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

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 21.11.2018  SWD(2018) 508 final  COMMISSION STAFF WORKING DOCUMENT Enhanced surveillance report – Greece 2018 November  Accompanying the document COMMUNICATION FROM THE COMMISSION Enhanced surveillance – Greece 2018 November {COM(2018) 808 final}  
 
 
ABBREVIATIONS 

ADEDY: Ανώτατη Διοίκηση Ενώσεων Δημοσίων Υπαλλήλων (Civil Servants' Confederation) 
AFEK: Ατομικό Φύλλο Εκκαθάρισης (personal clearance certificate)  
AIA: Athens International Airport 
ANFA: Agreement on Net Financial Assets 
APS: Asset Protection Scheme 
ASEP: Ανώτατο Συμβούλιο Επιλογής Προσωπικού (Supreme Council for Civil Personnel Selection) 
BoG: Bank of Greece 
CDLF (ΤΠΔ): Ταμείο Παρακαταθηκών και Δανείων (Consignment Deposits and Loans Fund) 
CET1: Common Equity Tier 1 
CIT: corporate income tax 
CO2: carbon dioxide 
CoCo: contingent convertible bond 
CoEx: Committee of Experts 
CoS: Council of State 
DEPA: Δημόσια Επιχείρηση Αερίου (Public Gas Corporation of Greece) 
DESFA:  Διαχειριστής  Εθνικού  Συστήματος  Φυσικού  Αερίου  (Natural  Gas  Transmission  System 
Operator) 
DSA: debt sustainability analysis 
DTAs: deferred tax assets 
DTCs: teferred tax credits 
EBRD: European Bank for Reconstruction and Development 
ECB: European Central Bank 
EDA Attiki: Εταιρεία Διανομής Αττικής (Natural Gas Distribution Company of Attica) 
EDP: excessive deficit procedure 
EFKA: Ενιαίος Φορέας Κοινωνικής Ασφάλισης (Unified Social Security Fund ) EFSF  
EFSF: European Financial Stability Facility 
EIB: European Investment Bank 
EKAPY:  Eqnikή  Kentrikή  Arcή  Promhqeiών  Ugeίaς  (National  Central  Authority  of  Health 
Procurements) 
EKAS: Επίδομα Κοινωνικής Αλληλεγγύης Συνταξιούχων (pensioners' social solidarity grant) 
ELA: emergency liquidity assistance 
ELSTAT: Ελληνική Στατιστική Αρχή (Hellenic Statistical Authority) 
ELTA: Ελληνικά Ταχυδρομεία (Hellenic Post) 
ENFIA: Ενιαίος Φόρος Ιδιοκτησίας Ακινήτων (unified property tax) 
EOPYY: Eqnikού Organismού Uphresiών Ugeίaς (National health insurance body) 
EPA Attiki: Εταιρεία Παροχής Αερίου Αττικής (Natural Gas Supply Company of Attica) 
ESA: European System of Accounts 
ESKAEN: Εθνικού Συμβουλίου για την Κωδικοποίηση και την Αναμόρφωση της Ελληνικής Νομοθεσίας 
(National Council for the Codification of Legislation) 
ESM: European Stability Mechanism 
ETAA: Ενιαίο Ταμείο Ανεξάρτητα Απασχολούμενων (Independent professionals Social Security Fund)  
ETAD: Εταιρεία Ακινήτων Δημοσίου ΑΕ (Public Properties Company) 
ETMEAR:  Ειδικό  Τέλος  Μείωσης  Εκπομπών  Αερίων  Ρύπων  (Special  Duty  for  Reduction  of  Gas 
Emissions) 
ETS: emissions trading scheme 
EU: European Union 
FDI: foreign direct investment 
GAO: General Accounting Office (part of Ministry of Finance) 
GDP: gross domestic product 
GFN: gross financing needs  
GLF: Greek Loan Facility 
GSCO: General Secretariat for Coordination 
HCA: Hellenic Court of Audit 

ii 

 
Abbreviations 

HCAP: Hellenic Corporation of Assets and Participations 
HFED: Hellenic Fund for Entrepreneurship and Development 
HFSF: Hellenic Financial Stability Fund 
HICP: harmonised index of consumer prices 
HR: human resources 
HRMS: human resource management system 
IAPR: Independent Authority for Public Revenue 
ICT: information and communication technologies 
ILO: International Labour Organisation 
IMC: inter-ministerial coordination 
JMD: joint ministerial decision 
KEPA: Κέντρο Πιστοποίησης Αναπηρίας (Disability certification centre) 
KPI: key performance indicator 
LCR: liquidity coverage ratio 
MAR: Ministry of Administrative Reform 
MFI: monetary financial institution 
MoF: Ministry of Finance 
MREL: minimum requirement for own funds and eligible liabilities 
MTFS: Medium-Term Fiscal Strategy 
MW: megawatt  
NFC: non-financial corporation 
NOME: Nouvelle Organisation du Marché de l'Electricité (electricity auction) 
NPE: non-performing exposure 
NPL: non-performing loan 
NSRF: National Strategic Reference Framework  
OAED: Οργανισμός Απασχόλησης Εργατικού Δυναμικού (Public employment service) 
OAEE: Οργανισμός Ασφαλίσεων Ελεύθερων Επαγγελματιών (Self-employed Social Security Fund) 
OAKA: Ολυμπιακό Αθλητικό Κέντρο Αθήνας «Σπύρος Λούης (Olympic Athletic Centre of Athens)  
OASA: Οργανισμός Αστικών Συγκοινωνιών Αθηνών (Athens’ public transport company) 
OASTH: Οργανισμός Αστικών Συγκοινωνιών Θεσσαλονίκης (Thessaloniki’s public transport company) 
OCW: out-of-court workout mechanism 
OGA: Οργανισμός Γεωργικών Ασφαλίσεων (Agricultural Insurance Organization) 
OSDDY/PP:  Ολοκληρωμένο  Σύστημα  Διαχείρισης  Δικαστικών  Υποθέσεων  /  Πολιτικές  Ποινικές 
(Integrated Management System for Judicial Cases / Civil and Penal) 
PCI: European Project of Common Interest 
PCR: price coupling of regions 
PDMA: Public Debt Management Agency 
PIB: public investment budget 
PIT: personal income tax 
PPC: Public Power Corporation 
PSO: public service obligation 
RAE: Regulatory Agency for Energy 
RAEM: Regulatory Authority for Passenger Transport 
RES: renewable energy source 
RFA: Relationship Framework Agreement 
ROSCO: Rolling-Stock Maintenance Company 
SME: small and medium-sized enterprise 
SMP: Securities Markets Programme 
SOE: State-owned enterprise 
SPA: Single Payment Authority 
SRSS: Structural Reform Support Service 
SSI: social solidarity income 
SSM: Single Supervisory Mechanism 

iii 

 
 
Abbreviations 

SSW: Special Secretariat for Water 
TAIPED:  Ταμείο  Αξιοποίησης  Ιδιωτικής  Περιουσίας  του  Δημοσίου  AE  (Hellenic  Republic  Asset 
Development Fund) 
TOMY: Τοπική Μονάδα Υγείας (Primary Health Care Unit) 
VAT: value added tax 
WAM: weighted average maturity 
WB: World Bank 

iv 

 
 
 
 
CONTENTS 

Executive summary 

1. 

Introduction 

2.  Macroeconomic developments 

3. 

Fiscal and fiscal-structural policies 

3.1. 

Fiscal policy 

3.2. 

Fiscal and structural policies 

4. 

Social welfare 

4.1.  Pensions 

4.2.  Health care 

4.3. 

Social safety nets 

5. 

Financial sector 

5.1. 

Financial sector developments 

5.2.  Non-performing exposures and insolvency legislation 

5.3.  Hellenic Financial Stability fund 

6. 

Labour and product markets 

6.1. 

Labour market 

6.2.  Product markets and competitiveness 

7.  Hellenic Corporation of Assets and Participations (HCAP) and privatisation 

7.1.  Hellenic corporation of assets and participations 

7.2. 

Implementation of the asset development plan 

8. 

Public administration and justice 

8.1.  Public administration reform 

8.2. 

Justice and fight against corruption 

9. 

Sovereign financing and capacity to repay 

9.1. 

Sovereign Financing 

9.2.  Debt sustainability analysis 

A.  Annex 

1 

3 

5 

8 

8 

17 

21 

21 

21 

23 

25 

25 

29 

31 

33 

33 

37 

42 

42 

44 

47 

47 

53 

55 

55 

57 

59 

 
 
LIST OF TABLES 

2.1.  Main features of the macroeconomic scenario (with fiscal measures) 

3.1.  Main drivers of the fiscal projection (no policy change) 

3.2. 

3.3. 

5.1. 

9.1. 

9.2. 

9.3. 

EIs projections with the final package of measures for 2019 (% of GDP) 

Overview of fiscal risks 

Financial stability indicators 

State financing requirements, sources and financial buffer in 2018 and 2019 

Different definitions of debt (baseline scenario, after medium term measures) 

Results of the baseline scenario including the implementation of all the agreed debt 

measures 

9.4.  Main assumptions underlying the DSA 

A.1. 

Progress on specific reform completion commitments due end-2018 (Eurogroup annex 22 

June 2018) 

LIST OF GRAPHS 

2.1. 

2.2. 

2.3. 

2.4. 

3.1. 

3.2. 

Contributions to real GDP growth 

Employment growth 

Gross fixed capital formation as % of GDP 

Net capital stock (volume index, 2010 = 100) 

Fiscal target outperformed since 2015 

Evolution of general government net arrears according to the programme definition and 

the new definition used for enhanced surveillance 

4.1. 

Change in equivalised disposable income by income decile resulting from a housing 

benefit of EUR 400 million 

4.2. 

Change in at-risk-of-poverty by age group resulting from a housing benefit of EUR 400 

million 

Bank deposits 

Total borrowing from the Eurosystem 

Bank credit to households 

Bank interest rates on new loans 

5.1. 

5.2. 

5.3. 

5.4. 

9.1.  Medium and long term amortizations 

9.2. 

9.3. 

9.4. 

9.5. 

Greece's credit ratings 

Spreads of the 10-year government bonds to the German Bund 

Debt to GDP ratio 

GFN to GDP ratio 

LIST OF BOXES 

3.1. 

Pre-legislated pension cuts 

7 

10 

11 

12 

25 

57 

57 

58 

58 

59 

6 

6 

7 

7 

8 

19 

23 

23 

25 

25 

29 

29 

55 

56 

56 

57 

58 

14 

 
 
 
 
5.1. 

6.1. 

8.1. 

Easing capital controls in Greece 

The Greek minimum wage in an EU perspective 

Evolution of the public administration size and cost 

27 

35 

51 

 
 
 
 
EXECUTIVE SUMMARY 

is 

report 

surveillance 

Greece  has  been  integrated  into  the  European 
Semester  and  the  Commission  has  activated 
enhanced 
for  Greece  under 
Regulation  (EU)  No  472/2013.  This  enhanced 
surveillance 
issued  alongside  an 
assessment  of  the  2019  draft  budgetary  plan.  A 
revised  package  of  discretionary  fiscal  measures 
has  been  finalised  by  the  Greek  authorities.  The 
Commission  considers  that  this  respects  the  EU's 
fiscal framework and will meet the primary surplus 
target of 3.5% of GDP and the pursuit of economic 
goals  in  a  manner  that  is  supportive  of  social 
inclusion. 

amongst 

Real  GDP  is  expected  to  grow  by  2%  in  2018, 
strengthening  to  2.2  %  of  GDP  in  2019  and 
2.3%  in  2020.  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,  unemployment  is  still  very  high, 
particularly 
the  young.  Financing 
conditions  remain  difficult  with  macro  risks  tilted 
to the downside. The decade-long crisis in Greece 
has  numerous  legacy  effects  in  the  form  of  high 
levels  of  unemployment,  public  and  private  debt, 
and  non-performing  exposures  (NPEs):  years  of 
sustained 
reform 
and 
implementation are needed to reduce the overhang. 
A  key 
the  achievement  of 
sustainable growth that requires special attention is 
the erosion of the capital stock.  

to  ensure 

continued 

growth 

issue 

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, and which were pre-legislated in 
to 
mid-2017.  The  Greek  authorities  plan 
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  from  2020,  to 
lower  the  expenditure  ceiling  for  the  Public 
Investment  Budget  to  levels  which  the  authorities 
consider  to  be  more  realistic  in  light  of  persistent 

to  progressively 

authorities  have  not 

underspending,  and 
lower 
corporate  income  taxes  starting  from  2020.  The 
Greek 
the 
institutions  of  plans  to  change  the  pre-legislated 
measure  related  to  lowering  the  income  tax  credit 
foreseen for 1 January 2020.  

informed 

in 

steady 

the  proposed 
The  Commission  considers 
package to offer a balanced approach. The pre-
legislated cuts in pensions in 2019 is not needed to 
reach a primary surplus target of 3.5% of GDP and 
the  proposed  freeze  in  pensions  up  to  2022  will 
lead  to  the  same  level  of  pension  spending  as  a 
share  of  GDP 
state.  The 
the 
implementation  of  the  pre-legislated  pension  cuts 
would  reduce  the  main  pensions  of  some  1.4 
million  retirees  by  an  average  of  14%  and  would 
result  in  a  significant  increase  in  the  number  of 
pensioners at risk of poverty. The overall package 
supports  poverty  reduction  by  providing  for  a 
material  increase  spending  on  social  benefits, 
notably  housing.  It  contains  measures  that  lower 
taxes  on 
labour,  corporates  and  real  estate, 
measures  which  support  growth,  albeit  modestly, 
given  their  limited  scale.  The  Commission  is 
concerned  about  fiscal  risks  resulting  from  recent 
Court  cases  and  rulings  which  have,  or  could 
potentially,  render  invalid  some  aspects  of  earlier 
reforms.  

regards 

fiscal-structural  policies, 

As 
the 
authorities are advancing with the reform of the 
ENFIA  property  tax  to  gradually  align  the 
assessment  of  zonal  values  to  market  prices. 
However,  progress  with  reforms  concerning  the 
independent  revenue  administration  (IAPR)  is 
mixed, with delays in meeting  staffing targets and 
in finalising the IAPR reform action plan. Arrears 
clearance is also behind schedule.  

There  is  progress  in  modernising  the  social 
the  recalculation  of 
welfare  system,  with 
pensions  going  in  line  with  plans.  Progress  is 
nonetheless  more  mixed  with  regards  to  health 
care  reforms,  due  to  headwinds  stemming  from 
stakeholder resistance/opposition and resource and 
capacity  constraints.  The  authorities  have  taken 
welcome  steps  towards  the  completion  of  the 
Social Solidarity Income scheme  and  in particular 
the labour market reintegration pillar.  

As regards the financial sector, during the first 
half  of  2018,  the  average  Core  Equity  Tier  1 

1 

 
Executive summary 

in 

issues  such  as  mobility,  performance 
on 
the  establishment  of  an 
assessment  and 
integrated  human 
resources  management 
system.  Despite  it  all,  there  has  been  mixed 
progress  on  managerial  appointments,  as  the 
appointment  of  Administrative  Secretaries 
is 
lagging  behind  schedule.  A  change 
the 
remuneration  policy  of  the  Ministry  of  Finance 
lacks consistency with a past reform to establish a 
uniform wage grid. The size of the public sector in 
Greece is now broadly on par with levels in other 
euro area Member States, so 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, but close monitoring 
is needed with regards to the number of temporary 
staff. Going forward, it is vital that the hiring plan 
based on the 1:1 attrition rule in the Medium Term 
Fiscal  Strategy  (MTFS)  is  respected,  and  that 
announcements of recruitments to the public sector 
are based on prudent estimates.  

