COMMUNICATION FROM THE COMMISSION Enhanced Surveillance – Greece, November 2018
Date: 2018-11-21
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Euro Group (euro area), Greece, economic recovery, gross domestic product, macroeconomics, multilateral surveillance, public debt, stability programme, structural adjustment, sustainable development

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 21.11.2018  COM(2018) 808 final  COMMUNICATION FROM THE COMMISSION Enhanced Surveillance – Greece, November 2018 {SWD(2018) 508 final}  
 
 
COMMUNICATION FROM THE COMMISSION 

Enhanced Surveillance – Greece, November 2018 

Background 

Greece  successfully  completed  its  European  Stability  Mechanism  (ESM)  stability  support 
programme on 20 August 2018. Following the end of that programme, Greece has been integrated 
into  the  regular  economic  surveillance  framework  for  euro-area  Member  States  under  the  European 
Semester for economic policy co-ordination. In order to cater for the specific needs and challenges of 
Greece,  the  Commission  has  activated  enhanced  surveillance  for  Greece  under  Regulation  (EU)  No 
472/20131,  effective  as  from  21  August  2018.2  That  decision  acknowledges  the  fact  that  over  the 
medium term, Greece needs to continue adopting measures to address the sources or potential sources 
of economic and financial difficulties, while implementing structural reforms to support a robust and 
sustainable economic growth.  

Greece has affirmed its general commitment in the Eurogroup of 22 June 2018 to continue and 
complete reforms adopted under the ESM programme and to ensure that the objectives of the 
important  reforms  adopted  under  the  financial  assistance  programmes  are  safeguarded.  The 
authorities have moreover developed a Growth Strategy and plan to monitor its implementation.  

The  Commission  will  release  enhanced  surveillance  reports  on  a  quarterly  basis,  following  a 
timetable  that  is  aligned  with  key  steps  of  the  European  Semester.  In  the  context  of  enhanced 
surveillance,  the  Commission,  in  liaison  with  the  ECB3  and,  where  appropriate,  the  IMF,  conducts 
regular review missions to verify the progress made; the ESM participates both in the context of its 
Early  Warning  System  and  in  line  with  the  Memorandum  of  Understanding  of  27  April  2018  on 
working relations between the Commission and ESM. In preparation of this report, a joint mission to 
Athens took place on 10-14 September 2018.   

This first  enhanced  surveillance  report  is issued  alongside  the  2018  autumn  Semester  package 
that includes an assessment of the 2019 draft budgetary plan sent by the Greek authorities to the 
Commission on 15 October 2018. Following the submission of the draft budgetary plan, a package of 
discretionary  measures  to  be  included  in  the  2019  budget  has  been  finalised  that  meets  the  agreed 
primary surplus target of 3.5% of GDP. The Commission considers that the final package is a balanced 
approach  to  meet  agreed  fiscal  and  economic  goals  in  a  manner  that  is  also  supportive  of  social 
inclusion. 

Enhanced  surveillance  provides  a  comprehensive  framework  for  monitoring  economic 
developments  and  the  pursuit  of  policies  needed  to  ensure  a  sustainable  economic  recovery.  It 

1  Regulation  (EU)  No 472/2013  of  the  European  Parliament  and  of  the  Council  of  21 May  2013  on  the 
strengthening  of  economic  and  budgetary  surveillance  of  Member  States  in  the  euro  area  experiencing  or 
threatened with serious difficulties with respect to their financial stability, OJ L 140, 27.5.2013, p. 1 
2  Commission  Implementing  Decision  (EU)  2018/1192  of  11  July  2018  on  the  activation  of  enhanced 
surveillance for Greece, OJ L 211, 22.8.2018, p. 1. 
3  ECB  staff  participated  in  the  review  mission  in  accordance  with  the  ECB’s  competences  and  thus  provided 
expertise on financial sector policies and macro-critical issues, such as headline fiscal targets and sustainability 
and financing needs. 

1 

 
 
 
 
                                                           
 
includes  an  assessment  of  economic  and  financial  conditions  in  Greece  as  well  as  an  assessment  of 
implementation  of  the  general  and  specific  reform  commitments  given  by  Greece  to  its  European 
partners.4, The specific commitments to complete key structural reforms started under the programme 
are in six key areas and have agreed deadlines up to mid-2022, namely (i) fiscal and fiscal-structural 
policies, (ii) social welfare, (iii) financial stability, (iv) labour and product markets, (v) privatisation 
and  (vi)  the  modernisation  of  the  public  administration.  Finally  this  enhanced  surveillance  report 
includes  an  update  on  sovereign  financing  conditions  as  well  as  a  technical  update  of  the  debt 
sustainability analysis. 

