opposition from the 
liberal professions and self-employed can be expected. 

The  pension  system  continues  to  be  reformed.  In  particular,  the  authorities  have  already 
taken action through the recent adoption of a Law revising the supplementary pension system. 
The Law sets up a new single fund (ETEA) in which [almost] all (numerous) funds have been 
merged. It also defines a new formula, based on an actuarially neutral calculation of pension 
benefits (a "notional defined contribution" system) and topped up by a sustainability factor to 
guarantee the future sustainability of the system. The new formula, now in place, is applied 
retrospectively  to  pension  rights  accumulated  since  2001  and  will  affect  pension  paid  since 
January  2015.  .  Too  generous  lump  sum  pensions  at  retirement  have  been  substantially 
curtailed  and  the  government  is  devising  a  new,  actuarially  neutral  formula  for  calculating 
future  lump  sum  entitlements.  The  coming  months  require  strong  efforts  to  implement  the 
reform, in particular the organisational aspects of ETEA and the setting up of individualised 
pension files, possibly with technical assistance from other Member States. 

Healthcare  is  further  streamlined.  Action  on  reform  continues  and  an  important  policy 
impetus  took  place  in  March  2012  with  the  adoption  of  the  new  healthcare  law  (Law 
4052/2012)  and  a  large  number  of  related  Ministerial  Decrees.  Policies  legislated  were 
directed at 1) reducing and thereafter controlling expenditure in the pharmaceutical sector; 2) 
instituting  a  single  universal  social  health  insurance  organisation  –  EOPYY  (National 
Organisation  for  the  Provision  of  Health  Services)  and  3)  reforming  the  hospital  sector. 
Measures implemented so far have started to bear fruit. For example, electronic prescriptions 
constitute  now  more  than  90%  of  all  prescriptions  and  the  system  can  provide  real-time 
information for continuous monitoring and assessment. Following a period of slow progress 
regarding the implementation of some measures (e.g. update of price and reimbursement lists 
of  medicines,  INN  prescription,  clawback  collection),  during  the  pre-  and  post-election 
period,  authorities  have  re-affirmed  their  commitment  to  implement  legislated  reforms  and 
have proposed several new policy measures.  

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Other structural reforms are ongoing: 

• 

• 

• 

A  series  of  other  measures  are  being  taken  to  empower  the  tax  administration 
reform and strengthening the fight against corruption. The replacement of the Code 
of Books and Records adopted in 7 November 2012 and the enactment of a modern 
tax procedure code expected in mid-2013 are crucial to facilitate the implementation 
of  the  tax  administration  reforms  and  improve  the  scope  of  the  tax  policy  reform. 
Several  other  measures  are  being  implemented  to  improve  tax  collections:  these 
include a strengthened focus on collectible tax revenue and new regulations to write-
off non-collectable debts, while payments in cash are to be banned in tax offices On 
corruption,  the  government  is  planning  to  start  the  implementation  of  the  anti-
corruption  plan  and  reinforce  the  protection  of  whistle-blowers,  while  centralising 
decisions on internal disciplinary actions. 

The  government  is  determined  to  secure  tighter  control  over  all  general 
government spending and has taken important action in this area.. The Ministry 
of  Finance  has  helped  strengthen  the  monitoring  of  commitments  through  the 
institution  of  commitment  registers  in  spending  entities.  Despite  initial  delays  in 
setting-up  an  effective  public  finance  management  institutional,  72  %  of  General 
Government  entities  reported  data  through  commitment  registries  in  June  2012 
meeting the structural benchmark targets for June. The coverage is now projected at 
90 % in December 2012 as the main entity providing healthcare services, EOPYY, 
will  start  reporting  data  through  e-portal  by  October  2012.  EOPYY  must  become 
fully  compliant  in  terms  of  reporting  its  commitment  register  through  the  e-portal. 
The fiscal surveillance of the social security and health sectors has to be improved.  