Progress with reforms to increase the efficiency 
of the judicial system is also mixed. One concern 
is  the  postponement  of  the  entry  into  force  of 
certain  provisions  of  the  recently  adopted  out-of-
court  mediation  framework.  The  Commission  has 
legal 
continued 
proceedings against the members of the Committee 
the  state-owned  asset 
of  Experts  (CoEx)  of 
development 
former 
fund  TAIPED  and 
President and senior staff of the Hellenic Statistical 
Authority (ELSTAT).  

to  monitor  developments  on 

the 

ratio  of  Greek  banks  remained  broadly  stable 
at  approximately  16%.  The  banking  system 
however,  remains  burdened  by  the  legacy  of  the 
crisis, and despite recent improvements, NPEs still 
amount to just below 48% of total exposures. The 
Greek authorities plan  to extend the  protection on 
primary 
the  Household 
Insolvency  (Katseli)  law,  but  no  details  have  yet 
been  provided.  The  divestment  strategy  for  the 
Hellenic Financial Stability Fund (HFSF) needs to 
be pursued further.  

residences 

under 

contributing 

Reforms of labour market institutions and wage 
bargaining  have  helped  Greece  regain  cost 
competitiveness  and  are 
to 
increasing  employment  rates  and  falling  levels 
of  unemployment.  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 now delivers economically sound 
outcomes, or whether the shortcomings of the pre-
crisis period materialise again.  

The  pace  of  progress  with  reforms  in  the 
product  markets  is  mixed.  The  cadastre  and 
forest  map  project  is  advancing,  but  there  are 
delays  elsewhere  on  installation  and  operation 
licensing  procedures,  and  on  private  clinics. 
Reforms  in  the  energy  sector  are  progressing, 
albeit  with  some  delay  on  the  divestiture  of  the 
Public 
lignite-fired 
generation  capacity  and  the  launching  of  the 
Target Model.  

Corporation’s 

Power 

enterprises 

HCAP,  the  Hellenic  Corporation  of  Assets  and 
Participations,  continues  to  make  progress  in 
the work on its asset portfolios. The restructuring 
of  the  real-estate  fund  ETAD  is  progressing. 
However,  the  process  of  reviewing,  and  where 
necessary  replacing,  board  members  of  State-
owned 
encountering  delays. 
is 
Regarding  privatisation,  there  is  progress  on  the 
tender  for  the  natural  gas  transmission  operator 
DESFA and the extension of the concession for the 
Athens  International  Airport.  The  Hellinikon 
project could be successfully completed in the first 
quarter of 2019. However, there are still significant 
delays on the sale of Hellenic Petroleum and in the 
tender  for  the  Egnatia  motorway,  a  project  that  is 
characterised by systematic delays and problems.  

Work  on  the  human  resources  management 
reform  of  the  public  administration  is  ongoing 

Overall,  there  are  delays  in  the  sixteen  specific 
reform  commitments  due  for  end-2018.  These 
should  be  addressed  to  ensure  completion  by  the 
second  enhanced  surveillance  report  of  end-
February 2019.  

Despite  the  improved  credit  ratings,  market 
volatile  with  Greece 
conditions 
remain 
remaining  vulnerable  to  shifts 
in  market 
sentiment.  Financing  needs  remain  relatively 
contained,  whilst  the  sizeable  cash  buffer  and 
favourable  financing  profile  underpin  repayment 
the  debt 
capacity.  A 
sustainability  analysis  (DSA)  shows 
the 
that 
assessment  of  the  sustainability  of  Greece's  debt 
has  remained  broadly  unchanged  from  the  last 
DSA published in June 2018. 

technical  update  of 

2 

 
 
1.  INTRODUCTION 

Greece  successfully  completed  its  Euroepan 
Stabiliby  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 
472/2013,(1)  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 
important  reforms  adopted  under  the 
the 
are 
financial 
safeguarded.  The  authorities  have  moreover 
developed  a  Growth  Strategy  and  plan  to  monitor 
its implementation. 

programmes 

assistance 

release 

enhanced 
The  Commission  will 
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  ECB(3) and,  where appropriate, the IMF, 
conducts  regular  review  missions  to  verify  the 
progress made; the ESM participates in the context 
both of its Early Warning System and in line with 
the  Memorandum  of  Understanding  of  27  April 

(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. 

2018  on  working  relations  between  the  European 
Commission  and  ESM.  In  preparation  of  this 
report,  a  joint  mission  to  Athens  took  place  from 
10-14  September  2018,  followed  by  technical 
missions  in  October  and  November  2018.    This 
first  enhanced  surveillance 
issued 
alongside the 2018 autumn Semester package  that 
includes an assessment of the 2019 draft budgetary 
plan  sent  by 
the 
Commission on 15 October 2018. 

the  Greek  authorities 

report 

to 

is 

provides 

surveillance 

a 
Enhanced 
comprehensive 
for  monitoring 
framework 
economic  developments  and  the  pursuit  of 
policies  needed 
sustainable 
economic  recovery.  To  this  end,  this  report 
includes:  

to  ensure  a 

  an  assessment  of  economic  conditions 

in 

Greece (chapter 2); 

  an  assessment  of  implementation  of  reform 
commitments given by Greece to the European 
partners  (chapters  3-8).  More  specifically, 
Greece  made  a  general  commitment  in  the 
Eurogroup(4)  of  22  June  2018  to  continue  the 
implementation  of  all  key  reforms  adopted 
under  the  ESM  programme  and  to  ensure  that 
the objectives of the important reforms adopted 
under  the  financial  assistance  programmes  are 
safeguarded.  In  addition,  Greece  also  made 
specific 
complete  key 
structural reforms started under the programme 
in six key areas by 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 
public administration; 

commitments 

to 

  an  update  on  sovereign  financing  conditions 
and debt sustainability analysis (chapter 9). 

The Eurogroup on 22 June 2018 agreed that the 
package  of  debt  relief  measures  for  Greece 
should include incentives to ensure a strong and 
the  reform 
implementation  of 
continuous 

(4)  https://www.consilium.europa.eu/media/35749/z-councils-
council-configurations-ecofin-eurogroup-2018-180621-
specific-commitments-to-ensure-the-continuity-and-
completion-of-reforms-adopted-under-the-esm-
programme_2.pdf 

3 

 
                                                           
 
 
 
 
                                                           
(return 

of  SMP-ANFA 

measures agreed in the programme. To this end, 
the  implementation  of  some  of  the  agreed  debt 
measures 
income 
equivalent  amounts,  the  waiver  of  the  step-up 
interest  rate  margin  for  part  of  the  EFSF  loans) 
will  be  subject  to  compliance  with  Greece's 
commitments  on  continuity  and  completion 
commitments  and  based  on  positive  reports  under 
enhanced  surveillance.  The  return  of  SMP-ANFA 
income  equivalent  amounts  would  be  made 
available  to  Greece  in  semi-annual  tranches  of 
some  EUR  640  million  up  to  mid-2022.  The 
waiver of the step-up interest rate margin, for part 
of the EFSF loans, would reduce interest payments 
by  some  EUR  220  million  annually.  It  would  be 
waived  on  a  semi-annual  basis  until  2022  and 
permanently after 2022. 

1. Introduction 

4 

 
 
2.  MACROECONOMIC DEVELOPMENTS 

the  rebound 

demand  side.  However,  there  appears  little  room 
for  further  growth  of  private  consumption  this 
year,  as  the  household  savings  gap  remains  large 
and  there  are  no  signs  of  growth  in  retail  lending 
either. Investment is expected to contract in 2018, 
is  seen  as 
as 
insufficient 
in 
equipment  investment.  Net  exports  are  set  to 
become the main contributor to growth in 2018 as 
export  growth  is  expected  to  outperform  in  2018 
its  already  strong  performance  in  2017,  and 
as 
expected 
imports 
investments fall (see Graph 2.1). 

the  contraction 

in  construction 

to  balance 

subdued 

remain 

to 

For  2019,  the  growth  forecast  in  this  report 
reflects  a  fiscal  package  for  2019  that  is 
projected to deliver a primary surplus of 3.5 % 
of  GDP  in  2019.  This  is  a  change  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. For the outer years, the forecast 
continues to build on the achievement of the fiscal 
target. 

Growth is expected to further increase to 2.2% 
in  2019  and  increase  to  2.3%  in  2020  before 
slowly decreasing as output reaches potential in 
in  particular 
2023.  Domestic  demand  and 
investment  is  expected  to  become  the  driver  of 
growth in the coming years, assuming that reform 
implementation  continues  after  the  end  of  the 
programme.  Private  consumption  is  forecast  to 
accelerate  only  modestly  until  2020  and  then 
remain  stable,  as  part  of  the  gains  in  disposable 
income  will  have  to  be  used  to  reduce  the 
household sector's financing gap. Export growth is 
forecast  to  remain  robust.  However,  as  import 
demand  is  expected  to  increase  on  the  back  of 
strong  investment,  net  exports'  contribution  to 
growth  is  set  to  remain  low  or  even  slightly 
negative in 2019, and becoming neutral afterwards. 

Greece  has  exited  its  ESM  programme  with 
steady  growth  and  the  challenge  is  now  to 
ensure  that  such  growth  strengthens  and  is 
sustained.  Real  GDP  accelerated  in  the  first  half 
of  the  year,  with  growth  reaching  2.1  %  y-o-y 
compared to the first half of 2017. It was reached 
through a very strong first quarter growth of 2.5 % 
y-o-y,  corresponding  to  0.9  %  q-o-q  growth 
(seasonally  adjusted),  and  more  moderate  growth 
second  quarter  of  1.8  %  y-o-y, 
in 
the 
corresponding 
to  0.2 %  q-o-q.  Growth  was 
supported  mainly  by  the  very  strong  export 
performance:  both  goods  and  services  exports 
exhibited  over  8 %  growth  in  real  terms,  while 
imports  remained  subdued.  Private  consumption 
continued  to  grow  in  the  first  two  quarters, 
providing  a 
to  GDP  growth. 
Investments, however, fell considerably compared 
to a high base driven by large equipment purchases 
in  2017.  Construction  on  the  other  hand  shows 
signs  of  a  rebound,  as  both  residential  and  non-
residential  real  estate  investments  showed  growth 
in  the  first  two  quarters  after  several  years  of 
continuous decline. 

further  boost 

High  frequency  indicators  suggest  that  activity 
accelerated 
in  the  third  quarter  of  2018 
compared to the second. The average Purchasing 
Managers  Index  increased  slightly  in  the  third 
quarter. Although it is below its recent peak of the 
first  quarter,  it  is  still  signalling  robust  expansion 
in  the  manufacturing  sector.  That  expansion  is 
fuelled  by  increase  in  both  domestic  and  foreign 
demand,  and  is  accompanied  by  active  hiring 
despite 
business.  The 
outstanding 
Economic  Sentiment  Index  shows  a  continuous 
increase  over  the  previous  quarters,  reaching  a 
post-crisis  high  in  the  third  quarter.  The  increase 
was  mainly  driven  by  a  marked  improvement  in 
the  retail trade  sector,  which  probably reflects the 
very good performance of the tourism sector, while 
consumer  sentiment  was  also  improving  slowly, 
although  it  still  remains  below  its  historical 
average. 

falling 

Real GDP growth is expected to reach 2.0 % in 
2018. The expansion is expected to continue to be 
driven  mostly  by  private  consumption  and  net 
exports,  while  investments  are  forecast  to  fall  in 
view of the high base in 2017. The performance of 
private  consumption  in  the  first  half  is  enough  in 
itself to make it an important contributor from the 

5 

 
2. Macroeconomic developments 

Graph 2.1:  Contributions to real GDP growth 

Graph 2.2: 

Employment growth 

Source: Commission services 

Source: Commission services 

The 
labour  market  situation  continues  to 
improve,  though  unemployment  remains  high. 
In  Greece,  the  recovery  of  employment  began  at 
the  second  half  of  2014,  much  earlier  than  the 
recovery  of  growth  suggesting  that  labour  market 
reforms have had a positive impact. In 2018, gains 
in employment have come from an increase in full-
time  jobs,  also  providing  support  to  households' 
disposable  income  and  private  consumption  (see 
Graph 2.2).  

Unemployment  fell  to  18.9%  in  August  2018, 
down  from  20.8%  a  year  earlier,  and  from 
24.5% in August 2015. In spite of the improving 
trend,  the  unemployment  rate  remains  very  high, 
especially  for  youth  unemployment  (37%  for 
under-25s)  and  long-term  unemployment  (72%  of 
all  unemployed  in  the  second  quarter  of  2018). 
Given such a slack in the economy, wage increases 
have  been  modest.  Wages  as  approximated 
through compensation per employees are expected 
to  remain  below  1%  in  2018  and  rise  only  very 
is 
gradually  afterwards.  The  social  situation 
expected  to  continue  improving  in  the  coming 
years,  thanks  to  the  combined  effect  of  the 
economic  recovery,  and  the  full  rollout  of  the 
social  welfare  reforms  aimed  at  improving  the 
efficiency,  effectiveness  and  adequacy  of  the 
Greek social welfare system. 

is 

slowly 

Inflation 
increasing,  but  price 
pressures  remain  moderate.  Headline  HICP 
inflation  has  been  increasing  in  recent  months, 
reaching  1.8%  in  October,  mainly  because  of 
rebounding  energy  prices.  Core  inflation  dropped 
to 0% in June, and has recovered only to 0.4% in 
September.  Inflation  is  expected  to  reach  0.8%  in 
2018  and  to  increase  to  1.3%  in  2019  as  energy 
prices  accelerate  further  and  to  drop  to  1.1%  in 
2020 when energy prices are expected to moderate, 
while core inflation is increasing only slowly year 
by year. As the output gap closes in the later years, 
inflation is expected to increase accordingly. 

some 

signs, 

positive 

financing 
Despite 
conditions  remain  difficult  and  may  hinder 
recovery.  Following  an  agreement  on  medium-
term  debt  measures  and  Greece's  successful  exit 
from  the  ESM  programme,  Greece's  sovereign 
those 
credit  ratings  have 
improvements 
conditions 
remain  challenging  as  the  decline  in  sovereign 
spreads  has  reversed  since  the  beginning  of  2018 
the  year  due  to  domestic  and  external  factors. 
Those  developments  may  hinder 
the  banks' 
capacity to raise capital, and may increase the cost 
for corporates of borrowing to finance investment.  

improved.  Despite 
financing 

external 

The  balance  of  risks  is  tilted  to  the  downside. 
The  outlook  assumes  that  reform  implementation 
will  continue,  providing  credibility  and  a  good 
investment  climate.  Consumption  growth  is  an 
upside risk for 2018, should consumer confidence 
gains  prove  to  be  permanent.  However,  downside 
risks  dominate 
the  forecast:  domestic  policy 
slippages as regards the implementation of reform 
commitments  given  to  European  partners  may 
the 
hinder  economic  growth,  and 

jeopardise 

6 

-0.50.00.51.01.52.02.53.02017201820192020%, pps.Private consumptionPublic consumptionInvestmentNet exportsChange in inventoriesGDPForecast-12-10-8-6-4-202420082009201020112012201320142015201620172018%, pps.Full-timePart-timeEmployment growth 
 
 
regaining of investor confidence. The high level of 
non-performing  loans  continues  to  weigh  on  the 
intermediation  capacity  of  banks,  a  pre-requisite 
for  the  financing  of  the  projected  investment 
growth.  Finally,  adverse  external  developments 
related  to  international  financial  markets  and 
geopolitical developments (including in Turkey) as 
well  as  a  marked  slowdown  in  global  trade  may 
also hamper Greece's recovery.  
Graph 2.3:  Gross fixed capital formation as % of GDP 

2. Macroeconomic developments 

negligible  part  of 
the  population.  Long-term 
unemployment  –  apart  from  its  social  costs  –  is 
also  detrimental  to  human  capital,  and  increased 
efforts  will  be  necessary  to  help  those  people 
rebuild  their  skills  and  re-integrate  them  into  the 
market economy. Third, the very high level of non-
performing exposures is a strong limitation for the 
financial sector that will ease only very gradually. 