The  Eurogroup  on  22  June  2018  agreed  that  the  package  of  debt  relief  measures  for  Greece 
should  include  incentives  to  ensure  a  strong  and  continuous  implementation  of  the  reform 
measures agreed in the programme. To that end, some of the agreed debt measures will be made 
available  to  Greece  on  a  semi-annual  basis  up  to  mid-2022,  subject  to  compliance  with  its 
commitments  regarding  reform  continuity  and  completion  and  based  on  positive  reports  under 
enhanced  surveillance.  They  include  (i)  the  return  of  income  equivalent  amounts  stemming  from 
central banks' holdings of Greek bonds under the Securities Markets Programme and the Agreement 
on  Net  Financial  Assets,  and  (ii)  a  waiver  of  the  step-up  interest  rate  margin  for  part  of  the  loans 
provided by the European Financial Stability Facility. The two measures amount to EUR 1.3 billion 
and EUR 0.2 billion per year respectively.  

Steady growth, but with risks and challenges 

Greece  is  now  experiencing  a  period  of  steady  growth.  Real  GDP  is  expected  to  grow  by  2%  in 
2018, strengthening to 2.2 % of GDP in 2019 and 2.3% in 2020.5 Growth in 2019 is expected to be 
supported by the budget for 2019, which includes discretionary measures to reach a primary surplus of 
3.5%  of  GDP  in  line  with  agreed  targets.  Domestic  demand  and  in  particular  private  investment  is 
expected to become the driver of growth in the coming years with robust export growth expected to be 
offset by growth in imports on the back of strong investment growth. Recovery in the labour market is 
expected to continue as economic activity picks up and is supported by the reforms adopted under the 
programme. The unemployment rate fell to 18.9% in August 2018, down from 20.8% a year earlier, 
and down from 24.5% in August 2015, when the ESM programme started. Despite that positive trend, 
the unemployment rate is still very high, particularly amongst the young, with 38% for under-25, and 
almost  three  in  four  unemployed  are  long-term  unemployed.  The  full  rollout  of  the  social  welfare 
reforms  aimed  at  improving  the  efficiency,  effectiveness  and  adequacy  of  the  Greek  social  welfare 
system could support an improvement in the social situation in the coming years. Wage developments 
have been moderate and for the future, it will be crucial that social partners and the Greek authorities 
keep  wage  developments  aligned  with  increases  in  productivity  to  safeguard  wage  competitiveness 
gains and positive employment creation achieved under the programme.  

https://www.consilium.europa.eu/media/35749/z-councils-council-configurations-ecofin-eurogroup-2018-

4 
180621-specific-commitments-to-ensure-the-continuity-and-completion-of-reforms-adopted-under-the-esm-
programme_2.pdf  
5 The growth forecast reflects a fiscal package that is projected to deliver a primary surplus of 3.5 % of GDP in 
2019. That forecast is different from the Commission's 2018 autumn forecast, which was based on a no-policy-
change assumption given that the final package was not yet finalised at the time of its cut-off date. The forecast 
for 2020 continues to build on the achievement of the fiscal target. 

2 

 
 
 
 
                                                           
Despite  some  positive  signs,  financing  conditions  remain  difficult  and  could  hinder  recovery. 
Following, Greece's successful exit from the ESM programme, the creation of a very substantial cash 
buffer and agreement on a substantial package of measures to ensure the sustainability of public debt, 
Greece's sovereign credit ratings improved. However, sovereign spreads have stayed elevated amid a 
difficult  external  environment  and  domestic  vulnerabilities.  That  context  is  posing  particular 
challenges for the private sector. Overall, the balance of macro risks is tilted to the downside, linked to 
the potential for domestic policy slippages and a weak intermediation capacity of the banking sector as 
well as adverse external developments, including a marked slowdown in global trade.  

The decade-long crisis in Greece has many legacy effects not only in the form of unemployment 
but  also  in  the  form  of  public  and  private  debt  and  non-performing  exposures  (NPEs).  The 
elimination  of  balance  sheet  or  stock  problems  still  requires  years  of  sustained  growth  backed  by 
continued implementation of structural reforms to reduce the overhang, during which Greece is likely 
to remain exposed to economic shocks.  

A key issue to ensure the achievement of sustainable growth that requires special attention is the 
erosion of the capital stock. Greece's annual fixed investment fell by 65% between its peak in 2007 
and trough in 2017. The gap in investment flows can be corrected within a few years, and central to 
doing  so  will  be  the  efforts  to  enhance  the  business  environment,  especially  relating  to  the  justice 
system and property registration.  

A 2019 budget in line with the primary surplus target of 3.5% of GDP  

After  discussions  following  the  submission  of  the  draft  budgetary  plan  to  the  Commission,  a 
package of discretionary measures to be included in the 2019 budget has been finalised by the 
Greek authorities: the Commission projects the 2019 budget to meet the agreed primary surplus 
target  of  3.5%  of  GDP.  As  outlined  in  the  Commission  Opinion  on  the  draft  budgetary  plan6,  the 
package respects the requirements of the Union's fiscal framework, as it ensures that a primary surplus 
of 3.5% of GDP and a general government balance of 0.2% of GDP are reached in 2019.  