Budget  execution  and  sound  fiscal  management  are  being  enhanced,  also  by 
strengthening  the  role  of  the  Ministry  of  Finance.  On  17  November  2012,  the 
Council  of  Ministers  adopted  an  act  (which  has  been  converted  into  Law  on  18 
November)  which  introduces:  (i)  Memoranda  of  Cooperation  between  the  Ministry 
of  Finance  and  the  other  Ministries  or  between  the  Ministries  and  managers  of  the 
supervised  entities  of  the  broad  general  government  sector,  to  be  signed  by  31 
December of each year; (ii) an internal stability pact for local government based on a 
balanced budget constraint and including corrective and sanctioning mechanisms as 
automatic cuts in expenditures to be applied as a rule when targets are expected to be 
missed;  (iii)  a  strengthened  system  to  monitor  monthly  budget  execution  for  state-
owned  enterprises  (SOEs)  with  sanctions  for  those  SOEs  who  do  not  respect  the 
agreed  targets;  and  (iv)  a  reinforced  centralisation  of  budget  planning  and 
implementation  strengthening 
the  Government 
Accounting Office (GAO) towards the General Directorates Financial Services of the 
line  ministries.  The  Act  also  provides  for  monthly  submission  of  the  budget 
execution  programme  and  actual  execution  to  the  supervising  Director  General  of 
Financial  Services  and  the  GAO  (depending  on  the  size  of  their  budget).  The  Act 
also allows the Ministry of Finance to take corrective measures throughout the year 
against  all  the  entities  (other  than  SOEs  and  LGs)  failing  to  comply  with  their 
budgetary  obligations,  including  the  possibility  to  bring  them  under  the  direct 
supervision of the Ministry of Finance. 

the  coordination  powers  of 

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5. 

CONCLUSION  

Greece has taken effective action to remedy the situation of excessive deficit in compliance 
with  Council  decision  2011/734/EU.  Greece  has  ensured  an  improvement  in  the  structural 
balance in 2010-2012 which is already larger than the at least 10 percentage points of GDP 
over the period 2009-14 recommened by the Council. Greece is estimated to have improved 
its  structural  deficit  by  13.9  percentage  points  of  GDP  from  a  14.7%  deficit  in  2009  to  an 
estimated 1.5% deficit in 2012. The general government deficit is projected to have improved 
from 15.6% in 2009 to 6.9% of GDP in 2012. 

Greece has taken measures to contain the deficit in 2012. In order to put an end to the present 
excessive  deficit  situation  as  rapidly  as  possible  in  line  with  the  Council  Decision 
2011/734/EU, the Greek authorities have also taken decisive steps to consolidate their public 
finances  in  2013  and  2104,  by  adopting  the  2013  budget  and  the  Medium-Term  Fiscal 
Strategy 2013-2016. The budget for 2013 adopted by parliament includes additional revenue 
and  expenditure  measures  of  more  than  €9.2  bi llion  (over 5% of GDP). The MTFS  and  the 
relevant  legislation  to  implement  it  sets  out  a  very  sizeable  and  front-loaded  fiscal 
consolidation with a comprehensive set of structural measures underlying a substantial fiscal 
consolidation.  This  should  pave  the  way  for  the  achievement  of  a  4.5%  of  GDP  primary 
surplus and a 2.0% of GDP government deficit by 2016. 

Economic  activity  is  currently  projected  to  be  much  weaker  than  expected  when  Decision 
2012/734/EU was adopted in March 2012. Real GDP is forecast to contract by 6.0% in 2012 
and  4.2%  in  2013,  against  4.7%  and  0.0%  respectively  in  the  previous  Council  Decision. 
Relative  to  the  forecast  available  in  March,  the  current  forecasts  represent  a  significantly 
larger  and  more  persistent  contraction  in  economic  activity.  This  marked  worsening  of  the 
economic  scenario  implies  a  corresponding  deterioration  of  the  outlook  for  public  finances 
given unchanged policies. 