Another very important legacy of the crisis that 
needs  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 (Graph 2.3). Even if gross investment started 
to grow in 2016-2017, net investment rates are still 
negative, i.e the capital stock of the country is still 
shrinking  (Graph  2.4).  The  experience  of  Cyprus 
shows  that  the  gap  in  investment  flows  can  be 
corrected within a few years, and this is exactly the 
next  challenge  Greece  has  to  solve.  The  poor 
business  environment  (especially  relating  to  the 
justice system and property registration), however, 
will  need  further  improvement  to  make  that  aim 
achievable for Greece. 
Graph 2.4:  Net capital stock (volume index, 2010 = 100) 

Source: Eurostat 

Although  Greece's  decade-long  crisis  is  over, 
many  of  its  legacies  will  still  have  to  be  dealt 
with for many years to come. First and foremost, 
Greece's  public  debt  is  still  the  highest  in  the 
Union,  and  even  after  the  full  implementation  of 
the  medium-term  debt  measures,  its  level  will 
remain  above  100%  of  GDP  for  a  number  of 
decades.  Second,  unemployment  remains  very 
high,  and  although  it  is  expected  to  continue  to 
shrink  fast,  unemployed  who  have  been  out  of 
work  for  many  years  still  represent  a  non-

Table 2.1: 

Main features of the macroeconomic scenario (with fiscal measures) 

Source: European Commission 

7 

1012141618202224262830200120032005200720092011201320152017%Euro areaGreeceCyprus808590951001051102005200620072008200920102011201220132014201520162017Greeceeuro area201720182019202020212022Real GDP1.522.22.32.11.8Private Consumption0.90.80.91.21.21.2Public Consumption-0.41.20.30.30.40.4Gross fixed capital formation9.1-2.113.69.97.85.6Exports (goods and services)6.88.45.74.433Imports (goods and services)7.13.76.24.22.92.9Contributions to GDP growth:      Domestic demand1.60.52.42.32.01.7Inventories000000Net exports-0.11.5-0.2000Employment growth1.51.81.81.410.7Unemployment rate21.519.61816.615.414.4GDP deflator0.60.51.21.31.61.8Harmonised index of consumer prices1.10.81.31.11.51.7Annual percentage change 
 
 
 
 
 
2. Macroeconomic developments 

Source: AMECO 

8 

 
3.  FISCAL AND FISCAL-STRUCTURAL POLICIES 

growth  of  wages  and  private  consumption,  a 
broad-based recovery in taxable profits and higher 
energy prices. 

The  updated  projection of the primary  surplus 
for 2018 has been revised upward compared to 
the  final  ESM  programme  review  by  0.2 %  of 
the  good 
GDP,  mainly  on  account  of 
performance  of  State  budget  revenues  so  far 
this  year.  The  main  drivers  behind 
that 
improvement were higher tax declarations data on 
the  corporate  income  tax  (CIT)  and  better–than-
expected collection of non-tax revenues during the 
period  January  –  August  2018.  Similarly,  VAT 
was  revised  upwards  following  the  increase  in  oil 
prices  and  the  stronger  tourist  season,  but  those 
gains are expected to peter out in the remainder of 
2018.  Those  positive  developments  were  partly 
offset  by  a  lower-than-expected  collection  of 
personal income tax (PIT) from the self-employed 
and  higher-than-expected 
refunds.  The 
overachievement is expected to partly carry over to 
the following years. 

tax 

The  projection  factors  in  the  clearance  of 
liabilities  arising  from  decisions  of  the  Council 
of  State,  amounted 
to  0.4 %  of  GDP. 
Specifically,  the  rulings  declared  that  wage  cuts 
imposed in 2012 on uniformed officials and certain 
other  professions  were  unconstitutional  and 
entitled  the  concerned  officials  to  claim  a  wage 
refund for the years preceding the 2017 reform of 
wages of those professions. The  Greek authorities 
have 
proposals  which 
reconfirmed  an  earlier  commitment  which  those 

legislative 

tabled 

3.1. 

FISCAL POLICY  

3.1.1.  Fiscal developments in 2018 

Greece  is  set  to  over-achieve  the  primary 
surplus(5) target of 3.5% of GDP for the fourth 
year  in a row and to record a headline general 
government  surplus  in  2018  for  the  third  year 
in a row. The primary surplus is expected to reach 
3.7%  of  GDP  building  on  the  fiscal  adjustment 
achieved in the previous years, underpinned by the 
fiscal  measures 
the  ESM 
programme  and  also  benefitting  from  the  solid 

adopted  under 

interest  payable  (D.41), 

(5)  The primary surplus under enhanced surveillance is defined 
as  the  general  government  balance  (B.9)  minus  general 
government  consolidated 
in 
accordance with the rules specified in the European System 
of Accounts 2010 (ESA 2010), excluding (i) revenues from 
the  sale  or  lease  of  real  estate,  (ii)  general  government 
migration-related expenditure, net of Union transfers to the 
Greek budget for migration-related costs, (iii) revenues and 
expenditures  related  to  support  of  the  banking  system 
(except  payments  for  deposit  guarantee  schemes),  (iv)  all 
transfers  related  to  Eurogroup  decisions  regarding  income 
of  euro-area  national  central  banks  (SMP  and  ANFA 
revenue)  stemming 
investment  portfolio 
holdings  of  Greek  government  bonds,  and  (v)  any 
payments from banks that would undermine their solvency 
or liquidity, unless the Bank of Greece confirms that such a 
payment  would  be  compatible  with  preserving  adequate 
capital  buffers  and  liquidity  in  the  future,  including  by 
verifying  consistency  with  banks’  business  plans  as 
included  in  the  most  recent  stress  test  (except  the  capital 
concentration tax and the guarantee fee structures currently 
in  place);  plus  a  change  of  the  stock  of  outstanding  tax 
refunds claims without AFEK older than 90 days, net of the 
amount  of  rejected  tax  refund  claims  that  exceeds  the 
normal annual rejection volume. 

from 

their 

Graph 3.1: 

Fiscal target outperformed since 2015 

* Projection 
Source: European Commission 2018 Autumn forecast 

9 

0.63.84.13.7-202462015201620172018*% of GDPA. Programme primary balanceOutturnTarget-5.60.50.80.6-6-5-4-3-2-10122015201620172018*% of GDPB. Headline government balance 
                                                           
 
3. Fiscal and fiscal-structural policies 

3.1.2.  Fiscal policy in 2019 and beyond 

The  authorities'  budgetary  plans  for  2019  are 
projected  to  ensure  the  achievement  of  the 
primary  surplus  target  of  3.5%  of  GDP.  The 
updated baseline fiscal projections of the European 
institutions  pointed  to  an  expected  fiscal  space  of 
0.4% of GDP above the fiscal target, assuming the 
symmetric implementation of pension cuts and an 
offsetting  expansionary  social  benefits  package 
that was pre-legislated under the ESM programme 
on  18  May  2017  to  enter  into  force  on  1  January 
2019.   

for 

self-employed, 

After  discussions  following  the  submission  of 
the Draft Budgetary Plan to the Commission, a 
to  be 
package  of  discretionary  measures 
included  in  the  2019  budget  has  been  finalised 
by  the  Greek  authorities.  On  the  revenue  side, 
the planned measures foresee (a) a cut in revenues 
from the ENFIA property tax by 10% focussed on 
reduction  in  tax  bills  for  small  property  holders, 
(b)  a  reduction  by  one-third  of  social  security 
contributions 
independent 
professionals and farmers and implementation of a 
minimum  income  base  for  supplementary  pension 
and 
lump-sums,  and  (c)  a  50%  subsidy  of 
employers’ social security contributions for young 
people up to 24 years. On the expenditure side, the 
planned measures foresee (a) the maintenance of a 
freeze  on  pensions  until  2022,  but  not  to  proceed 
with 
the 
the  pre-legislated  pension  cuts  via 
elimination  of  'negative  personal  differences',  (b) 
the  recalibration  of  the  pre-legislated  housing 
allowance  in  a  more  targeted  manner,  and  (c)  the 
strengthening  of  special  education  through  the 
hiring  of  4,500  teachers  and  specialised  staff  for 
temporary 
currently  occupied  by 
positions 
teachers.  Finally,  in  order  to  achieve  the  fiscal 
target  in  2019,  the  Greek  authorities  decided  to 
reduce the ceiling of the national component of the 
investment budget by EUR 250  million compared 
to  what  was  projected  in  the  2018  Medium  Term 
Fiscal  Strategy  (MTFS),  also  with  a  view  to 
address the underspending on investment observed 
in  past  years.  In  that  context,  the  authorities  have 
decided to include in the public investment budget 
(PIB) the transport equivalent subsidy that aims at 
supporting  businesses  and  residents  of  remote 
its  cost  will  be  capped  at 
islands  and 
EUR 150 million for 2019. 

liabilities  would  be  settled  in  full  in  2018.  The 
fiscal  space  necessary  for  the  payments  of  the 
wage  refunds  was  reallocated  from  the  public 
investment budget  which  is  otherwise expected to 
be under-executed this year.  

in 

from 

The  projection  for  2018 
is  based  on  the 
assumption  of  full  execution  of  the  budget 
ceilings,  which  in  recent  years  proved  difficult 
to reach and is therefore an important potential 
upside  risk.  The  main  areas  where  partial 
execution of the budget is expected are operational 
expenditures  as  well  as  the  public  investment 
budget 
(PIB),  part  of  which  was  already 
reallocated to finance the wage refunds. The main 
reasons  for  the  under-execution  of  the  ordinary 
the  public  procurement 
budget  derive 
procedures  and  deficiencies 
the  budget 
preparation  phase.  In  particular  the  PIB  has  been 
recurrently  under-executed  in  recent  years,  with 
only  about  83%  of  the  State  PIB  being  spent  on 
average  over  2012-2017  out  of  a  total  budget  of 
around EUR 4.4 billion (2.5% of GDP). However 
there  were  years,  such  as  2017,  where  PIB 
absorption  was  only  63%  and  under-execution 
reached 0.8% of GDP. Greece's public investment 
budgeting  framework  is  characterised  by  a  low 
predictability  of  public  investment  spending  and 
by  the  practice  of  introducing  non-investment 
policies  under  the  public  investment  budget,  both 
fiscal 
of  which  decrease 
the 
fiscal 
projections 
call 
to 
transparency.  The  authorities  committed 
improving 
investment  budgeting 
practices  with  technical  support  from  the  OECD 
that will be implemented in early-2019. 

reliability  of 
into  question 

their  public 

and 

The authorities have indicated that the expected 
overachievement 
in  2018  will  be  used  to 
implement  a  targeted  one-off  social  benefit. 
While specific plans have not been announced yet, 
the  social  dividend  is  expected  to  be  designed 
along  the  lines  of  similar  packages  from  previous 
years  and  use  the  eligibility  criteria  of  the  Social 
Solidarity  Income  scheme  to  target  vulnerable 
households.  Any  decision  on  the  use  of  the  space 
should leave a significant safety margin that caters 
for the uncertainty as to the outturn of the year in 
official statistics and its possible future revisions.  

10 

 
3. Fiscal and fiscal-structural policies 

On  the  basis  of  the  above-mentioned  fiscal 
measures,  Greece  is  set  to  comply  with  the 
primary  surplus  targets  of  3.5%  of  GDP  until 
to  be 
2022.  Fiscal  outcomes  are  expected 
supported  by  the  recovery  of  economic  activity; 
increasing  savings  stemming  from  the  2015/16 
pension reform; an attrition rule of 1:1 in 2019 and 
beyond and contained growth in the average public 
wage,  limiting  the  overall  growth  of  the  public 
sector wage bill; and health care spending growing 
in line with real GDP. 

The  final  package  of  discretionary  measures 
included  in  the  2019  draft  budget  differs  in  its 
composition  from  the  package  of  pre-legislated 
measures for 2019 which foresaw a re-balancing 

of  expenditures  from  pensions  to  non-pension 
benefits  and  other  growth-enhancing  spending. 
The  pre-legislated  measures  related  to  income-tax 
credits for 2020 have not been adjusted. As shown 
in  Box  3.1,  the  implementation  of  the  pre-
legislated  pension  cuts  would  have  affected 
1.4 million  pensioners  including  those  of  many 
hundreds  of  thousands  of  pensioners  with  modest 
pension incomes: the implementation of those cuts 
would have increased the risk of poverty amongst 
such households. 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.  There  is  nonetheless  fiscal  space  to 

Table 3.1: 

Main drivers of the fiscal projection (no policy change) 

(1) Primary balance in programme terms.       
(2) The decrease in 2018 reflects a negative carry-over from revenues collected in 2017 that were considered temporary.       
(3) The decrease in both revenues and expenditure in 2019 reflects the post-programme pension reform assumed in the 
baseline (lower pension spending and lower direct taxes paid by pensioners).       
(4) Gross capital formation and acquisitions less disposals of non-financial non-produced assets.       
(5) Includes subsidies and transfers. The decrease in 2019 reflects the one-off wage refunds paid in 2018.       
Source: European Commission 

11 

201720182019202020212022Act. Proj. Proj. Proj. Proj. Proj. Total revenues, bn EUR87.188.889.090.392.294.1Total revenues, % of GDP48.348.046.545.544.844.1Level Total revenues, bn EUR87.11.80.21.31.91.8Macro1.31.61.82.12.3Revenue measures 0.0-0.8-0.10.00.0Non-tax revenues & claims on EU funds1.6-0.4-0.30.2-0.3Other adjustments (2)-1.2-0.2-0.2-0.3-0.2Total  primary expenditures, bn EUR79.682.081.582.683.884.8Total  primary expenditures, % of GDP44.244.442.641.640.739.8Level Total primary expenditures, bn EUR79.62.5-0.61.11.21.0Compensation of employees21.50.70.60.50.30.3Social transfers (3)38.4-0.4-1.90.60.50.6Investments (4)5.01.31.50.1-0.20.0Intermediate consumption9.00.60.1-0.10.70.0Other expenditure & reserve  (5)5.60.3-0.80.10.00.1Primary balance, bn EUR (1)7.56.87.57.78.49.3Primary balance, % of GDP (1)4.13.73.93.94.14.3Memo itemsNominal GDP growth (%)2.02.53.63.63.73.6CPI (%)1.10.71.31.11.51.7Output gap (% pot. GDP)-8.7-6.2-3.8-1.6-1.1-0.5Headline balance (% of GDP)0.80.60.60.60.80.8Structural balance (% of GDP)4.54.02.31.41.41.1Pension reforms (net savings, bn EUR)2.23.05.05.05.23.6of which: from recalibration (bn EUR)0.00.32.02.02.12.1y-o-y change (bn EUR)y-o-y change (bn EUR) 
 
 
 
3. Fiscal and fiscal-structural policies 

proceed  with  the  launch  of  a  housing  benefit  in 
2019, building upon a reform of family benefits in 
place  since  the  start  of  2018:  thus  material  steps 
will  be  taken  to  increase  resources  devoted  to 
social  benefits  that  primarily  benefit  low-income 
households  of  working  age  and  with  children. 
According  to  Euromod  simulations,  thanks  to 
effective targeting, these measures are projected to 
have  a  material  impact  on  reducing  poverty  risks 
amongst  the  young  and  concentrated  in  the  low-
income cohort.  While acknowledging the issue of 
recurrent underspending on public investment, the 
European institutions consider the reduction of the 
ceiling of the PIB by EUR 250 million suboptimal 
from  the  perspective  of  long-run  growth.  The 
discretionary  measures  on  the  tax  side  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. 