The  package  of  discretionary  measures  differs  from  the  fiscally  neutral  package  of  measures 
related to pension cuts due to take effect on 1 January 2019 that were pre-legislated in mid-2017. 
The  Greek  authorities  plan  to  implement  a  freeze  in  pensions  until  2022,  but  they  will  not  proceed 
with  the  pension  cuts  associated  with  the  immediate  recalibration  of  so-called  negative  personal 
differences. In addition, the authorities aim to strengthen the social benefit system through the launch 
of  a  new  housing  benefit  costing  EUR  400  million  in  2019.  They  also  plan  to  reduce  the  social 
security  contributions  for  certain  categories  of  self-employed,  to  subsidise  the  social  security 
contributions of employers for persons aged below 24, to cut the real estate (ENFIA) property tax, to 
lower the expenditure ceiling for the Public Investment Budget to levels which the authorities consider 
to be more realistic in light of persistent underspending, and to progressively lower corporate income 
taxes starting from 2020. The Greek authorities have not informed the institutions of plans to change 
the pre-legislated measure related to lowering the income tax credit foreseen for 1 January 2020.  

6 Commission Opinion on the Draft Budgetary Plan of Greece, C(2018)8016 of 21 November 2018. 

3 

 
 
 
 
                                                           
 
The Commission considers that the final package of discretionary measures to be included in the 
2019 draft budget is a balanced approach to meet agreed fiscal and economic goals in a manner 
that is also supportive of social inclusion, for several reasons.  

 

 

 

 

 

the package of measures leads to a primary surplus of 3.5% of GDP in line with the agreed 
targets;  

the implementation of the pre-legislated cuts in pensions is not needed, neither to reach nor to 
sustain  a  primary  surplus  target  of  3.5%  of  GDP  over  the  medium  term.  Moreover,  the 
proposed  freeze  in  pensions  up  to  2022  is  projected  to  lead  to  the  same  level  of  pension 
spending as a share of GDP in the steady state compared to the outcome if the pre-legislated 
pension cuts are implemented in full in 2019. Provided the reforms enacted in 2015 and 2016 
continue to be fully implemented, pension spending is projected to fall from 17% of GDP in 
2016 to the euro-area average of 13% by 2027;  

it  is  estimated  that  the  implementation  of  the  pre-legislated  pension  cuts  would  reduce  the 
main  pensions  of  some  1.4  million  retirees  by  an  average  of  14%.  Distributional  analysis 
shows that the implementation of the pre-legislated pension cuts would result in a significant 
increase in the number of pensioners at risk of poverty;  

the  2019  draft  budget  allows  for  a  partial  implementation  of  the  pre-legislated  measures  to 
increase  spending  on  other  social  benefits  which  target  poverty  risks  amongst  children  and 
working-age  families.  Building  upon  a  reform  of  family  benefits  in  place  since  the  start  of 
2018, the Commission welcomes the planned launch in 2019 of a housing benefit costing EUR 
400 million: according to Euromod simulations, thanks to effective targeting that measure is 
projected  to  have  a  material  impact  on  reducing  poverty  risks  amongst  the  young  and 
concentrated in low income cohorts. Combined, these measures amount to additional spending 
of  0.35%  of  GDP  on  social  benefits  other  than  pensions,  which  is  equivalent  to  half  of  the 
increase foreseen in the 2017 pre-legislated package. 

the  package  of  discretionary  measures  included  in  the  2019  budget  includes  measures  that 
lower taxes on labour, corporates and real estate, and as such go in the direction of measures 
included  in  the  pre-legislated  package  for  2020.  Those  measures  could  support  growth, 
although their impact will be relatively modest given their scale and composition.  However, 
the design of the measure to lower social security contributions for the self-employed, which 
includes  a  bigger  reduction  for  certain  categories  of  professionals  calls  into  question  the 
objective  of  the  2016  pension  reform  to  have  a  unified  approach  across  different  types  of 
contributors. Lower ceilings will not necessarily have an impact on the actual level of public 
investment  in  2019  given  persistent  underspending  for  several  years.  Moreover  technical 
assistance  will  be  provided  through  the  Structural  Reform  Support  Service  to  help  address 
structural  shortcomings  in  the  setting  and  monitoring  of  public  investment  projects  by  the 
Ministry of Finance.  

The  fiscal  projection  is  subject  to  uncertainty.  Spending  under-execution  has  contributed  to 
budgetary over performance in recent years, even though this is not a desirable outcome in terms of 
the  budget  process  or  the  impact  on  growth.  The  reduction  of  the  investment  spending  ceiling  has 
reduced upside risks to the fiscal forecast related to possible underspending. As regards downside risks 
and although not under the direct responsibility of the Greek authorities, one particular issue concerns 
a series of recent court cases and rulings which have, or could potentially, render invalid some aspects 

4 

 
 
 
 
 
of  reforms  enacted  under  the  ESM  and  earlier  programmes.  They  include  cases/rulings  related  to 
pension reforms enacted in 2012, 2015 and 2016 as well as measures adopted in 2012 that abolished 
the 13th and 14th monthly salaries of public sector employees. The actual impact of rulings, including 
their  fiscal  impact,  will  depend  largely  upon  the  reasoning  of  the  courts  and  may  require  corrective 
actions to be enacted so as to ensure that the structural features of the reforms continue to be pursued 
and fiscal targets are safeguarded. The Greek authorities should monitor fiscal risks, including court 
rulings, and are invited to take offsetting measures as needed to meet the medium-term fiscal targets in 
the context of the Medium-Term Fiscal Strategy (MTFS) and its annual updates. 