In  the  light  of  the  above  considerations,  the  Commission  is  recommending  the  Council  to 
extend the deadline for the correction of the excessive deficit by two years to 2016, to revise 
the fiscal targets that Greece should respect in 2013 and 2014 and to set new targets for 2015 
and 2016.  

These  targets  should  be  defined  on  the  basis  of  the  general  government  primary  balance  in 
nominal terms. For 2012 the primary deficit should be EUR 2,925 million (1.5% of GDP), for 
2013, the primary balance should be EUR 0 (0% of GDP), for 2014 EUR 2,775 million (1.5% 
of GDP), for 2015 EUR 5,700 million (3.0% of GDP) and for 2016 EUR 9,000 million (4.5% 
of  GDP).  The  new  fiscal  path  implies  an  improvement  in  the  cyclically-adjusted  primary 
balance to GDP ratio from 4.1% in 2012 to 6.2% in 2013 and at least 6.4% of GDP in 2014, 
2015 and 2016. The targets for the primary balance imply an overall deficit of 5.4 % of GDP 
in  2013,  4.5  %  of  GDP  in  2014,  3.4%  of  GDP  in  2015  and  2.0%  of  GDP  in  2016.  The 
equivalent figures for the cyclically-adjusted general government balance are estimated to be -
1.3%  of  GDP  in  2012,  0.7%  of  GDP  in  2013,  and  0.4%  of  GDP  in  2014.  The  equivalent 
figures for the cyclically-adjusted government deficit to GDP ratio are estimated to be -1.3% 
in 2012, 0.7% in 2013, 0.4% in 2014, 0.0% in 2015 and -0.4% in 2016, reflecting the profile 
of interest payments.  

Within a comprehensive approach to safeguard the delivery of fiscal commitments, key areas 
being  enhanced  are  corrective  and  sanctioning  mechanisms,  transparency,  accountability, 
oversight. In this respect, necessary institutional improvements are being implemented. These 

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include  inter  alia:  strengthening  HRADF's  governance  and  independence  through  quarterly 
automatic correction mechanisms in the privatisation process, should there be slippages in the 
targets  and  reactivating  the  operation  of  the  existing  Parliamentary  Budget  Office  by 
strengthening its reputation, independence and technical competence towards a fully-fledged 
fiscal council (e.g. provision/endorsement of forecasts for the budget preparation, monitoring 
of compliance with budgetary targets and fiscal rules, provision of independent assessments 
of fiscal developments and challenges, etc), building on best international practices.  

The  Government  will  ensure  effective  and  timely  debt  servicing  and  monitoring  of  cash 
flowsthrough  a  reinforced implementation of  the debt servicing account established  by  Law 
4063/2012  (which  established  a  segregated  account  in  the  Bank  of  Greece.)  By  law, 
disbursements  to  this  account  cannot  be  used  for  any  other  purposes  than  debt  servicing, 
including  the  amortization  and  interest  payment  costs  of  all  HR’s  loans,  debt  management 
transactions and derivatives, as well as any parallel cost (fees and other expenses) related to 
debt  servicing  and  in  general  to  Public  Debt  Management  are  paid.  The  proceeds  of  this 
account are the disbursement of EFSF’s loans, subject to an EFSF acceptance notice, as well 
as  the  Hellenic  Republic’s  contributions  to  debt  servicing,  including  all  revenues  from  the 
privatisation  of  State  assets  and  at  least  30%  of  windfall  revenues.  All  payments  from  this 
account will be subject to prior detailed reporting to the EFSF/ESM and ex-post confirmation 
by the account holder. 

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ANNEX :  MEASURES REQUIRED BY COUNCIL DECISION 2011/734/EU of 13 March 2012 

Article 1(1). Greece shall put an end to the present excessive deficit situation as rapidly as possible 
and, at the latest, by the deadline of 2014.  

NOT OBSERVED - New Recommendation to extend deadline for 
the correction of the excessive deficit until 2016. 