The  fiscal  projection  is  subject  to  uncertainty. 
Regarding potential upside risks, the projection for 
2019  and  onwards  only  partially  includes  yields 

from  the  large  number  of  administrative  and 
structural  fiscal  reforms  adopted  during  the  ESM 
programme,  notably  those  to  improve  revenue 
administration that are showing strong progress in 
some  areas  in  excess  of  the  key  performance 
indicators set under the programme.  

There  are  also  growing  downside  risks.  A 
significant  risk  is  related  to  wage  pressures  that 
may  emerge,  amongst  others,  triggered  by  a 
recently adopted provision that increased wages of 
employees  of  the  Ministry  of  Finance  and  some 
other  public  institutions.  That  provision  is  not  in 
line  with  the  reform  of  the  uniform  wage  grid 
adopted under the ESM programme (for details see 
Section 8). Indeed, demands in other Ministries for 
similar  wage  increases  have  already  started  to 
surface  in  recent  weeks.  Additionally,  risks  to 
compliance  with  the  attrition  rule  set  out  in  the 
MTFS 2019-2022 need to be  monitored carefully. 
The attrition rule is a key  medium-term anchor to 
control  dynamics  in  public  employment,  which  is 
critical  to  prevent  the  re-emergence  of  unsound 
hiring  practices  that  led  to  a bloated  public  sector 

Table 3.2: 

EIs projections with the final package of measures for 2019 (% of GDP) 

Source: European Commission 

12 

20192020Primary balance3.93.9     Elimination of the pre-legislated pension cut-1.1-1.0     Elimination of the pre-legislated expansionary measures0.90.9Primary balance after elimination of measures pre-legislated for 20193.73.82019 measures-0.2-0.3Primary balance after measures3.53.520192020Reduction of ENFIA by 10% in 2019-0.10.04% CIT tax cut from 29% to 25% over 2019-20220.0-0.1Reduction of social security contributions for self-employed (OAEE), independent professionals (ETAA), and famers (OGA)-0.1-0.1Subsidy to social security contributions for young employees up to 24 years by 13.3%0.00.0Strengthening of the ‘Home Assistance’ programme through hiring 3,000 permanent staff0.00.0Strengthening of special education through hiring 4,500 teachers and other specialized personel0.00.0Housing benefit-0.2-0.2Financing of the transport equivalent subsidy through PIB 0.10.1Reduction in the domestic component of the PIB budget0.10.1Reduction in the dividend tax rate from 15% to 10%0.00.0Other reduction in spending ceilings0.00.0Total package-0.2-0.3Estimates of measures in the 2019 draft budget (cumulative impact) 
 
 
 
3. Fiscal and fiscal-structural policies 

in the pre-crisis period.    

Last  but  not  least,  legal  risks  could  materialise 
following  recent  court  rulings  against  2012 
pension  cuts  and  the  pending  Council  of  State 
(CoS)  ruling  on  the  2016  pension  reform.  A 
decision by the CoS in 2015 ruled unconstitutional 
the pension cuts enacted in  2012 but ordered that 
the  effect  of  the  annulment  would  start  from  the 
issuance  of  the  decision  (June  2015);  as  a  result, 
retroactive  payments  were  only  due  to  pensioners 
having filed petitions or appeals up to that date. A 
recent  first-instance  court  ruling  has  gone  beyond 
that  CoS  decision,  by  ordering 
retroactive 
compensation for pensioners  having filed lawsuits 
after the publication of the 2015 CoS decision. The 
authorities have already appealed against the ruling 
and  expect  that  the  court  of  appeal  reverses  the 
ruling in line with the earlier CoS decision. Fiscal 

Table 3.3: 

Overview of fiscal risks 

of 

of 

the 

are 

2016 

2016 

reform 

pension 

features 

finances  and  on 

costs of the legitimate claims filed before 2015 are 
yet to be clarified. In additional, a CoS decision is 
expected  to  be  published  in  2019  related  to  the 
reform 
main 
(recalibration  process,  new  replacement  rates, 
elimination  of  the  personal  differences).  If  those 
aspects 
ruled 
unconstitutional, it would have a significant impact 
on  public 
long-run 
sustainability  of  the  pension  system.  Finally, 
several 
first-instance  and  Magistrate  Courts' 
decisions  have  ruled  unlawful  the  abolition  of  the 
13th  and  14th  monthly  salaries  of  public  sector 
employees  through  Law  4093/2012.  Although 
those rulings are subject to appeal, they contribute 
to  uncertainty  and  increase  the  pressure  on  wages 
and on the reform of the single wage grid. Should 
those  risks  materialise,  they  could  put  at  risk  the 
achievement  of  fiscal  targets.  The  authorities  are 

the 

Source: Commission services 

13 

Extension of "personal differences" to staff who joined the Ministry of Finance and entities from 1 November 2011- 11 October 2018Adopted in MoF, ELSTAT and CDLF. Serious risks regarding (i) fiscal impact in the medium term should the 'salary provision' be extended to cover other general government bodies or future hirings and (ii) structural issues because is not in line with key principles of the unified wage grid and creates difficulties on other public administration reforms such as the mobility scheme.2015 Council of State decision against 2012 pension reform  The CoS decision ordered retroactive payments for pensions having filed petitions prior to 2015. The size of the fiscal liability is yet to be clarified.Re-institution of 13th and 14 pensions for retired staff A court ruling by the Thessaloniki First Instance Court (ruling 3037/2018) found that the cuts (13th pension and Christmas + Easter/Summer bonuses) adopted in 2012 vis à vis the applicants under the 2nd MoU are unconstitutional. The authorities have appealed against the case and expect that the court of appeal reverses the ruling in line with the earlier CoS decision.          Several court rulings were issued by both administrative Courts of First Instance (for permanent staff) and  'Magistrate Courts' (for employees under private law of indefinite duration contract) in favour of  claims that the abolition of the 13th and 14th salaries (Law 4093/2012) was unlawful. Additionally, the Union of Civil Servants ADEDY is organizing and promoting mass appeals against the abolition of the bonuses.Risk of immediate application in local governments, for which it is not required any more to appeal against a first instance decision. Further information is needed to assess the fiscal risks. For other parts of GG a final court decision is needed.Pensions of judges and prosecutors In March 2018 the Special Wage Court ruled that pensions of judges and prosecutors should return to their summer 2012 levels. The authorities have clarified that the court’s ruling concerns only retired judges and prosecutors. The costs of the likely refunds are yet to be clarified.Courtscaseagainstthe2016pensionreformThe ruling of the Council of State on the legality of the overall reform (recalibration process, the new replacement rates) is expected to be published in 2019.Re-institution of seasonal bonuses for public sector employees 
 
 
 
3. Fiscal and fiscal-structural policies 

to 

monitoring  the  ongoing  cases  and  are  providing 
information 
the  Commission.  Additional 
elements  will  need  to  be  clarified  to  establish  the 
these  risks 
potential  fiscal 
materialise, offsetting measures should be taken as 
needed  to  meet  the  agreed  medium-term  fiscal 
targets  in  the  context  of  the  Medium-Term  Fiscal 
Strategy (MTFS) and its annual updates. 

impact.(6)  Should 

(6)  The  fiscal  impact  would  materialise  at the point  when  the 
judgments  are  final  and  irrevocable,  and  the  liability  is 
accepted by the government and established with sufficient 
certainty. 

14 

 
                                                           
3. Fiscal and fiscal-structural policies 

(Continued on the next page) 

15 

Box 3.1: Pre-legislated pension cutsIn response to concerns of the Eurogroup on the ability of Greece to achieve and sustain a primary surplus of 3.5% of GDP over the medium term, Greece in mid-2017 adopted a pre-legislated package of fiscal measures, with one half of it effective as from 2019 and the remaining half as from 2020.(1) The measures pre-legislated for 2019 involve additional cuts in pensions consisting of the immediate recalibration of main and supplementary pensions which are above the entitlements accrued on the basis of the 2016 rules (referred to as 'elimination of negative personal differences') and the freeze of all pensions until 2022. Furtther, as per the pre-legislated package, if fiscal space allows, pension cuts could be offset by higher public spending mostly on other social benefits (continued financing of the 2018 child benefit reform, introduction of a new housing benefit, expansion of the free school meals programme and of pre-school nursery places, and reduction of co-payments for pharmaceuticals). Thereby, the pre-legislated package would alter the composition of social welfare in Greece away from pensions towards benefits that target the young and working-age families where the risks of poverty are higher (see Graph 1). The measures pre-legislated for 2020 focussed on broadening of the tax base through a large reduction in the personal income tax credit generating a fiscal yield of 1% of GDP: if fiscal space allows and to support growth, these could be offset by reductions in tax rates on labour, business activities and real estate (ENFIA). Graph 1: Social spending and risk of porverty  Source: Eurostat As outlined in section 3, the Greek authorities plan to adopt a budget which for 2019 contains a different package of measures from the one pre-legislated in 2017. The authorities foresee to proceed with the freeze of pensions until 2022 but not implement the immedieate elimination of negative personal differences. At the same time, the authorities plan to use the available fiscal space to implement a different package of expansionary fiscal measures including the continued financing of the 2018 child benefit reform, the introduction of a new housing benefit scheme (with a somewhat different budget) and a reduction in taxes, mostly real estate taxes and                                                            (1) See European Commission: The ESM Stability Support Programme, Greece, First and Second Reviews, July 2017 Background report, Section 1.3.2.5, Institutional Paper 064, November 2017. 02468101214161820Old age andsurvivorsSickness/healthcareand disabilityUnemploymentFamily/ChildrenHousing and socialexclusion% of GDPSpending on social policies(2016) Greeceeuro area051015202530354045%People at risk of porverty or social exclusionLess than 18 yearsFrom 18 to 64 years65 years or over 
 
 
 
 
 
3. Fiscal and fiscal-structural policies 

Box (continued) 

(Continued on the next page) 

16 

social security contributions. The economic, fiscal and social implications of this different approach need to be considered carefully.  The European Commission concurs with the assessment of the Greek authorities that the implementation of the pre-legislated pension cuts in 2019 are not needed to reach a primary surplus of 3.5% of GDP in 2019 or to sustain it up to 2022. Compared to its forecast in mid-2017, the IMF, in its Article IV report of July 2018, has also made a major revision of its estimate of the primary surplus forecast. Moreover, and as outlined in section 3, the measures which the Greek authorities plan to adopt in the budget for 2019 are consistent with a achieving a primary surplus of 3.5% of GDP. It should be underlined that the change in the fiscal package as proposed by the Greek authorities concerns the composition of fiscal measures to be included in the budget for 2019. It does not however affect the fiscal balance and as such compliance with agreed fiscal target.   Graph 2: Pension projections and poverty indicators  Source: Commission services By maintaining the freeze until 2022, pension spending as a share of GDP will fall to the same steady-state level by 2040 (see panel A in Graph 2). The 2016 reform was a substantial reform, which according to projections that have been reviewed by the Ageing Working group, would reduce public spending on pensions from 17% of GDP in 2016 to just below 13% by 2030, which is the average level of the euro area. The freezing of all pensions until 2022 is projected to further reduce long-run pension spending by about ½ pp. of GDP. The immediate elimination of negative personal differences in 2019 would advance some of the fiscal savings, but would not affect the long-run steady state. Under the current plans of the Greek authorities, pension spending is projected to fall below the euro area average level in 2027 as opposed to 2024 if the pre-legislated cuts are implemented upfront in 2019. The implementation of pension cuts in 2019 would increase poverty risks amongst the elderly. It is estimated that pre-legislated cuts would affect 1.4 million pensioners (out of a total of EUR 2 million) with an average reduction of pensions by 14%. Low-income pensioners would be hit very hard. Some 500.000 pensioners in the bottom half of the distribution, receiving pensions below EUR 700 per month, would see cuts averaging around 10% (see Graph 3).  In this group, women are disproportionately represented (at least two thirds) due to shorter career histories, and moreover, they are projected to suffer an above-average cut of 11.7% compared to 9.1% for men.  Inequality as measured by the Gini coefficient would increase by 0.2 pp. The overall poverty rate (i.e. the share of people with incomes below 60% of the median) would also increase by 1 pp. -2.5-2.0-1.5-1.0-0.50.0GinicoefficientAt risk ofpovertyAt risk ofpovertyAt risk ofpoverty gapAt risk ofextremepovertyTotalChildrenB.Change in inequality and poverty indicatorspps.891011121314151617182016202520342043205220612070% of GDPA. Projected pension expenditureseuro areaGreece (with pre-legislated pension cuts)Greece (without pension cuts but with freeze until 2023) 
 
 
 
 
3. Fiscal and fiscal-structural policies 

Box (continued) 

(Continued on the next page) 

17 

(from 19% to 20%) with a more pronounced increase in poverty for the older age group above 65 (by 2 percentage points, from 13% to 15%), and for pensioners in particular (by 3 pps., from 15% to 18%). Graph 3: Projected cuts in nominal (main) pensions by income brackets  Source: Ministry of Labour (Greece) The authorities intend to use some of the available fiscal space to strengthen social benefits targeting the young and working-age families. In 2018, a major change was made to the system of child benefits that increased spending for this category by EUR 260 million (0.15% of GDP) and resulted in improved targeting, adequacy and equity of the benefit. Commission analysis carried out with the EUROMOD microsimulation model shows that this led to a substantial increase in the disposable income, especially amongst the lowest three deciles and reduced inequality across the whole population but especially amongst children.(2) It is now also proposed to introduce a new housing benefit with the 2019 budget with spending amounting to EUR 400 million (0.2% of GDP). Commission analysis shows that that reform would also have a big impact on the disposable income of lower-income households and would reduce risks of poverty, especially for the young and working-age cohorts (see Section 4.3). The budget allocation of EUR 400 million is expected, thanks to improved targeting of the measure, to broadly achieve desirable outcomes in terms of inequality and poverty reduction. The combined increased spending on family and housing benefits amounts to 0.35% of GDP, which is equivalent to half of the increase in spending on social benefits originally foreseen in the 2017 pre-legislated package                                                             (2) See European Commission: ESM Stability Support Programme for Greece, Compliance Report Third Review, Box 1, March 2018. 05101520050100150200250300%ThousandsPension before re-calibration (EUR)Number of pensions (total)Number of pensions (men)Number of pensions (women)Average reduction (%) 
 
 
 
 
3. Fiscal and fiscal-structural policies 

Box (continued) 

3.2. 