The  Greek  authorities  intend  to  adopt  one-off  measures  that  use  part  of  the  expected 
overshooting of the 3.5% of GDP primary surplus target for 2018 but no specific proposals have 
been provided. Such measures should only be considered provided there is a suitable safety margin to 
cater  for  possible  future  data  revisions  to  the  fiscal  outturn.  In  the  event  of  such  measures  being 
considered,  priority should be given to the clearance of any remaining liabilities arising from court 
decisions, and full compatibility with policies monitored under enhanced surveillance would need to 
be ensured. 

Fiscal structural reforms: progress with reform commitments 

The authorities are advancing with the reform of the ENFIA property tax to gradually align the 
assessment  of  zonal  values  to  market  prices.  Administrative  capacity  is  being  set  up  benefitting 
from technical support and a permanent framework law on valuation is under preparation. 

As regards the independent revenue administration (IAPR), progress is mixed. Key performance 
indicators concerning tax debt collection continue to be achieved. However, delays and shortfalls are 
observed  in  some  important  areas.  Most  notably,  the  end-2018  staffing  target  of  the  IAPR  may  be 
missed due to delays in an external competition for tax administrators/customs officials and with the 
implementation of the mobility scheme. Furthermore, delays continue to be observed in finalising the 
IAPR  Reform  Action  Plan,  which  sets  out  investments  necessary  to  further  strengthen  the  IAPR's 
capabilities, as well as in adopting the required enabling legislation to complete the human resources 
reform, which will introduce grading, remuneration and performance assessment tailored to the IAPR.  

Arrears clearance is also behind schedule. The authorities are implementing structural measures to 
address the sources of arrears accumulation and to clear arrears. That said, the clearance of arrears has 
not  proceeded  fully  in  line  with  expectations,  as  the  end-August  2018  stock  of  arrears  still  stood  at 
EUR  3.2  billion  under  the  programme  definition.  A  refined  arrears  definition  for  enhanced 
surveillance  purposes  shows  a  net  stock  of  arrears  of  EUR  1.7  billion,  taking  into  account  new 
granular data as well as elements that are cleared through offsets or cannot be cleared due to legal or 
technical  constraints  beyond  the  authorities'  control.  Some  EUR  1.1  billion  of  funds  for  arrears 
clearance have been transferred to government entities' accounts but remained there until end-August 
2018, due to a delay in transferring the funds, which left the entities limited time for absorption. Those 
funds will need to be passed on to final recipients without delay. Looking further ahead, timely and 
full  implementation  of  the  agreed  action  plans  will  remain  essential,  in  line  with  Greece's 
commitments. 

It would be warranted for the authorities to implement actions to eliminate the backlog of claims 
made  by  banks  under  State-guaranteed  loans.  In  that  context,  the  authorities  are  invited  to 
undertake  a  review  of  internal  processes  and  capacity  to  ensure  the  timely  and  effective  assessment 

5 

 
 
 
 
and payment of claims under State-guaranteed loans  at the latest by the end of the first semester of 
2019. 

A modern and sustainable social welfare system: progress with reform commitments 

In  recent  years,  major  reforms  have  been  undertaken  to  modernise  all  aspects  of  the  social 
welfare  system  in  Greece  involving  comprehensive  reforms  of  pensions,  health  care  and  other 
social  benefits. These reforms  have  received  technical  support  from  the  World  Health  Organisation 
and the World Bank via the Commission's Structural Reform Support Service. 

Progress is being made on the implementation of the 2016 pension reform, with the recalculation 
of pensions progressing in line with plans. The action plan for the unified main pension fund EFKA 
was updated with a view to fully complete its setup by mid-2020, in line with commitments.  

Progress with health care reforms is more mixed. Although the authorities continue to implement 
many  measures,  there  are  headwinds  stemming  from  stakeholder  resistance/opposition  and  resource 
and capacity constraints. Those factors have slowed down progress with the offsetting and collection 
of  clawbacks,  the  establishment  of  the  primary  health-care  centres  as  well  as  the  permanent 
establishment and staffing of the body responsible for centralised health-care procurement (EKAPY). 
The  planned  extension  of  deadlines  for  clawback  collection  that  were  themselves  already  long,  or 
plans  to  pass  from  bi-annual  to  annual  pharmaceutical  repricing,  would  be  a  step  in  the  wrong 
direction.  The  reforms  to  establish  primary  health  care  centres  and  centralised  procurement  are 
proceeding, but at a rate which is slower than foreseen. They need to be pursued with determination. 