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 all transfers related to the Eurogroup decision of 21 February 
2012 with regard to the income of euro zone national central banks, including the Bank of Greece, 
stemming from their investment portfolio holdings of Greek government bonds shall not reduce the 
required fiscal consolidation effort and shall not be counted in the assessment of these targets.  

PARTIALLY OBSERVED - According to the detailed staff 
assessment in Compliance Report, the government deficit in 2012 is 
expected to be 6.9% of GDP with a primary deficit of 1.5% of GDP. 
The overall ESA-deficit in 2012 is thus expected to be 0.4 percentage 
points of GDP better than the 7.3% of GDP government deficit 
(ESA95 basis) ceiling for 2012 established by the Council Decision. 
The primary deficit however is expected to be slightly higher than the 
targeted 1.0% of GDP, in light of the deeper-than-expected recession. 
The cumulative improvement 2009-2012 in the structural balance is 
expected to be 13.9% of GDP compared to the 10% improvement 
target for 2009-14. 

Article 1(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. 

Article 2(7a). Greece shall adopt the following measures without delay:  

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

NOT OBSERVED - The general government consolidated debt is 
expected to decline by €11.1 billion in 2012 against € 26.957 billion 
set in the Council Decision. This is due to lower-than-expected 
privatisation receipts, a lower-than-expected consolidation of 
government debt and worse-than-expected cash-accruals and other 
interest adjustments. 

OBSERVED. 
- Law 4052/2012 (Official Gazette 41/A/01.03.2012) 
- Reduce medicine prices: Ministerial Decision YG/151/29.02.2012-
Official Gazette 545/B/01.03.2012. 
- Reduce princes for off patent medicine: Ministerial Decision 
YG/151/29.02.2012-Official Gazette 545/B/01.03.2012.  
- Reduce generic prices: Ministerial Decision YG/151/29.02.2012-
Official Gazette 545/B/01.03.2012. 
- Reduce off branded prices: Ministerial Decision 

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YG/151/29.02.2012-Official Gazette 545/B/01.03.2012.  
- Increasing co-payments: Joint Ministerial Decision 
F42000oik2555/353/28.02.2012- Official Gazette 497/28.02.2012.  
- Reduction in pharmacists and wholesalers margins: Ministerial 
Decision YG/151/29.02.2012-Official Gazette 545/B/01.03.2012.  
- Compulsory prescription by e- prescription: Ministerial Decision 
YG/148/29.02.2012 Official Gazette 545/B/01.03.2012 
- Compulsory protocols: Ministerial Decision Y4a/29.02.2012 
Official Gazette 545/B/01.03.2012 
- Only reimburse pharmacists on the basis of electronic prescription: 
Ministerial Decision YG/148/29.02.2012 Official Gazette 
545/B/01.03.2012.  
- Rebates for positive list: Ministerial Decision YG/151/29.02.2012 
Official Gazette 545/B/01.03.2012. 
- Circulars requesting the update on hospital's and social security 
funds' budgets . F.80000/5368/1108/06.03.2012 and 
22435/06.03.2012 and Joint Ministerial Decision Y10/G.P. oik 
GY156/01.03.2012.  
- Claw back: Ministerial Decision GY 150/01.03.2012-Official 
Gazette 681/B/08.03.2012 

OBSERVED. 
- Reduction in overtime pay for doctors: Law 4051/2012, Official 
Gazette 40/A/29.02.2012.  
- Implementing circular 2/17589/022/29.02.2012 

OBSERVED. 
Reduction in the procurement of military material: Law 4051/2012 
Official Gazette 40/A/29.02.2012 

OBSERVED. 
Reduction by 10% in the remuneration of elected and related staff: 
Law 4051/2012 Official Gazette 40/A/29.02.2012. The reduction in 
remuneration is immediate.  

However the reduction in the number of deputy mayors and 
associated staff will only become effective on 1 January 2013. 