FISCAL AND STRUCTURAL POLICIES 

3.2.1.  Tax policies 

prices, 

Greece has committed to continue the reform of 
ENFIA property tax valuation. The reform aims 
at  gradually  aligning  property-tax  assessment 
through 
zonal-values  with  market 
undertaking further nationwide valuation exercises 
in 2019 and 2020 and fully aligning tax values and 
market  prices  by  2020.  These  reforms  will  widen 
the  tax  base  of  the  ENFIA  property  tax  and  will 
improve the efficiency and fairness of the tax. The 
authorities  have  established  a  property  evaluation 
unit within the Ministry of Finance and appointed 
a  Head  of  Unit  and  the  initial  members  of  staff. 
Legislation  is  under  preparation  (amendment  of 
article  41  of  Law  1249/1982)  for  a  permanent 
framework 
tax  valuation  by 
professional real estate valuers, replacing the local 
committees  previously  responsible.  The  required 
budget  for  valuation  purposes  has  already  been 
established  and  a  major  technical  support  project 
has  been  set  up  to  support  this  work.  A  project 
plan  for  the  development  of  the  permanent  IT 
system  for  property  revaluation  has  been  agreed 
between  the  Valuation  unit  and  the  General 
Secretariat for Information Systems. 

for  property 

of 

the 

actual 

4.4.2017) 

tables  of 

(36/18674, 

finalisation  of 

competition 
548 
permanent  posts  for  tax  administrators/customs 
officials  close  to  being  completed,  with  the  so-
called  preliminary 
the  successful 
candidates  being  published  in  November  2018. 
However, 
that 
competition through the posting of the new recruits 
to  IAPR  might  not  be  completed  by  the  end  of 
2018  and  further  efforts  will  be  required  so  as  to 
achieve the target in time for the second reporting 
round  under  enhanced  surveillance  foreseen  for 
February  2019.  Furthermore,  given  the  timing  of 
the  mobility  cycle  and  some  delays  that  occurred 
with 
the  planned  new 
recruitment  of  250  permanent  staff  through  the 
mobility  scheme 
to 
in  2018 
materialise  and  is  expected  to  be  rolled over  until 
2019  when  in  total  500  new  permanent  staff  are 
expected  to  join  IAPR  through  the  mobility 
schemes. 

the  previous  cycles, 

is  not 

likely 

As  concerns  the  commitment  to  establish  an 
end-to-end  IT  collection  system  to  be  fully 
operational  by  end-2021,  a  contract  has  been 
signed for the development of such an IT tool and 
the project is estimated to have an implementation 
period  of  20  months.  The  tool  will  allow  for  the 
physical/legal  entity  to  be  monitored  by  IAPR 
throughout  the  process  from  initial  obligation  to 
collection. 

3.2.2.  Revenue administration 

Greece has committed to continue to implement 
reforms  to  enhance  the  functioning  of  the 
Independent  Authority  for  Public  Revenue 
including  the  full  staffing  of  the 
(IAPR), 
Authority  with  an 
target  of 
intermediate 
permanent staffing positions to reach 12,000 by 
end-2018. At the end of October 2018, the current 
staffing  level  is  at  11,633  with  an  ongoing  ASEP 

The  IAPR  Reform  Action  Plan  ("Blueprint"), 
initially developed for 2018-2020 and now been 
updated by IAPR to cover 2019-2021 is yet to be 
adopted  as  the  protracted  consultation  period 
with  the  Ministry  of  Finance  is  yet  to  be 
completed.  The  "Blueprint"  sets  out  specific 
measures  and  investments  that  will  be  required  to 
continue 
into  a 
modern,  flexible  and  effective  organisation.  More 

transformation  of  IAPR 

the 

18 

The proposed approach of the authorities does provide for shifting the composition of social welfare spending in Greece away from pensions, although more gradually than foreseen in 2017. The implementation of the pre-legislated pension cuts in 2019 would allow for a faster pace of increase in spending on other social benefits, and would address issues regarding the intergenerational fairness of the 2015/16 pension reform, the burden of adjustment of which predominantly fell on contributors rather than existing retirees. However, it would come at the cost of increase poverty rates amongst elderly pensioners, and possibly other negative social consequences as many retirees provide financial support to their children and extended families (though it is not possible to quantify these impacts).   
 
 
 
 
3. Fiscal and fiscal-structural policies 

by  25%  in  2017  in  comparison  to  2016.  Figures 
released  for  January  to  August  2018  seem  to 
indicate that the positive trend  will continue,  with 
'new  debt'  being  further  reduced.  It  is  therefore 
critical that any plans for new repayment measures 
(e.g. instalment schemes) to target debtors will not 
risk  reversing  that  positive  trend  as  concerns  tax 
debt collection, in particular concerning new debts.  

3.2.3.  Public financial management 

to 

has 

avoid 

committed 

Greece 
the 
accumulation  of  new  arrears  and  will,  by  mid-
2019,  complete  the  implementation  of  reforms 
identified  by  the  Hellenic  Court  of  Auditors 
(HCA).  The  stock  of  arrears  started  increasing 
sharply  in  2015  due  to  the  protracted  programme 
discussions  and  ensuing  State  liquidity  shortages, 
reaching EUR 9.3 billion in August 2015 when the 
ESM  programme  was  agreed.  Over  the  past  three 
years,  altogether  EUR  7  bn  of  programme  funds 
were  disbursed 
for  arrears  clearance.  The 
disbursements  for  arrears  clearance  helped  reduce 
the net stock of arrears by EUR 6.2 billion by end-
August 2018, the cut-off date for the latest arrears 
clearance report by the authorities. 

All  ESM  programme 
funds  have  been 
transferred  from  the  dedicated  account  for 
arrears  clearance  in  the  Bank  of  Greece  to  the 
government entities before 20 August. However 
EUR  1.1  billion  remained  stuck  in  these  entities' 
accounts  up  to  end-August,  due  to  a  delay  in 
transferring  the  funds  which  left  the  entities 
limited  time  for  absorption.  The  Ministry  of 
Finance  has  instructed  the  entities  to  fully  absorb 
the funds and clear all remaining arrears, subject to 
technical  and  legal  feasibility,  by  the  end  of  the 
year.   

The  outstanding  stock  of  net  arrears  based  on 
the  ESM  programme  definition  amounted  to 
EUR  3.2  billion  at  end-August.  Of  this  amount, 
around  EUR  1.2  billion  is  in  processed  and 
unprocessed tax refund claims, EUR 0.7 billion in 
in 
social  security 
unprocessed  pension  claims,  EUR  0.3  billion  in 
extra-budgetary  funds,  EUR  0.3  billion  in  local 
government  entities,  EUR  0.1  billion  in  hospitals 
and  EUR  0.1  billion  in  the  State.  Total  arrears 
increased  by  EUR  255  million  in  August  due  to 
incoming tax declarations  which create a seasonal 
spike  in  tax  refunds.  Excluding  the  new  tax 

funds,  EUR  0.4  billion 

(e.g. 

specifically, 
the  "Blueprint"  foresees  specific 
actions  on  (i)  improving  services  to  citizens  and 
businesses 
automation  of  obligations 
requiring  physical  presence  at  the  IAPR  offices); 
(ii)  enforcing  compliance  (e.g.  redesign  of  the 
operation  and  audit  processes);  and  (iii)  using 
effectively  and  efficiently  use  of  resources  (e.g. 
Human  Resource  Management  System  and  IT 
infrastructure). Given the importance to have such 
a  key  strategic  document  in  place,  including  the 
resources  to  carry  out  specific  investments  to 
further  strengthen  the  capabilities  of  IAPR,  it  is 
important  that  the  "Blueprint"  for  2019-2021  is 
adopted without any further delays. 

The objective to complete the human resources 
reform of IAPR, that aims to introduce grading, 
remuneration  and  performance  assessment 
tailored  to the  IAPR,  is  proceeding  slowly. The 
reform  is  vital  to  enhance  IAPR's  prospects  to 
attract highly-qualified staff and to allow for their 
development  and  progression.  The  IAPR  HR 
reform is expected to be aligned with the principles 
of  the  HR  reforms  promoted  by  the  Ministry  of 
the 
Administrative  Reform 
overall  public  administration.  To  date  there  has 
been  no  progress  as  concerns  advancing  on  the 
agreed-upon 
between 
Ministry  of  Finance,  MAR  and  IAPR,  in  order  to 
ensure  that  the  needed  enabling  legislation  is 
adopted before the end of 2018.   

(MAR)  covering 

discussions 

'tripartite' 

concerning 

legal  provisions 

the 
Pending 
development of an Assets Registry are expected 
to be adopted before end of 2018. In addition, a 
specific  project  has  been  approved  (to  be  funded 
through  National  Strategic  Reference  Framework 
(NSRF), 2014-2020) and the launch of that tender 
(overall  budget:  EUR  482,000)  is  also  expected 
before the end of 2018. 

A  Joint  Ministerial  Decision  (JMD)  related  to 
fuel markers is yet to be adopted. It is important 
that the JMD is issued without any further delay, in 
order to allow for the tender procedure to procure 
these fuel markers to be launched before the end of 
2018.  These 
fuel  markers  will  provide  an 
important tool to the customs department of IAPR 
in its efforts to combat illegal smuggling of fuel. 

Finally, in terms of overall progress as concerns 
tax  debt  collection,  the  trend  remains  positive 
with  overdue  balance  of  new  debts  being  reduced 

19 

 
3. Fiscal and fiscal-structural policies 

other than tax refunds, arrears  under legal dispute 
and  arrears  that  have  been  paid  through  seized 
accounts  but  not  written  off  from  the  stock.  All 
arrears  –  regardless  of  the  exclusions  –  will 
continue  to  be  monitored  in  the  arrears  clearance 
template. The stock of net arrears in  August 2018 
will be the benchmark  for the first assessment for 
the  non-accumulation  of  arrears  in  the  following 
enhanced surveillance report. 

Graph 3.2: 

Evolution of general government net arrears 
according to the programme definition and 
the new definition used for enhanced 
surveillance 

The new adjustments are a single data entry in August 2018 
as there are no available time series. The new adjustments 
include imprest accounts, seized accounts under legal 
dispute and notifications (other than tax refunds). These 
amounted to EUR 200 million at end-August 2018. 
Source: Commission services 

Some  EUR  1.1  billion  of  funds  for  arrears 
clearance have been transferred to government 
entities' accounts but remained there until end-
August. This was due to a delay in transferring the 
funds  which  left  the  entities  limited  time  for 
absorption. These funds will need to be passed on 
to final recipients without delay.  

refunds, there was a decrease of EUR 45 million in 
the stock of arrears.  

A  refined  definition  of  net  arrears  was  agreed 
between the institutions and the authorities for 
the purposes of enhanced surveillance. The new 
definition  takes  into  account  new  granular  data 
from  improved  IT  systems  and  also  excludes 
elements  that  are  cleared  through  offsets  and  that 
cannot  be  cleared  due  to  legal  or  technical 
constraints that are beyond the authorities' control. 
These new netting elements include: 

 

tax  refunds  below  90  days,  in  line  with  the 
existing  definition  of  spending  arrears  and 
pension claims: 

  arrears to be offset with clawback and rebate; 

  arrears under legal dispute; 

  arrears that have been processed by the entities 
but  cannot  be  paid  for  exogenous  reasons 
including those where the beneficiary has been 
notified by the authorities but is not responding 
and/or  is  not  providing  sufficient  supporting 
documentation; 

 

imprest  accounts  which  correspond  to  arrears 
within the government and not to third parties; 

  arrears  that  have  been  paid  through  seized 
accounts but have not been taken out from the 
stock; 

  supplementary pension claims; 

 

international main pension claims;  

  pension  claims  without  complete  supporting 

documentation. 

Under  the  new  definition,  the  end-August  2018 
stock  of  arrears  stood  at  EUR  1.7  billion,  i.e. 
EUR  1.4  billion  lower  compared  to  the  old 
definition.  The  difference  stems  mainly  from  the 
exclusion of tax refunds due for less than 90 days 
(EUR  0.7  billion)  and  tax  refunds  for  which  the 
beneficiaries have been notified but do not respond 
(EUR  0.3  billion).  The  remaining  difference 
reflects  supplementary  pension  claims  (which  are 
not financed through the programme), notifications 

Reforms to address the structural bottlenecks of 
arrears  management  and 
clearance  are 
ongoing.  The  measures  planned  are  based  on  the 
recommendations of systemic nature issued by the 
Hellenic  Court  of  Auditors  (HCA)  following  its 
audit  on  arrears  of  general  government  entities  to 
third  parties  and  published  in  the  summary  report 
on May 2018. Those reforms were outlined in two 
action  plans  with 
timelines:  one 
coordinated  by  GAO,  which  involves  the  main 
subsectors  of  the  government,  and  one  by  IAPR. 
Those action plans were discussed and finalised by 
the end of the ESM programme. 

specific 

20 

01234567891011JanFebMarAprMayJunJulAugSepOctNovDecJanFebMarAprMayJunJulAugSepOctNovDecJanFebMarAprMayJunJulAug201620172018EUR bnStateEBFsLGsSSFs (no clawback)Hospitals (no clawback)Tax refundsUnprocessed tax refundsUnprocessed pensionNew adjustmentsTotalTotal (new definition) 
 
3. Fiscal and fiscal-structural policies 

The  updated  GAO/IAPR  action  plans  received 
in October 2018 show that the vast majority of 
the reform measures are progressing according 
to  schedule.  The  monitoring  of  implementation 
will  continue  on  a  quarterly  basis.  The  overall 
implementation of the reforms  will be assessed in 
mid-2019  which  will  also  based  on  a  follow-up 
audit by the HCA.  

(new 

the  end  of 

By 
the  programme,  Greece 
completed  a  series  of  structural  reforms  to 
establish a more coherent, efficient, transparent 
professionalised  and  business-friendly  public 
procurement  system 
legislation;  new 
remedies  system;  establishment  of  e-procurement; 
new  centralised  procurement  scheme;  adoption  of 
the National Strategy on Public Procurement). The 
full  implementation  of  the  National  Strategy  to 
increase administrative capacity and the successful 
centralised 
implementation 
future 
procurement 
challenges.  

new 
the  main 

the 
are 

scheme 

of 

21 

 
4.  SOCIAL WELFARE 

4.1. 

PENSIONS 

The  authorities  are  continuing  to  make  good 
progress  in  implementing  the  2016  pension 
reform  (Law  4387/2016).  All  new  pension 
applications  are  being  paid  out  according  to  the 
the  recalibration  of  pension 
new  rules  and 
payments  has  been  finalised  for  over  2  million 
pensioners.  The  number  of  unprocessed  main 
pension  applications  continues  to  decline  quickly, 
from 89,000 in January 2018 to 44,000 in August 
2018, in line with the authorities' target to process 
all  new  applications  within  three  months  by  the 
end of 2018. 