Progress is being made to carry forward the reforms of the social safety nets initiated under the 
ESM  programme.  The  authorities  have  taken  welcome  steps  towards  the  completion  of  the  Social 
Solidarity Income scheme and in particular the labour market reintegration pillar; however, for the full 
functioning of that pillar, the on-going reform of active labour market policies needs to be completed, 
introducing  a  new  delivery  model  to  allow  the  provision  of  individualised  services  to  jobseekers  as 
well  as  the  provision  of  social  services. The authorities  are also  progressing  with  the  completion  of 
reforms  of  the  disability  benefit  and  transport  subsidies.  As  part  of  the  budget  for  2019,  a  housing 
benefit with an annual budget of EUR 400 million will be introduced. 

The financial sector: progress with reform commitments 

Substantial  measures  have  been  taken  during the ESM  programme  to  strengthen  the  banking 
sector.  During the first half of 2018, the average Core Equity Tier 1 ratio of Greek banks remained 
broadly stable at approximately 16%. Banks continued to reduce their reliance on Eurosystem funding; 
private-sector deposits have increased which gave room for a further loosening of capital controls as of 
1 October 2018. Banks have broadly met their reduction targets for non-performing exposures (NPE), 
yet  significant  further  efforts  will  be  needed  to  accelerate  the  resolution  of  NPEs  needed  to  meet 
targets  in  2019.  Overall, the  banking  system  remains burdened  by  the  heavy  legacy  of  the  crisis.  In 
spite  of  recent  improvements,  the  main  task  of  cleaning-up  banks'  balance  sheets  remains  to  be 
addressed  as  NPEs  still  amount  to just  below  48% of  total  exposures  and  the bank-sovereign  nexus 
remains strong both of which continue to weigh on banks' profitability. Bank lending activity remains 
subdued, which is a key factor. Banks need to focus on expanding their lending if they are to generate 
sufficient profits to cover the cost of NPE reduction. Net interest margins are healthy at around 2.5% 
but are under pressure. 

6 

 
 
 
 
Regarding the tools for NPE reductions, banks mostly made use of write-offs and NPE sales so 
far. The use of electronic auctions is improving, though it remains at a low volume compared to 
pre-crisis  levels,  with  limited  interest  from  third-party  buyers.  Banks  retain  80%  of  assets  sold 
through  auction  on  their  balance  sheets.  Continued  monitoring  of  the  effectiveness  of  the  e-auction 
framework is needed and any identified impediments should be appropriately addressed. Uptake of the 
new corporate procedure remains slow as does the processing of household insolvency cases, although 
the latter is expected to see improvements following recent measures to increase efficiency and deter 
strategic default behavior. The volume and turnover of out-of-court workouts remain very modest as 
assessed  against  initial  expectations,  and  both  regulatory  and  technical  measures  are  being  taken  to 
enhance the performance of the system.  

The  Greek  authorities  have  indicated  their  intention  to  adjust  the  protection  on  primary 
residences under the Household Insolvency law, which is set to expire on 1 January 2019. As an 
adjustment would be a material change compared to the reform agreed in late 2015 and given the tight 
time  constraint,  more  details  are  needed  for  a  proper  assessment  to  be  made,  and  any  legislative 
changes  should  only  be  undertaken  following  a  dialogue  with  all  relevant  stakeholders.  A  possible 
adjustment  should  not  impede  the  process  of  NPE  restructuring,  should  have  a  narrower  scope  and 
should be combined with strict conditions, including property value criteria such that such protection 
better  targeted  on  the  most  vulnerable  in  society.  Another  important  principle is  that  any  protection 
does  not  unduly  impede  the  ability  of  banks  to  pursue  strategic  defaulters.  Any  proposals  should 
eliminate  practices  whereby  the  framework  is  misused  to  block  the  conduct  of  already  planned 
electronic auctions. The backlog of pending cases under the household insolvency law was reduced to 
around 135,000 as of September 2018. The pace of reduction needs to be further increased to achieve 
the elimination of the backlog of cases until end-2021. 

Work  to  establish  a  divestment  strategy  for  the  Hellenic  Financial  Stability  Fund  (HFSF)  is 
progressing and will need to be pursued further in the coming weeks, given the aim of finalising it by 
end-2018. The authorities have also committed to extend the mandate of the HFSF Selection Panel to 
be in line with the mandate of the HFSF.  

Product and labour market reforms: progress with reform commitments 

Reforms of labour market institutions and wage bargaining in recent years have helped Greece 
regain  cost  competitiveness  and  are  contributing  to  increasing  employment  rates  and  falling 
levels of unemployment. The functioning of the labour market is further being supported by an action 
plan on undeclared work, the implementation of which is on track and should be completed by end-
2019.  

The choices to be made by social partners and the Greek authorities in the coming months will 
play a key role in determining whether wage bargaining in the post-programme period delivers 
economically  sound  outcomes  consistent  with  supporting  competitiveness  and  growth,  or 
whether the shortcoming of the pre-crisis period materialise again. In particular:  

 

it is  not feasible at this  stage  for  the  Commission  to assess the impact  of  agreed  changes to the 
collective bargaining framework that entered into force upon the expiry of the ESM programme. 
To  date  several  collective  agreements  have  been  extended  at  sectoral  level,  resulting  in  wage 
increases in some sectors, such as tourism. A critical issue for the future is whether social partners, 
with collective agreements, can introduce adequate scope for flexibility that can adequately cater 
for firms facing specific challenges. 