(b) a reduction in overtime pay for doctors in hospitals by at least EUR 50 million in 2012;  

(c) a reduction in the procurement of military material by EUR 300 million (cash and deliveries) in 
2012;  

(d) a reduction by 10 % in the remuneration of elected and related staff at local level in 2012 and a 
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 an additional EUR 28 million in 2013;  

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(e) a reduction in the central government’s operational expenditure, and election-related 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;  

(f) a reduction in operational expenditure by local government with the aim of saving at least EUR 
50 million in 2012;  

OBSERVED. 
Reduction in central government's operational expenditure and 
electoral spending: Law 4051/2012 Official Gazette 
40/A/29.02.2012. Although legislative changes have been made, the 
reduction of expenditure in some categories has been ex-post smaller 
than originally included in the programme due to the fact that some 
unexpected spending have not been sufficiently offset by other 
savings (thus requiring the increase of the appropriation through the 
contingency reserve). 

OBSERVED. 
Cuts on subsidies and grants: Law 4051/2012 Official Gazette 
40/A/29.02.2012 

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

OBSERVED. 
- Remote areas: Joint Ministerial Decision 1411/25952/05.03.2012 

- Grants: Ministerial Decision amending the budget of Ministry of 
Education F.1/A/137/23741/IB/06.03.2012, amending the 
implementing budget F.a/A9017022/16.02.2012, on grants to 
universities on contractual university employees 
F.a/G23736/IB/06.03.2012, on grants to universities for operational 
expenditure 1/A/23740/IB/06.03.2012, on grants to universities on 
expenditure for food for students F.1/B 23738/IB/06.03.2012, on 
grants to technical schools for contractual employees, operational 
expenditure and food to students 23734/IB/06.03.2012.  

- On amended budget to Ministry of Culture and Tourism 
YPPOT/OIKON/A1/19924/05.03.2012 

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

OBSERVED. 
Reduction in PIB: Law 4051/2012 Official Gazette 40/A/29.02.2012 

(i) changes in supplementary pension funds and pension funds with high average 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 

OBSERVED. 
- Changes in supplementary pensions Law 4051/2012 Official 

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contributions);  

Gazette 40/A/29.02.2012.  

(j) cuts in family allowances for high-income households, with the aim of saving EUR 43 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 as from November 
2011;  

- Joint Ministerial Decision for NAT Official Gazette 
499/B/28.02.2012 

OBSERVED. 
Cuts in family allowances Law 4052/2012 Official Gazette 
41/A/01.03.2012 

OBSERVED. 
- Wage Grid: Law 4051/2012 Official Gazette 40/A/29.02.2012 
- Joint Ministerial Decision for staff of ministerial offices 2-
16306/0022/23.02.2012 Official Gazette 78/Yo/24.02.2012 
- Joint Ministerial Decision for fixed term contracts 2-
391/0022/17.02.2012 Official Gazette B 414/23.02.2012 
- Joint Ministerial Decision for heavy duty tasks Official Gazette 
465/B/24.02.2012 
- Joint Ministerial Decision for lawyers Official Gazette 
498/B/28.02.2012 
- Joint Ministerial Decision for special scientist of independent 
authorities Official Gazette 498/B/28.02.2012 

(l) the amendment 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;  

OBSERVED. 

(m) a framework law, with an in-depth revision of the functioning of 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. 

OBSERVED. 

Article 2(8). Greece shall adopt the following measures by the end of March 2012:  

(a) a reform of the secondary/supplementary pension schemes designed in consultation with the 
European Commission, the European Central Bank and the International Monetary Fund, and 

OBSERVED. 

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validated by the 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;  

(b) an adjustment of pharmacies’ profit margins and the introduction of regressive profit margins 
with the aim of reducing the overall profit margin to below 15%.  