The  pensioners'  social  solidarity  grant  (EKAS) 
is being gradually phased out by end-2019. The 
EKAS awarding rules for 2019 have been issued in 
June  2018,  reducing  the  annual  cost  of  EKAS  by 
EUR 853 million compared to its level in 2016.  

The  authorities  have  also  updated  the  action 
plan  for  the  completion  of  the  setup  of  the 
unified  main pension fund EFKA by mid-2020. 
This  action  plan  includes:  (i)  the  full  functional 
and administrative merging of social security funds 
into EFKA, (ii) the creation of 13 regional offices 
(PYSY) tasked with the oversight and performance 
management  with  regional  role  of  coordinating 
efforts  across  agencies  and  institutions  impacting 
EFKA,  (iii)  the  creation  of  11  regional  offices 
(PEKA)  for  contribution  control,  collection,  and 
inspections,  (iv)  a  reduction  in  number  of  local 
services offices, (v) creating a new strategy for the 
EFKA  inspectorate  with  improved  legal  powers 
and  coordination  between  EFKA,  Hellenic 
Information  Technology  &  Communications 
Association  (SEPE)  and  IAPR,  (vii)  creation  of 
centralised  or  regionalised  processing  centres, 
(viii)  clearance  of  all  pending  and  temporary 
claims,  (ix)  full  functional  and  administrative 
merging  of  the  seafarers  and  farmers  funds  (NAT 
and  OGA)  into  EFKA,  (x)  digitalisation  and 
completion of the electronic insurance history, (xi) 
adoption of the new integrated IT system (IITS) in 
structure. 
EFKA, 
(xii)  new  organisational 
Technical  support 
the 
Structural  Reform  Support  Service  to  the  Greek 
authorities for the above actions. 

is  provided 

through 

The  authorities  have  also  continued  publishing 
detailed  statistical 
information  on  pensions 
(monthly  Helios  reports)  and  quarterly  reports  on 
pension claims. However, the authorities  have  not 
made  available  reports  on  the  progress  in  the 
creation  of  electronic  records  for  retirees  and 
insured  persons.  The  missing  reports  put  in 
the  creation  and 
question 
management of the electronic records, which form 
an integral part of the overall pension reform.  

the  progress 

in 

4.2.  HEALTH CARE 

For  the  years  following  the  ESM  programme, 
Greece has committed to continue pursuing the 
main  health-care  reforms  launched  under  the 
programme,  and  to  ensure  fiscally  sustainable 
health-care 
spending.  Specifically,  Greece 
committed  to  extend  the  clawbacks,  complete  the 
roll-out  of  primary  health  care  and  to  fully 
implement  centralised  procurement.  This  section 
assesses  progress 
indicative 
intermediate  steps  agreed  in  the  context  of  the 
enhanced  surveillance  monitoring  to  ensure  that 
reforms  proceed  without  losing  momentum.  More 
broadly,  it  also  monitors  progress  concerning 
residual  MoU 
other 
workstreams  supporting  the  efficiency  of  the 
health care sector.  

commitments 

in  meeting 

and 

the 

Overall some progress was observed as regards 
many  of  the  main  work  streams.  However, 
mostly  due  to  stakeholder  resistance/opposition 
and  resource  and  capacity  constraints,  the  pace  of 
implementation is slow and some proposals by the 
authorities are pointing in the direction of relaxing 
measures introduced under the programme.  

are 

Implementation  of  the  full  offsetting  and 
collection  of  the  clawback  by  June  every  year 
for  the  previous  calendar  year  is  ongoing,  but 
there  are  signs  of  potential  changes  in  part  of 
the  system  that  could  slow  the  process  down. 
to 
Clawbacks 
pharmaceuticals 
outpatient), 
(inpatient 
privately provided diagnostic and hospital services, 
and  to  a  residual  group  comprising  most  of  the 
other items in the budget of the national insurance 
body  EOPYY.  Spending  in  all  those  areas  is  still 
on  an  increasing,  rather  than  decreasing,  path, 
especially on diagnostics, which in the authorities' 

currently 

applied 

and 

22 

 
4. Social welfare 

to join the system. A strong resistance from the 
side of providers paired with lack of trust from 
citizens  still  pose  a  threat  to  a  system  that  is 
currently  still  allowing  the  possibility  for 
patients  who  cannot  register  with  any  family 
doctor  in  their  area  to  directly  seek  specialist 
care. Since the coexistence of these systems in 
parallel  for  too  long  may  facilitate  future 
reversal if a critical mass for gatekeeping is not 
reached, close monitoring should continue. 

The  authorities  committed  to  set  up  the  main 
for  central  procurement 
body  responsible 
(EKAPY) by end-2018, with a view to achieving 
a  share  of  centralised  procurement  in  total 
hospital  expenditure  of  30%  in  mid-2020  and 
40% in mid-2022. Based on available information 
there seems to be some progress in that area. While 
the  management  board  is  still  on  temporary 
appointment,  and  EKAPY  is  not  yet  fully  staffed, 
EKAPY has managed to finalise some old tenders 
and  achieve  savings.  While  this  is  a  positive 
outcome,  it  should  be  stressed  that  they  were 
mostly  old  mothballed  tenders,  on  which  the 
process  only  needed  to  be  terminated  after  the 
launch.  There  are  still  critical  issues  related  to 
capacity  to  design  and  launch  new  tenders  with  a 
view  to  reaching  the  30%  target  by  mid-2020. 
Greece  will  receive  technical  support  on  that 
process, but it still remains challenging in terms of 
capacity  building.  Further,  previous  experiences 
with  centralised  procurement  suggest  that  area  is 
very  prone  to  discontinuation  and  reversal  due  to 
vested interests. It is thus key that EKAPY reaches 
a  critical  point 
terms  of  organisational 
development  and  results  that  consolidate  it  as  an 
integral,  rather  than  accessory,  part  of  the  new 
modern health care system. 

in 

the 

relevant 

The  authorities  have  planned  to  revise/reverse 
some  measures adopted under  the programme, 
with  uncertain  impacts  in  terms  of  system 
efficiency  and  that  will  need  to  be  monitored. 
One 
repricing 
issue  concerns 
procedure  for  pharmaceuticals,  for  which  the 
authorities envisage a transition to a unique yearly 
repricing  (to  be  published  by  the  end  of  February 
for  2019)  as  opposed  to  bi-annual  repricing 
introduced  under 
the 
authorities' view, pharmaceutical prices are already 
very low and they deem the procedure to have high 
opportunity  costs  in  terms  of  resources  that  could 
be more productively reallocated to other tasks and 

the  programme. 

In 

the  authorities  have 

view  is  still  due  to  the  introduction  of  new  tests. 
Although 
taken  several 
measures  to  strengthen  monitoring  of  that  area,  it 
seems that either currently available tools fall short 
of  delivering  results  or  that  follow-up  to  that 
monitoring  may  not  be  adequate  to  counter  the 
incentives.  There  are  elements  of  concern 
stemming  from  the  authorities'  proposals  of  an 
extension  of  the  maximum  allowed  period  for 
repayment  schemes  of  excess  spending.  That 
period  is  currently  already  quite  long  and  the 
proposal  to  extend  it  further  would  raise  serious 
concerns  on  the  capacity  to  collect  the  clawback, 
thus  worsening 
liquidity  of  EOPYY. 
Concerning  clawbacks,  that  proposal,  if  actually 
pursued,  would 
previous 
deviate 
commitments. 

from 

the 

The  rollout  of  the  primary  health  care  system, 
with the opening of at least 120 primary health 
care centres (TOMYs) by end-2018 and all 240 
TOMYs by mid-2020 is progressing but slowly. 
While  not  related  to  willingness,  slow  progress  is 
still concerning and may increase the risk of future 
discontinuation  or  reversal.  Based  on  the  latest 
reports,  around  90  primary  health  care  units 
(TOMYs)  have  opened  across  the  territory,  with 
different  levels  of  staffing  across  sites.  More 
specifically:  

in 

this 

transitional  phase, 

  on  a  positive  note,  it  seems  that  based  on 
experience 
the 
primary health care service may indeed be able 
to  rationalise  flows  towards  hospitals,  given 
that out of all the consultations since its launch 
only a very  small share resulted in referrals to 
higher  levels  of  care,  delivering  an  effective 
gatekeeping;  

  while registration has started, only a very small 
share  of  the  population  is  currently  registered, 
and  the  picture  may  change  as  the  scale  is 
expanded;  

 

the  communication  campaign  is  reportedly 
proceeding  as  planned,  but  there  seems  to  be 
lack  of  unanimity  on  that  state  of  affairs,  with 
stakeholders  reporting  that  communication  is 
failing to reach its targets;  

  progress  is  also  mixed  from  the  point  of  view 
of human resources, with doctors still reluctant 

23 

 
impact  of 

such that a transition to one yearly repricing would 
yield  greater  efficiency.  The 
that 
proposal  needs  to  be  monitored  and  assessed 
against  the  backdrop  of  a  somewhat  increasing 
trend  in  pharmaceutical  consumption.  Indeed,  this 
trend  was  previously  counterbalanced  by  the 
regulated  periodic  decrease 
in  pharmaceutical 
prices, with the latter representing one of the main 
factors  driving  the  decrease  of  pharmaceutical 
expenditure during the programme.  

4.3. 

SOCIAL SAFETY NETS 

The  profound  reform  process  of  the  Greek 
social  welfare  system  initiated  under  the  ESM 
is  being  carried  forward.  The 
programme 
overall  objective  of  the  reform  was  to  make  the 
system  more  streamlined  and  efficient,  improving 
targeting  and  effectiveness.  In  addition  to  the 
introduction of a new guaranteed minimum income 
scheme  (the  Social  Solidarity  Income  -  SSI)  in 
2017  and  the  reform  of  child  benefits  in  2018,  a 
new  housing  benefit  aimed  at  addressing  housing 
cost  overburden  is  planned  to  be  put  in  place  as 
from 2019, and reviews of the system of disability 
benefits  and  of  the  system  of  subsidies  for  local 
transport were initiated.  

A  new  housing  benefit  is  included  in  the 
package  of  measures  for  the  2019  budget.  The 
scheme,  whose  main  design  features  were  agreed 
under  the  ESM  programme,  will  provide  a  cash 
subsidy to low-income households who are renting 
or  are  paying  a  mortgage  on  their  primary 
residence.  At  EUR  70  per  month  for  a  single 
individual  (increased  by  EUR  35  for  each 
additional  household  member),  the  allowance  can 
be combined with receipt of other benefits such as 
the  SSI,  and  subsidises  between  30%  and  50%  of 
average  rental  costs.  Importantly,  the  eligibility 
conditions are such that the benefit can be claimed 
also by low-wage earners, avoiding the emergence 
of poverty traps. Finally, it is worth noting that the 
budget allocation of EUR 400 million is expected, 
thanks  to  improved  targeting,  to  broadly  achieve 
desired  outcomes  in  terms  of  inequality  and 
poverty reduction. 

4. Social welfare 

Graph 4.1:  Change in equivalised disposable income by 
income decile resulting from a housing benefit 
of EUR 400 million 

Source: Commission services 

Graph 4.2:  Change in at-risk-of-poverty by age group 
resulting from a housing benefit of EUR 400 
million 

Source: Commission services 

The  development  of  the  Social  Solidarity 
Income scheme is reaching its final stages with a 
view to complete the roll-out of all three pillars 
by  end-2019  (specific  commitment).  The  SSI 
scheme  has  been  built  on  three  pillars:  (i)  direct 
income  support,  with  the  provision  of  a  means-
tested  cash  benefit;  (ii)  social  inclusion,  with  the 
provision  of  social  services;  and,  (iii)  labour 
market  integration,  with  the  provision  of  active 
labour market services. When the scheme was first 
launched  in  2017,  it  consisted  only  in  the  first 
pillar.  Since  then  important  progress  has  been 

24 

0246810121412345678910%-3.5-3.0-2.5-2.0-1.5-1.0-0.50.0<1818-2425-3435-5455-6465+pps. 
 
 
 
4. Social welfare 

to  gradually  offer 

made  to  develop  the  other  pillars  as  well.  With 
respect to the  social inclusion pillar, a  network of 
Community  Centres  has  been  established  in  order 
to  expand  the  provision  of  social  services  at  local 
level  in  an  organic  and  coordinated  way.  As 
concerns  the  labour  market  reintegration  pillar,  as 
a  first  step  all  SSI  beneficiaries  who  are  able  to 
work  are  required  to  register  as  job-seekers  with 
the  public  employment  service  (OAED).  In  turn, 
OAED  is  expected  to  treat  SSI  beneficiaries  as  a 
priority  group,  and 
them 
personalised  services  and  targeted  support.  With 
that  aim,  the  systematic  profiling  of  all  newly 
registered SSI beneficiaries  has been put in place. 
OAED itself has undergone a deep restructuring to 
improve  its  capacity  to  deliver  labour  market 
services,  and  its  resources  are  being  reinforced 
with 
the  recent  hiring  of  additional,  highly 
qualified job counsellors. To fully deliver that third 
pillar, however, the on-going reform of the system 
of  active  labour  market  policies  needs  to  be 
completed,  introducing  a  new  delivery  model  that 
would  allow 
individualised 
the  provision  of 
services to jobseekers based on their needs, as well 
as better job matching services to employers. 

the  over-65s, 

The  review  of  the  system  of  subsidies  for  local 
public  transport  (specific  commitment  end-
2019) is also progressing. Different categories of 
the 
people  such  as  students, 
unemployed,  the  disabled  and  members  of  large 
families,  currently  benefit  from  subsidised  fares 
for  local  public  transport.  Following  the  recent 
introduction  of  electronic  ticketing  on  the  Athens 
network,  an  automatic  electronic  crosschecking 
and  processing  of  applications  of  beneficiaries 
belonging  to  those  categories  has  been  set  up. 
Subsequently, the data on actual transport usage by 
each  category  has  been  used  to  produce  a  more 
precise estimate of the cost of those policies for the 
Athens  transport  company  OASA.  In  turn,  those 
cost  estimates  have  been  used  to  update  the  draft 
Joint  Ministerial  Decisions  which  act  as  Public 
Service Obligation contracts between the Ministry 
of  Labour  and  OASA,  and  lay  down  the  reduced 
fares  and  fare  exemptions  for  large  families,  the 
unemployed  and  the  disabled.  As  next  step,  the 
Greek authorities are expected to carry out a study 
to assess the appropriateness of the current system 
of subsidised fares. The study should be concluded 
by  June  2019  and  contain  recommendations  for 
possible improvements to the system. 

The  review  of  the  system  of  disability  benefits 
(specific  commitment  mid-2019)  is  progressing, 
albeit with some delays. As a first step, the Greek 
authorities  have  been  upgrading  and  simplifying 
the  administrative  procedures 
to  determine 
disability  status  in  view  of  claiming  benefits.  In 
parallel,  a  new  approach  for  determining  the 
degree  of  disability  is  being  developed  with 
technical  support.  That  new  approach  integrates 
the  current  purely  medical  assessment  with  a 
functional assessment of disability. A pilot project 
was launched to test that new process of disability 
determination.  The  new  disability  determination 
standards  and  protocols  should  be  defined  on  the 
basis  of  the  results  of  that  pilot,  and  applied 
to  all  disability  benefits,  both 
consistently 
contributory and non-contributory. However, some 
delays  have  been  recorded,  due  to  e-health  files 
compiled  by 
to 
the  Disability 
bottlenecks  at 
Certification  Centres  (KEPAs),  where  a  medical 
committee carries out the  medical  assessment and 
issues  a  final  determination  of  disability.  As  a 
result,  there  has  been  a  very  low  number  of  fully 
processed applications, which does not yet allow a 
scientific evaluation of the pilot to be conducted. 

treating  physicians  and 

level  of 

the 

the 

25 

 
 
5.  FINANCIAL SECTOR  

5.1. 