7 

 
 
 
 
 

 

the authorities are in the process of revising the level of the statutory minimum wage, which will 
take place in January 2019. It will be critical that any decision on the new level of the minimum 
wage  is  taken  based  on  a  genuine  consultation  with  the  social  partners  following  the  process 
enshrined  in  Law  4172/2013.  To  safeguard  competitiveness  and  to  keep  unemployment  on  a 
downward path, the revision needs to be made on the basis of a rigorous analysis of the underlying 
economic and labour market situation. 

the authorities have indicated their intention not to preserve the sub-minimum wage that currently 
applies to persons aged under 25, which would imply a considerable increase in the level of the 
minimum  wage  for  that  group.  The  Commission  considers  that  a  final  decision  on  that  issue 
should  be  taken  only  after  a  full  impact  analysis  is  conducted  demonstrating  that  the  potential 
impact  on  employment  prospects  for  young  people  is  limited,  given  that  youth  unemployment 
levels remain high and the share of minimum-wage earners in the youth population also appears to 
be large (41% in 2017).  

The pace of progress with reforms in the product markets is mixed, with advances in some areas 
being  offset  by  delays  elsewhere.  The  cadastre  and  forest  map  project  is  advancing  with  the 
appointment of management and the recruitment of dedicated teams to ensure progress. At the same 
time, enabling secondary legislation to define the installation and operation licensing procedures for 
activities in the sector of environmental infrastructures has suffered delays with respect to the October 
2018 deadline provided for in the primary legislation and work would need to be accelerated to make 
sure the end-2018 deadline can be met. The Greek authorities have not yet enacted the law on private 
clinics, which is pending since July 2018. Further clarification is also awaited on the actual impact of 
the earlier reform to day clinics in terms of achieving new licenses.  

Reforms  in  the  energy  sector  are  progressing.  In  spite  of  some  delay  due  to  third  parties,  the 
divestiture  of  the  Public  Power  Corporation's  lignite-fired  generation  capacity  is  expected  to  be 
concluded  early  2019.  Necessary  actions  for  the  launching  of  the  Target  Model  by  April  2019  are 
progressing  with  the  relevant  rulebooks  ready  for  regulatory  approval  and  other  preparatory  steps 
advancing according to schedule. It will be essential to maintain reform momentum. Ensuring that the 
Target  Model  actually  allows  for  the  entrance  of  new  players  and  realistic  pricing  is  essential  to 
underpin  the  future  development  of  the  energy  market,  combined  with  measures  that  provide  the 
required support for investment in renewable sources.  

HCAP and privatisation: progress with reform commitments 

HCAP,  the  Hellenic  Corporation  of  Assets  and  Participations,  continues  to  make  progress  in 
work  on  its  asset  portfolios  and  the  restructuring  of  its  subsidiaries.  On  a  positive  note,  the 
restructuring  of  the  real-estate  fund  ETAD  is  progressing,  with  the  process  on  the  critical  issue  of 
staffing  entering  its  final  stage.  Various  governance  initiatives  are  continuing  in  the  State-owned 
enterprises, and standardised reporting is under development. Some specific reform commitments face 
challenges. In particular, the transfer of the Olympic Athletic Centre (OAKA) will not occur by end-
2018, partly due to complexity, the expanded scope of the project and delays beyond the government's 
control.  The  process  of  reviewing  and,  where  necessary,  replacing  board  members  of  State-owned 
enterprises  is  encountering  some  delays.  Recent  legislation  may  overlap  with  aspects  of  the 
coordination mechanism or affect HCAP's rights regarding certain assets. The effect of that legislation 
is under review, and adjustments may be warranted in order to preserve the objectives and balance of 
the  framework.  It  will  also  be  important  to  put  HCAP’s  preparations  for  the  implementation  of  the 

8 

 
 
 
 
coordination  mechanism  into  action  rapidly,  to  help  manage  the  interactions  between  HCAP  and 
Ministries on issues related to public policy objectives.  

Overall, progress is made on the privatisation tenders scheduled to be completed by the end of 
2018. In particular, the tender for the natural gas transmission operator DESFA is on track, whereas 
delays occured in the transaction on the Athens International Airport, making its financial closing by 
end-2018  very  challenging.  As  regards  the  Hellinikon  project,  progress  on  all  pending  issues  is 
significant. However, due to the complexity of the project, a delay is expected on the urban planning 
and environmental approvals as well as the award of the casino licence. If the authorities continue their 
strong efforts, the project could be successfully completed in the first quarter of 2019. 