(c) undertaking of the second phase of the existing functional review of social programmes which 
include a more detailed review of specific programmes, aiming at reducing excessive fragmentation, 
generating savings and creating efficiencies;  

(d) coverage of all medical acts by e-prescribing (medicines, referrals, diagnostics, surgery) in both 
national health system (NHS) facilities and providers contracted by EOPYY and the social security 
funds; production of detailed monthly auditing reports by NHS facilities and by providers; 
association of a lower cost-sharing rate to generic medicines that have a significantly lower price 
than the reference price (lower than 60 % of the reference price) on the basis of the experience of 
other Member States; publication by the social security funds of an annual report on medicine 
prescription; adoption by all hospitals of commitment registers;  

OBSERVED AND ONGOING. 
Law 4052/2012 has been adopted by Parliament. Authorities have 
removed the 6, 7 and 8% of profit margin of pharmacies for 
medicines above 200 as in Law 4052/2012 by end of September. As a 
result only the 30 euro apply to medicines above 200 euro. 

ONGOING 
The OECD report on social programmes has not yet been finalised 
nor agreed with the Greek authorities. Nonetheless, some of its 
findings were used to change policies on social programmes. 

OBSERVED AND ONGOING. 
Law 4052/2012 and respective Ministerial Decree have been adopted. 
Coverage of e-prescription stands at more than 90 % of prescriptions 
of pharmaceuticals. The e-prescription system for referrals and 
diagnostic tests exists but its coverage is still limited and not yet 
integrated with the other e-prescription system. Authorities are 
working with Swedish authorities to improve the e-prescription 
system. Authorities will merge the e-diagnosis into the e-prescription 
system for medicines by mid-November. 

OBSERVED AND ONGOING. 
EOPYY has now daily access to e-prescription data and is able to 
produce reports on e-prescription. Authorities have shared a very 
simple first report in early October.  

OBSERVED AND ONGOING 
On substance, the cost-sharing is lower for cheapest generics as Law 
4052/2012 and ministerial decree indicate that only the cheapest 
medicine in each INN group would be reimbursed and for the others 
the patient would pay the price difference. In other words, the price 
of the cheapest generic is the reference price for reimbursement. 
Authorities have introduced an internal reference price system at 
ATC-4 level, together with the publication of the positive list in mid-

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November. 

OBSERVED AND ONGOING. 
Authorities are producing data and analysing. Authorities have 
provided a first draft report by end September. The structure and 
content of the report needs to be substantially improved. 

OBSERVED AND ONGOING.  
Most but not all hospitals have been assigned internal controllers. A 
report on their activity should be submitted to the Commission by 
end-November. 

(e) move towards a new centralised procurement of pharmaceuticals and medical goods for the NHS 
through the Supplies Coordination Committee with the support of the Specifications Committee, 
using the uniform coding system for medical supplies and pharmaceuticals;  

ONGOING. 
Several tenders have been launched for medical devices and 
medicines used in hospitals and can result in important savings. 

(f) in order to strengthen expenditure control, adoption of legislation streamlining the procedure for 
submission and approval of supplementary budgets; continuation of the process of establishing 
commitment registries, which shall cover the whole general government ;  

 (g) the finalisation of the on-going functional review on social programmes;  

PARTIALLY OBSERVED 
An administrative calendar for the update of the medium-term fiscal 
strategy has been established in Q1. The MTFS has been adopted. 
Adoption of legislation to streamline procedures for submission and 
approval of supplementary budget under discussion with the 
Authorities. 

OBSERVED AND ONGOING.  
Circular on commitment registers for the investment budget issued in 
March. 72 % of spending units reported data from commitment 
registers in July meeting the relevant structural benchmark (the other 
one concerning discrepancies between data reported through surveys 
and those by commitment registers was missed by a small margin). 

ONGOING  
The OECD report on social programmes has not yet been finalised 
nor agreed with the Greek authorities. Nonetheless, some of its 
findings were used to change policies on social programmes. 

(h) appointment of the members of the Single Public Procurement Authority (SPPA);  

OBSERVED.  

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(i) the identification of the schemes for which lump sums paid on retirement are out of line with 
contributions paid, and adjustment of the payments;  

(j) a reduction of the pharmaceutical wholesalers’ profit margins to converge to a 5 % upper limit;  

(k) the necessary tendering procedures to implement a comprehensive and uniform health care 
information system (e-health system);  

NOT OBSERVED.  
The technical work to establish an actuarial formula for the 
calculation of supplementary pensions will be completed in 
November. A Ministerial Decision will be adopted by December. 