FINANCIAL SECTOR DEVELOPMENTS 

5.1.1.  Financial sector overview and financial 

stability assessment 

Graph 5.1: 

Bank deposits 

capital, 

strengthening 

and 
the  high 

Over  the  past  several  years,  wide-ranging  policy 
actions  in  Greece  have  aimed  at  safeguarding 
financial stability and strengthening the viability of 
the  banking  system.  The  measures  related  to  the 
financial  sector  focused  in  particular  on:  (i) 
liquidity  and  payment 
gradually  normalising 
conditions 
(ii) 
addressing 
level  of  non-performing 
exposures  (NPEs)  on  banks’  balance  sheets;  and 
(iii)  improving  the  governance  of  both  banks  and 
the  Hellenic  Financial  Stability  Fund  (HFSF).  As 
of  the  end  of  the  ESM  programme  on  20  August 
2018, progress has been achieved in those financial 
sector  policy  areas.  However,  despite  progress 
strong efforts are still needed to normality: the gap 
with other Member States has increased in respect 
of  asset  quality  (NPE  ratio),  capital  (fully-loaded 
Common Equity Tier 1, CET1, ratios), and quality 
of  capital.  Profitability  is  still  negative  and  while 
emergency 
and 
Eurosystem  funding  have  decreased  significantly, 
liquidity  regulatory  gaps  are  still  in  place  (e.g. 
liquidity coverage ratio, LCR).  

assistance 

liquidity 

(ELA) 

MFI = monetary financial institution; NFC = non-financial 
corporation 
Source: ECB 
Source:  

Graph 5.2: 

Total borrowing from the Eurosystem 

Banks  on  average  have  capital  buffers  and 
private  sector  deposits  are  stable.  Banks’ 
average  capital  ratio  (common  equity  tier  1)  was 
slightly  below  16%  during  the  second  quarter  of 
2018, thereby ensuring that banks are in line  with 
capital requirements (see Table 5.1). Private sector 
deposits have remained stable since the end of the 
ESM programme in August 2018 (see Graph 5.1).  

Table 5.1: 

Financial stability indicators 

Source: Bank of Greece 

Banks’  reliance  on  central  bank  funding  has 
decreased.  Greek  banks  managed 
to  reduce 
significantly  their reliance on Eurosystem  funding 
and  two  of  the  systemic  banks  have  repaid  ELA 
entirely  and  the  other  two  are  expected  to  follow 

(1) Annualised data 
Source: ECB - CBD2 - Consolidate Banking data, Commission services 

26 

05010015020025030020142015201620172018MFIsHouseholdsNFCCentral Governmentbn EUR01020304050050100150200Borrowing from the ECBECB liquidity as % of liabilities (rhs.)bn EUR%2014Q42015Q42016Q22016Q32016Q42017Q12017Q22017Q32017Q42018Q12018Q2Non-performing loans39.746.847.247.446.346.646.946.745.045.444.9o/w NFC & HH sectors41.849.550.150.350.450.350.650.449.449.248.4o/w NFC sector44.752.553.253.953.953.453.352.651.451.149.4o/w HH sector38.545.946.546.246.346.847.547.947.147.047.3Coverage ratio43.548.548.148.248.248.147.447.246.749.549.0Return on equity(1)-10.6-24.2-15.8-9.9-7.51.3-0.4-0.3-1.30.7-2.4Return on assets(1)-1.0-2.8-1.9-1.2-0.90.1-0.10.0-0.20.1-0.3Total capital ratio14.116.518.018.217.016.817.217.217.116.416.4CET 1 ratio13.816.317.818.116.916.717.117.217.015.815.8Tier 1 ratio13.816.317.818.116.916.717.117.217.015.815.8Loan to deposit ratio79.172.374.575.575.977.278.281.883.578.878.4 
 
 
 
 
 
 
 
 
5. Financial sector  

State  and  the  banks.(8)  In  that  context,  it  is 
important  to  note  that  deferred  tax  assets  (DTAs) 
recognized  by  banks  in  their  balance  sheets  that 
exceed  certain  thresholds  must  be  deducted  from 
regulatory  capital  according  to  Regulation  (EU) 
No  575/2013(9) 
,  since  they  rely  on  future 
profitability and arise from temporary differences. 
However,  article  27A  of  Greek  Law  4172/2013 
(also  known  as  the  DTC  Law)  allows  banks  to 
convert  specific  DTAs,  under  certain  conditions, 
into  directly  enforceable  claims  against  the  Greek 
State. The latter are known as deferred tax credits 
(DTCs)  and  banks  do  not  have  to  deduct  them 
from  their  regulatory  capital(10).  According  to  the 
latest  data  available,  the  amount  of  the  eligible 
DTAs  to  be  converted  into  DTCs  by  the  four 
systemic  Greek  banks  is  EUR  15.9  billion  as  of 
June  2018,  which  is  equivalent  to  around  59%  of 
their Common Equity Tier 1 Capital.  

Further efforts to address the challenges related 
to  NPEs  and  the  sovereign-bank  nexus  would 
serve  to  safeguard  reform  momentum  and 
underpin credibility over the medium term and 
to reassure markets and interested stakeholders 
that sound financial practices will be sustained. 
Credibility  remains  key  after  the  end  of  the  ESM 
programme, in order to fully restore market access 
–  for  both  the  sovereign  and  the  banks  –  and 
provide reassurances of a stable financial sector in 
Greece.  For  that  banks  need  to  build  minimum 
requirement  for  own  funds  and  eligible  liabilities 
(MREL) buffers. 

There  is  a  backlog  in  payment  by  the  General 
Accounting  Office  (GAO)  of  claims  made  by 
banks under State-guaranteed loans. It would be 
warranted  for  GAO  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 

(8)  Via  the  HFSF  the  State  owns  more  than  19%  of  the  four 
major  banks  on  average,  the  CET1  capital  ratio  of  those 
banks  consists  of 37% to  80%  deferred  tax assets that  are 
eligible  under  the  deferred  tax  credit  regime.  The  HFSF 
holds contingent convertible bonds (CoCos) issued by one 
bank,  and  a  part  of  the  loan  books  is  supported  by  State 
guarantees.  

(9)  Regulation (EU) No 575/2013 of the European Parliament 
and  of  the  Council  of  26 June  2013  on  prudential 
requirements  for  credit  institutions  and  investment  firms, 
OJ L 176, 27.6.2013, p. 1–337. 

(10)  However the DTC amortises over 20 years. 

by the end of 2018 or first quarter 2019. The ELA 
ceiling  was  reduced  from  EUR  90.4 billion  in 
August 2015 to EUR 4.9 billion in early November 
2018.  An  improved  liquidity  situation  of  Greek 
banks  and  an  increased  confidence  of  depositors 
gave  room  for  a  further  loosening  of  capital 
controls as of 1 October 2018 in order to normalize 
the  functioning  of  economy,  which  allowed  for 
unlimited cash withdrawals from credit institutions 
in Greece and further mitigated the adverse impact 
on Greek businesses (see Box 5.1). 

in 

NPE resolution remains an important challenge 
for the banking sector in Greece. The main task 
of  cleaning-up  their  balance  sheets  remains  to  be 
addressed  and  requires  major  efforts 
the 
immediate  post-programme  period.  As  of  June 
2018, banks are reducing the  NPE stock(7) in line 
with  supervisory  targets,  which  are,  however, 
going  to  become  more  ambitious  in  the  following 
quarters,  while  there  is  no  simple  solution  to 
accelerate the pace of reduction. Under the targets 
agreed, the NPE ratio will be 35% at end-2019 and 
indicatively  banks  expect  to  reduce  the  ratio  to 
around  20%  by  end-2021.  Those  efforts  are 
supported  by  several  important  reforms  related  to 
the  out-of-court  debt  workout  mechanism,  the 
insolvency 
and 
the  enforceability  of  collateral 
corporations, 
through  electronic  online  auctions,  as  well  as  the 
activation  of  a  secondary  market 
for  non-
performing  loans.  Finally,  banks'  governance  has 
improved,  in  particular  through  the  reconstitution 
of  bank  boards,  in  accordance  with  the  stringent 
provisions in the HFSF law. 

for  households 

framework 

For  the  future,  banks'  liquidity  and  capital 
situation  remains  strongly  dependent  on  the 
success  of  the  economic  reforms  and  their 
continuation,  which  therefore  is  of  the  essence. 
Despite  the  progress  made  in  the  context  of  the 
financial  assistance  programmes,  the  financial 
system in Greece is still characterised by very high 
levels of NPEs,  high  sovereign debt,  some capital 
controls still in place and strong links between the 

(7)  Non-performing  exposures  (NPEs)  refer  to  a  broader 
definition  of  non-performing  loans  (NPLs).  NPEs  include 
loans more than 90 days past due and loans whose debtor is 
assessed  as  unlikely  to  pay  its  credit  obligations  in  full 
without realization of collateral, regardless of the existence 
of any past due amount or of the number of days past due. 

27 

 
                                                           
                                                           
5. Financial sector  

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

As  regards  funding  conditions,  the  latest  data 
available (September 2018)  shows that the overall 
cost of funding over new deposits remained stable 
during the past months at 29 bps. By typology, the 
to 
lowest  average 

rate  corresponds 

interest 

interest 

rate  on  deposits 

overnight  deposits  placed  by  households  (0.09%) 
and by non-financial corporations (0.15%) whereas 
the  average 
from 
households with an agreed maturity of up to 1 year 
stood  at  0.60%.  This,  together  with  the  slight 
increase  on  the  lending  weighted  average  interest 
rate  on  all  new  loans  by  6  bps  to  4.75%,  allowed 
for  an  increase  of  the  spread  between  loan  and 
the  Greek  banking  system. 
deposit  rates 

in 

28 

Box 5.1: Easing capital controls in GreeceFrom end-2014 Greek banks’ liquidity was under increasing pressure, culminating in a bank holiday in end-June 2015 until the imposition of capital controls in mid-July 2015.  Capital controls have been gradually relaxed since then, in line with the adopted Roadmap published by the authorities on 15 May 2017.  Today the situation has improved with a further normalization of bank funding conditions, improving prospects for the Greek economy and the gradual restoration of investors’ and depositors’ confidence. Capital controls have been further relaxed accordingly. Concretely, the following amendments have been introduced in the Greek Law as from 1 October 2018:   Cash withdrawals from any branch or ATM of credit institutions operating in Greece are permitted without limitation, including withdrawals using credit and prepaid cards issued by credit institutions operating in Greece, as well as any other cash payments from credit institutions, irrespective of currency, including, inter alia, checks and payments under letters of credit.  Permitted cash withdrawals from institutions abroad include now also withdrawals using credit and prepaid cards issued by credit institutions operating in Greece, with a limit up to the amount of EUR 5,000 (or the equivalent in foreign currency) per calendar month per customer, per credit institution.  The transfer of cash of an amount of up to EUR 10,000 (or the equivalent in foreign currency) is allowed per natural person per travel abroad, increased from a previous limit of EUR 3,000. Permanent residents abroad have always been exempt from this restriction.  Transactions of legal persons or sole proprietors involving a transfer of funds abroad, in the context of their business activities, are allowed for amounts up to EUR 100,000 (increased from a previous limit of EUR 40,000), per transaction, per customer, per day, following the submission of the relevant invoices and other evidence and documentation. Note that, since July 2018, transfers of funds abroad from individuals are allowed up to an amount of EUR 4,000 (increased from a previous limit of EUR 2,000) per customer, per calendar two-month period, up to an aggregate monthly ceiling for all credit institutions.  Capital gains and dividends from funds invested in Greece may be transferred up to 100% of the invested funds in each calendar year to the beneficiary abroad, provided that the invested funds have been transferred from abroad by a remittance to an account held by the beneficiary with a credit institution operating in Greece, the beneficiaries after the entry into force of the October ministerial decision. The way forward on capital controls will continue to be closely monitored, given the implications for the overall functioning of the Greek economy.  
 
 
 
 
 
5. Financial sector  

categories. That state of affairs is an argument for 
limiting the scope of the Katseli law. 

At the sectoral level, NFCs are making recourse 
to  financing  from  alternative  sources,  but 
important broader financial sector elements are 
still  underdeveloped.  Financing  from  sources 
other  than  domestic  banks  also  contribute  to  the 
provision of  finance to enterprises in Greece. The 
combined stock from the foreign intercompany and 
bank  sources  of  funds  (excluding  corporate  bond 
issues abroad) in 2018 represented around 13% of 
outstanding  bank  credit  to  NFCs.  Leasing/hire 
purchase  and  factoring 
transactions  currently 
stands at around 7% of outstanding bank credit to 
NFCs.  The  degree  of  underdevelopment  of  the 
factoring  business  suggests  that  the  recoverability 
faces 
of 
claims 
impediments.  Survey  data  also  point 
the 
significance  of  trade  credit  from  suppliers  as  a 
relevant alternative source for financing for Greek 
SMEs.  Greek  capital  markets  are  still  affected  by 
the  deep  and  prolonged  crisis  and  dominated  by 
trade 
the 
meaningful funding alternatives available to NFCs, 
except  for  some  large  corporates.  Most  of  the 
recent  corporate  bonds  were 
the 
Eurobond markets and the capital raised was used 
to  repay  bank  loans.  Overall,  raising  capital  from 
bond markets  was and remains a difficult task  for 
the  average  Greek  NFC,  due  to  country  risk,  low 
profitability and a shallow domestic investor base.  

in  banks'  securities, 

unsecured 

limiting 

secured 

issued 

thus 

and 

in 

to 

to 

fulfil 

financial 

institutions 

A stable and healthy financial system is important 
to support the efficient allocation of resources and 
distribution  of  risks  across  the  economy.  Well-
managed and well-capitalised financial institutions 
with clean balance sheets contribute to making the 
financial  system  resistant  to  economic  shocks.  It 
enables 
its 
intermediation and risk management function at all 
times. Given the high NPE level in Greek financial 
institutions,  high  sovereign  debt,  some  capital 
controls still in place and the very strong sovereign 
bank  nexus,  a  close  surveillance  of  the  financial 
sector and its policies remains warranted to ensure 
that 
to  a  sustainable 
economic  growth  path  in  Greece.  Both  banks  and 
the sovereign have to work hard to reduce the risk 
premia  they  still  have  to  pay  when  looking  for 
market  funding.  In  particular,  the  government 
should  review  from  that  perspective  all  policy 
initiatives  underway  and  avoid  proposals  which 

the  sector  contributes 

However,  several  challenges  still  remain  in  the 
period  ahead,  including  the  broadening  of  market 
funding  and  the  further  reduction  of  central  bank 
funding dependency. 