In contrast, however, significant delays are being experienced on some privatisation tenders due 
to be completed in 2019. Whilst satisfactory progress is being made on the marina of Alimos, an open 
issues  still  exists  in  the  joint  sale  (along  with  the  other  strategic  shareholder)  of  a  majority  stake 
(50.1%)  in  Hellenic  Petroleum.  The  tender  for  the  Egnatia  motorway  is  characterised  by  systematic 
delays  and  problems,  showing  a  lack  of  ownership.  Virtually  no  progress  is  being  made  in  the 
implementation  of  that  transaction  due  to  various  delays  attributable  to  either  Egnatia  S.A.  or  the 
Ministry  of  Infrastructure.  Significant  delays  have  also  been  experienced  in  the  enactment  of  the 
legislative amendment for sub-concessions for the regional ports. The Greek authorities need to take 
urgent  steps  to  address  the  sources  of  delays,  as  those  delays  offset  the  positive  effects  on  investor 
sentiment that can emerge from tenders which are proceeding well.  

Public administration and the justice system: progress with reform commitments 

Work  on  the  human  resource  management  reform  of  the  public  administration  is  ongoing.  In 
particular, the mobility and performance assessment schemes are progressing well: the third mobility 
cycle was launched mid-2018 and has shown a remarkable pick-up in participation suggesting that the 
administration is increasingly using the tool. The complex reform of the establishment of an integrated 
human resource management system is also advancing with a view to fully complete the system at the 
end  of  2019.  The  establishment  of  digital  organigrams  has  over-achieved  its  target  and  technical 
preparation  work  is  ongoing  for  the  full  system.  The  legal  codification  reform  is  progressing.  The 
'National Council for the Codification of Legislation' has adopted a national strategy that sets out the 
overall  approach  to  be  applied  by  the  Ministries  when  carrying  out  legal  codification,  including  a 
unified  Labour  Code  by  mid-2020.  Work  to  establish  the  National  Gateway  for  Codification  and 
Reform of Greek Legislation by mid-2022 is also progressing according to plan. 

There  has  been  only  mixed  progress  on  managerial  appointments  due  by  end-2018,  with  the 
appointment  of  Directors  General  almost  completed  while  the  appointment  of  Administrative 
Secretaries is lagging behind schedule. Work would need to be accelerated to meet the deadline the 
authorities committed to fulfil.  

A  recently  adopted  change  in  the  remuneration  policy  of  the  Ministry  of  Finance  lacks 
consistency with  a  past  reform to establish  a  uniform wage grid. The  measure introduces  a  new 
allowance for some staff in the Ministry of Finance, causing a differentiation in the wage levels paid to 
staff undertaking similar tasks across Ministries and public entities. While the initial fiscal cost may be 
small,  the  measure  undermines  the  essence  of  the  uniform  wage  grid  and  may  lead  to  fiscal  risks 
associated with demands for similar payments coming from other parts of the public administration.  

9 

 
 
 
 
The  size  of  the  public  sector  in  Greece  is  now  broadly  on  par  with  levels  in  other  euro-area 
Member States, and a key challenge is to avoid a return to pre-crisis practices of excessive levels 
of hiring in the public sector. New hirings of permanent staff during 2018 appear to be broadly in 
line with the attrition rule of one new entry for every three exits: however, as concerns temporary staff, 
the latest data for 2018 suggests that there could be an increase compared to the levels of 2017 and 
thus  careful  monitoring  is  needed.  For  2019  and  up  until  2022,  the  attrition  rule  in  the  hiring  plan 
included in the MTFS is adjusted to 1:1, which will allow for new hiring to be made in priority areas 
whilst  maintaining  the  overall  size  of  the  public  sector  at  its  current  level.  The  authorities  intend 
exceptionally  for  2019  a  conversion  to  permanent  contracts  for  a  specific  group  of  temporary  staff 
seen to cover permanent needs (e.g. teachers). Given that that conversion (7,500 in total) will be met 
with a corresponding reduction of temporary contracts, the wage bill will be maintained at its current 
level and thus there is no expected fiscal impact. The current hiring plan set out in the MTFS is based 
upon  the  projected  number  of  exits  from  the  public  sector,  mostly  due  to  retirement.  It  is  therefore 
vital  that  the  hiring  plan  based  on  the  1:1  attrition  rule  in  the  MTFS  is  in  fact  respected,  and 
accordingly  that  the  planning  and  announcements  of  recruitments  to  the  public  sector  is  based  on 
prudent estimates.  

There has been mixed progress in efforts to increase the efficiency of the judicial system, which 
is key to strengthening the business environment and attracting investment in the aftermath of 
the  crisis.  The  authorities  are  expected  to  complete  the  establishment  of  the  first  phase  of  the 
electronic  justice  system  by  end-December  2018,  in  line  with  the  specific  commitment  made  to  the 
Eurogroup.  The  second  phase  will  follow  immediately  after  drawing  on  the  lessons  from  the  first 
phase. To that end, the project has been extensively redesigned and upgraded as of September 2018 
and its budget has been increased from EUR 13 million to EUR 24 million, necessitating a revision of 
its timetable, which is a priori justifiable in view of its expanded scope. A development giving cause 
for concern has been the postponement from mid-October 2018 to mid-September 2019 of the entry 
into  force  of  certain  provisions  of  the  recently  adopted  out-of-court  mediation  framework.  That 
postponement seems unduly extended as the recent findings of the Supreme Court could be reasonably 
addressed in a shorter timeframe, given their limited scope.  