OBSERVED. 
Law 4052/2012 has been adopted by Parliament. 

OBSERVED AND ONGOING.  
Tenders were launched but process not yet finalised. 

(l) the appointment of all legal, technical and financial advisors for the privatisations planned for 
2012 and 2013.  

PARTIALLY OBSERVED. 
Still pending appointment of advisors for EAS. 

 Article 2(9) Greece shall adopt the following measures by the end of June 2012:  

(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 rationalisation of pharmaceutical 
spending and operational spending of hospitals, and of welfare cash benefits, will also be specified;  

ONGOING. 
KEPE carried out a review on public spending reflecting concrete 
results that the Government used as part of the measures adopted in 
the fiscal package. 

(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;  

NOT OBSERVED. PROGRESS MADE.  
Extensive and detailed discussions on key parameters and budgetary 
impact of PIT and CIT income tax reform. Draft legislation on PIT, 
CIT and sanctions, etc. circulated and most likely to be enacted by 
end-December 2012. 

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

NOT OBSERVED. PROGRESS MADE.  
According to Bank of Greece, the shortfall of real estate prices in 
2011 and 2012 reduced de facto the discrepancy between prices and 
legal values by 80%. Therefore, Authorities focused their efforts on a 
dynamic process to timely updates legal values towards market 
prices. The Ministry of Finance has initiated the design and 
implementation of a standard procedure for revision of legal values. 
An amendment has been drafted for placing the respective 
responsibility in the Directory of Capital Taxation. This new process 

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

(f) decisions to provide for the Implementing Regulation of the SPPA; 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.  

will reduce the political interference in the determination of real-
estate prices for taxation purpose. 

NOT OBSERVED. PROGRESS MADE.  
The required institutional changes have been identified and the 
necessary action to complete this task is underway. To be completed 
by December 2012. Work is in progress to complete the payment of 
assessed debts through the banking system to be completed by end-
October. It will include debts that are under instalment plans 
(currently the majority due to the crisis). 

OBSERVED.  
The Government adopted in November the cuts in special wage 
regimes; they have been included in the omnibus bill (Paragraph 
C.1/13-39). Although those cuts should have entered into force in 
June rather than in November, they are made retroactively as of 1 
August 2012. 

NOT OBSERVED. PROGRESS MADE.  
The decisions regarding the appointment of the members of the 
SPPA board, for the establishment of positions for the SPPA 
personnel, as well as the Presidential Decrees on the rules of 
operation of the SPAA (PD 122/2012; FEK A 215/5.11.2012) and on 
the organization of SPAA (PD 123/2012; FEK A 216/5.11.2012) 
have all been adopted. The Presidential Decree on the SPPA's 
financial regulation will be ready in November. 

OBSERVED.  
The members of the Board have been appointed and 7 staff (5 
lawyers, 2 engineers) have been moved to the Authority from various 
Greek public sector bodies (as of mid-September 2012). In 
accordance with the Presidential Decree on the organization of the 
SPPA, more staff should be seconded to the Authority in order to 
ensure that it becomes fully operational. The SPPA is currently 
sharing the premises of the Greek Secretary General of Commerce 
and will be moved to a new building later in 2012. The Greek 
authorities should ensure that the move of the SPPA to its new 

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premises will take place in a timely manner. Also, as of mid-
September, the SPPA had adopted 27 negative decisions against the 
adoption of a negotiated procedure without publication in the 
healthcare sector'' 

Article 2(10). Greece shall adopt the following measures by the end of September 2012:  

(a) a draft budget for 2013 in line with the primary surplus target established in Article 1(2);  

OBSERVED. 

(b) rules and procedures for centralised purchasing/framework contracts for frequently 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. 

NOT OBSERVED.  

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