In  line  with  the  request  of  the  Eurogroup  of  22  June  2018,  the  Commission  has  continued  to 
monitor developments in relation to the legal proceedings against the members of the Committee 
of Experts (CoEx) of the Hellenic Asset Development Fund (TAIPED) and the former President 
and senior staff of the Hellenic Statistical Authority (ELSTAT). Regarding the CoEx case, in April 
2018,  the  Council  of  the  Athens  Court  of  Appeal  issued  a  ruling  referring  the  case  to  a  public  trial 
before the Athens Court of Appeal for Felonies. The Supreme Court Prosecutor appealed that ruling 
and  the  Supreme  Court  Council  recently  examined  the  appeal.  Its  ruling  is  now  awaited.  In  the 
excessive  deficit  procedure-related  case  against  former  ELSTAT  President  A.  Georgiou,  the  Greek 
Supreme Court Council referred the case back to the Athens Court of Appeal Council in May 2018. In 
September 2018, the prosecutor proposed that the case should be referred to a public trial: the case is 
currently pending before the Athens Court of Appeal Council. The developments in both procedures 
continue to raise serious concerns and the Commission will continue to monitor them closely and to 
report back in the context of enhanced surveillance. 

10 

 
 
 
 
Overall assessment on progress with specific reform commitments due by end 2018 

Part  of  the  evaluation  concerns  the  specific  reform  commitments  annexed  to  the  Eurogroup 
statement of 21 June 2018. There were 16 specific reform commitments to be achieved by end-2018 
covering all six policy areas. To date, all of them are progressing but none has been yet completed. In 
many instances, it is not unexpected that reforms with an end-year deadline have not been completed 
by  mid-November,  which  is  the  cut-off  date  for  this first  enhanced  surveillance  report.  The  pace  of 
implementation is broadly on track or subject to only short delays on commitments such as adopting a 
budget in line with agreed fiscal targets, the relaxation of capital controls, the completion of the first 
phase  of  the  e-justice  reform,  the  HFSF  divestment  strategy,  the  divestment  of  the  Public  Power 
Corporation's  lignite-fired  generation  capacity,  the  restructuring  of  ETAD  and  the  end-2018 
privatisation tenders, considering that the delay in the Hellinikon project is beyond the control of the 
authorities.  

However,  there  are  delays  for  several  specific  reform  commitments  that  would  need  to  be 
addressed with urgency so as to ensure that all are completed as soon as possible and well before 
the  issuance  of  the  second  enhanced  surveillance  report  towards  end  February  2019.  Those 
commitments  include  the  staffing  of  the  IAPR,  arrears  clearance,  the  roll-out  of  the  primary  health 
care system and centralised health-care procurement, the legal framework of the NPE resolution tools 
(and  in  particular  the  household  insolvency  law),  the  enabling  secondary  legislation  to  define  the 
installation  and  operation  licensing  procedures  for  activities  in  the  sector  of  environmental 
infrastructures,  the  transfer  of  the  Olympic  Centre  to  HCAP  and  the  appointment  of  Administrative 
Secretaries.  

Sovereign financing and debt sustainability analysis 

Greece started its return to the sovereign bond market as from July 2017, with several issuances 
and a significant liquidity management exercise. Credit ratings have improved, inter alia in light of 
the Eurogroup agreement of June 2018, though they remain well below investment grade.  

Despite  the  improved  credit  ratings,  market  conditions  remain  volatile,  showing  Greece's 
remaining  vulnerability  to  shifts  in  market  sentiment.  The  debt  management  agency  plans  to 
publish  an  issuance  calendar  for  2019.  While  issuances  will  serve  to  build  market  confidence  and 
create liquidity for Greek bonds, they are not needed to meet short-term financing needs. Greece's cash 
buffer  currently  amounts  to  over  EUR  26  billion,  comfortably  covering  financing  needs  up  to  end-
2020.  

Given  Greece's  sovereign  financing  profile  over  the  short  to  medium  term,  financing  needs 
remain relatively contained due to its exceptional debt structure, with the amortization of medium- 
and long-term debt generally hovering at low levels of 2%-6% of GDP over the coming decade.   

The  sizeable cash  buffer,  favourable financing  profile  and  agreed  primary  surpluses  underpin 
Greece's repayment capacity.  

A  technical  update  of  the  debt  sustainability  analysis  (DSA)  shows  that  the  assessment  of  the 
sustainability of Greece's debt has remained broadly unchanged from the last DSA published in 
June 2018. Implementation of the medium-term debt measures assures debt sustainability throughout 
the  DSA  horizon  under  the  baseline  scenario,  keeping  gross  financing  needs  below  the  agreed 
threshold, i.e. 20% of GDP in the long term. 

11