5.1.2.  Financing of the economy 

Following  years  of  pronounced  contraction, 
bank  lending  to  the  economy  remains  very 
subdued,  with  slight  signs  of  improvement  in 
the  corporate  segment.  Since  2016,  the  annual 
growth  rate  of  loans  extended  to  non-financial 
corporations  (NFCs)  has  been  hovering  around 
zero.  While  the  trade  and  tourism  sectors  have 
seen  positive  credit  growth  rates  for  at  least  two 
years,  with  some  recent  slowdown  in  the  trade 
sector, the  manufacturing sector is seeing positive 
lending  growth  since  mid-2018  after  two  years  of 
relatively  strong  negative  credit  growth.  The 
growth  rate  for  loans  to  households  has  been 
progressively  becoming  less  negative  since  July 
2016. Factors that supported new credit include the 
recent  modest  recovery  in  economic  activity,  as 
well  as  a  slight  reduction  in  lending  rates  to  the 
corporate sector. On the downside, the burden of a 
high  NPL  stock  has  inhibited  new  lending  by 
banks.  On  average,  in  January-July  2018  new 
gross loans to households remained broadly stable 
as  compared  to  the  previous  year,  while  higher 
volumes  of  new  loans  to  NFCs  were  recorded. 
Regarding  the  maturity  composition  of  loans,  the 
share of long-term loans to NFCs over total  loans 
has  been  on  an  upward  path  since  2015,  reaching 
just below 50% in 2018. In 2018, for the first time 
in many years banks reported some easing in credit 
standards for all types of new loans.  

Lending rates to NFCs are on a downward path 
in  contrast  to  interest  rates  on  mortgage  and 
consumer  loans.  The  gradual  decline  in  lending 
rates  to  NFCs  has  continued  during  2018,  driven 
by  lower  credit  risk  and  the  favourable  effect  of 
the  financing  instruments  available  to  SMEs  (e.g. 
by  the  Hellenic  Fund  for  Entrepreneurship  and 
for 
Development, 
Reconstruction 
the 
European  Investment  Bank  Group).  By  contrast, 
lending rates to households have been following an 
upward  trend  for  the  past  four  years,  mainly 
reflecting  credit  risk  developments,  as  the  NPE 
ratio  for  consumer  loans  is  particularly  high  and 
the  NPE  ratio  for  mortgage  loans  has  been 
deteriorating  recently  as  compared  to  other  loan 

the 
and  Development 

Bank 
and 

European 

29 

 
5. Financial sector  

may  imply a  worsening of  market access  for both 
the  sovereign  and  the  commercial  banks.  Only 
strong  discipline  in  that  respect  will  secure  a 
continuous  and  stable  market  access  and  help 
avoid  adverse  scenarios,  which  could 
imply 
contagion effects by impacting investor confidence 
and thus refinancing cost for  banks and sovereign 
in other euro-area  Member States.  At the point of 
publishing  this  report  such  risks  seem  to  be 
contained. 

Graph 5.3: 

Bank credit to households 

Source: Bank of Greece 

Graph 5.4: 

Bank interest rates on new loans 

Source: Bank of Greece 

5.2.  NON-PERFORMING EXPOSURES AND 

INSOLVENCY LEGISLATION 

Under  the  ESM  programme,  Greece  has 
adopted  a  multi-part  strategy  to  deal  with  the 
problem  of  non-performing  exposures  (NPE); 
its  continued  implementation  and  impact  will 
be closely monitored in the context of enhanced 
is 
surveillance.  The  Greek  banking  system 

to 

to  service 

their  debt  due 

confronted  with  exceptionally  challenging  credit 
portfolios,  holding  the  highest  NPE  ratio  in  the 
euro  area.  That  position  results  from  borrowers' 
the 
inability 
deterioration of macroeconomic conditions as well 
as  from  moral  hazard  issues,  encouraged  by 
excessive  horizontal  debtor  protection,  unrealistic 
expectations created by public announcements and 
the  inefficient  operation  of  the  judicial  system.  A 
high stock of NPEs hampers the restoration of pre-
provision  income  and  capital  generation  capacity 
which  in  turn  is  needed  to  meaningfully  address 
the NPE reduction challenge. To break that vicious 
cycle,  banks  have  to  work  hard  on  their  cost 
structure  and  the  business  models,  while  the 
government  should  prioritise  the  NPE  resolution 
by  the  banks  and  take  account  of  that  priority  in 
any policy proposal which may affect the speed of 
the NPE resolution process.  

NPEs  have  been  gradually  decreasing,  but 
remain  elevated,  amounting  to  EUR  88.6  billion 
(just  below  48%  of  total  exposures)  at  end-June 
2018  in  comparison  with  the  peak  of  EUR  107.2 
billion  of  March  2016.  The  reduction  of  NPEs 
through  sales  accelerated  over  the  past  quarters 
while  e-auctions  appear  to  have  produced  some 
first results. Write-offs remain an important driver 
of  the  reduction  followed  by  liquidations  and 
collections. In terms of flows, in the second quarter 
the  default  rate  exceeded  the  cure  rate  again.  The 
default rate  is driven by re-defaults, implying that 
banks  are  still  struggling  to  put  in  place  viable 
long-term  restructuring  solutions.  By  typology  of 
loans,  a  better  performance  is  noted  in  the  SMEs 
and  corporate  portfolios,  whereas  the  picture  for 
households  is  mixed:  although  a  sizeable  annual 
consumer 
reduction 
portfolio  was  registered,  the  performance  in  the 
mortgage book seems to remain subdued with only 
a very slight annual reduction of the NPEs. In that 
context, it is important to note that the percentage 
of  NPEs  under  the  legal  protection  of  Law 
3869/2010  remains  significant  (14.4%  of  NPEs  at 
end-June  2018)  although  the  absolute  amount  of 
loans  has  remained  stable. 
legally  protected 
Approximately  30%  of  non-performing  mortgage 
loans  are  under 
legal  protection  under  Law 
3869/2010.  The  coverage  ratio  is  slightly  below 
50%, ranging from 33% for the mortgage portfolio 
and 69% for consumer loans, while NFC NPEs are 
covered by 53%. 

the  non-performing 

in 

30 

Sep.2018:-2.9%Sep.2018:-0.8%-7-6-5-4-3-2-10123Housing loansConsumer loansSep.2018:4.15%Sep. 2018:5.27%012345678Loans to non-financial corporationsLoans to households 
 
 
 
5. Financial sector  

fide  individual  debtors  to  obtain  discharge  three 
years  after  the  declaration  of  bankruptcy  and 
further  simplifying  and  accelerating  insolvency 
second 
proceedings 
accreditation  process 
the  enrolment  of 
insolvency  administrators  is  due  in  November 
2018. 

regarding  SMEs.  The 

for 

to 

to 

facilitate 

committed 

implementing 

Regarding  the  performance  of  the  regulatory 
framework  for  household  insolvency  and  its 
application  by  the  courts,  beyond  the  steady,  if 
limited, 
improvement  of  backlog  processing, 
accelerated  progress  is  expected  following  the 
latest reform that introduced measures for filtering 
out strategic defaulters (most notably by requiring 
applicants to consent to the lifting of their banking 
secrecy)  and  for  expediting  proceedings.  The 
authorities 
a 
comprehensive  action  plan  with  the  objective  to 
eliminate  the  backlog  of  cases,  including  the 
processing  of  pending  applications,  by  end-2021. 
During the first nine  months of 2018, the backlog 
was reduced from some 157,000 to some 135,000 
cases.  Moreover,  financial  training  should  be 
provided  to  judges  as  a  specific  commitment  by 
the end of 2018 in major metropolitan areas and by 
the end of the first semester of 2019 for the rest of 
the  country 
the  processing  of 
household  insolvency  and  NPE-related  cases.  In 
order to address specific problems experienced by 
the  courts  throughout  Greece,  the  Ministry  of 
Justice 
to  all 
Magistrate  Courts in order to gather data, identify 
individually-tailored 
problems 
solutions, 
courts  whose 
the 
performance  has  been  found  weakest  (37  out  of 
154,  responsible  for  some  56%  of  all  pending 
cases).  In  addition,  during  the  current  quarter 
actions are due such as the issuance, by November 
2018,  of  secondary  legislation  to  facilitate  the 
activation  of  State  contributions  to  the  repayment 
of rescheduled debts of vulnerable households (the 
amount  budgeted  for  that  purpose  being  EUR  50 
million  per  year);  the  development  of  an  online 
platform  for 
the  relevant 
the  submission  of 
applications;  the  assessment  of  the  need  for 
establishing  indicative  standardized  templates  of 
household  insolvency  court  decisions  by  end-
November  2018;  and  the  codification  of  the 
legislative and normative framework on household 
insolvency by end-December 2018. 

and 
propose 
focusing  on 

sent  questionnaires 

recently 

The strategy adopted under the programme for 
tackling NPEs has included regulatory, judicial, 
supervisory and other actions: the creation of an 
the 
active  NPE  servicing  and  sales  market, 
application of the Code of Conduct adopted by the 
Bank  of  Greece,  revisions  of  the  household 
insolvency  law, 
the  reform  of  the  corporate 
insolvency  law,  the  creation  of  an  out-of-court 
workout  (OCW)  mechanism  and  an  extended 
reform  of  the  Greek  Code  of  Civil  Procedure, 
including  the  adoption  of  an  electronic  auctions 
mechanism  for  the  liquidation  of  assets  in  the 
those 
context  of  executory  enforcement.  For 
reforms  to  bear  fruit,  Greece  also  undertook  the 
commitment to strengthen the capacity of its courts 
in  order  to  increase  their  efficiency  in  managing 
their 
and 
considerable backlogs of NPE-related cases and in 
swiftly resolving new ones.  

the  processing  of 

accelerating 

While  the  progress  of  the  implementation  of 
those  strategies  and/or  measures  until  the  end 
of the ESM programme has not been uniformly 
satisfactory,  there  are  encouraging  signs  in  the 
(under 
areas  of  sales  and  securitisations 
development). However,  sustainable restructuring 
solutions,  either  directly  by  the  bank  or  by  the 
servicer/acquirer of NPEs are not yet evident. 

In  the  field  of  the  NPE  secondary  market,  the 
two  first  NPE  sales  by  Greek  banks  were  carried 
out in the second half of 2017 and the first quarter 
of  2018,  involving  highly  provisioned  unsecured 
loan  portfolios,  with  a  focus  on  consumer  loans. 
Several  additional  NPE  transactions  have  been 
closed  in  the  second  and  third  quarter  or  are 
currently  underway.  Completion  of  already 
transactions 
conducted  and  currently  planned 
would  bring 
loans 
the 
transferred by the country’s four systemic banks to 
around EUR 20 billion.  

total  face  value  of 

On  the  front  of  corporate  insolvency,  despite  a 
recent  major  overhaul  of  the  Insolvency  Code 
under the ESM programme and the introduction of 
the  new  profession  of  Insolvency  Administrator, 
uptake by stakeholders remains slow. For instance, 
only  35  new  cases  were  reported  as  having  been 
filed  with the relevant division of the  Athens  first 
instance  court  in  the  first  semester  of  2018. 
However, there is scope for an accelerated uptake 
as  the  numerous  improvements  and  procedural 
streamlining  unfold  their  impact,  enabling  bona 

31 

 
5. Financial sector  

auctions 

auctioned 

aggressive 

platform  proved  a  success  in  the  sense  that  it 
allowed for the unhindered resuming of liquidation 
of  collateral  after  a 
long  moratorium  on 
liquidations  followed  by  a  de  facto  blockage  of 
physical 
activism 
by 
throughout  the  country.  That  said,  the  rate  of 
liquidations  is  inferior  to  the  rate  in  the  pre-crisis 
period  (i.e.  prior  to  2010),  From  November  2017 
to  September  2018,  10,040  properties  were 
successfully 
throughout  Greece. 
Prospects  look  positive  for  the  future;  auctions 
resumed,  after  the  judicial  summer  break,  in  mid-
September  2018.  Approximately  5,600  auctions 
are  expected  to  take  place  in  the  last  quarter  of 
2018  and  up 
to  end-January  2019.  One 
preoccupying subject is the fact that to date almost 
four  out  of  five  successful  auctions  lead  to  the 
purchase  of  the  collateral  by  the  bank,  while  a 
large number of auctions, although conducted, are 
unsuccessful  due  to  the  lack  of  bids.  Lastly,  the 
owner and operator of the platform, i.e. the Athens 
notarial  association,  is  investigating  how  to  make 
the  platform  more  user-friendly,  so  as  to  incite 
participation 
prospective 
purchasers. 

non-specialist 

by 

Continued monitoring of the effectiveness of the e-
auction  framework  is  needed  and  any  identified 
impediments should be appropriately addressed. 

Regarding  the  monitoring  of  the  results  of  the 
reform  of  the  Greek  Code  of  Civil  Procedure, 
the  authorities  have  undertaken  to  conduct  a 
biannual  assessment.  Moreover,  by  end-March 
2019  an  overall  evaluation  of  the  reform  and 
quantification  of  its  impact  on  the  direction  of 
achieving all objectives set over time is envisaged. 

In order to further enhance the case-processing 
capacity  of  courts, 
the  Greek  authorities 
committed to proceeding by December 2018, with 
the  gradual  appointment  of  successful  candidates 
to the public competition conducted in 2017 for the 
hiring of courthouse support staff. 

The  Greek  authorities  have  indicated  their 
intention  to  proceed  with  adjustments  of  the 
protection  on  primary  residences  of  vulnerable 
households  under  the  Household  Insolvency 
(Katseli)  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.  More  details  are  needed  for  a  proper 
assessment to be made, and any legislative change 
should  only  be  undertaken  following  a  dialogue 
with  all 
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  so  that  such 
protection is 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.  In  addition, 
any  proposal  should  also  eliminate  practices 
whereby  the  framework  is  misused  to  block  the 
conduct of already planned electronic auctions.  

relevant 

the 

submission 

and  processing 

The OCW mechanism got off to a slow start in 
mid-August 2017, when the electronic platform 
for 
of 
applications  became  operational.  While  volume 
and  turnover  remain  modest,  both  regulatory  (the 
issuance of one Ministerial Decision) and technical 
(planned e-platform  upgrades) measures are being 
taken  to  enhance  the  performance  of  the  system. 
The  latest  amendments  to  the  law,  as  well  as  a 
number  of  Ministerial  Decisions,  were  adopted  in 
view  of  the  closing  of  the  last  programme  review 
in  June  2018.  As  for  the  technical  aspect,  the 
electronic platform will be upgraded in the course 
of the last quarter of 2018, in order to acquire the 
ability  to  collect  Key  Performance  Indicators  and 
monitor  statistics  for  public  and  private  creditors, 
including 
tax  authority,  social  security 
institutions  and  financial  institutions.  Moreover, 
the Secretariat for the Management of Private Debt 
will  continue  updating  the  platform  regularly,  in 
order to address such needs of the  stakeholders as 
may arise going forward.  

the 

The  electronic  platform  for  the  conduct  of  e-
auctions was first put into use in November 2017. 
Initially,  it  functioned  as  an  alternative  to  the 
highly  problematic  and  contested  conduct  of 
physical  auctions.  As  of  February  2018, 
it 
completely replaced the latter and became the only 
available  liquidation  mechanism.  The  electronic 

5.3.  HELLENIC FINANCIAL STABILITY FUND 

In line with Greece's  Eurogroup  commitments, 
the  status  of  the  HFSF  will  remain  unchanged 
and  it  will  continue  its  efforts  to  achieve  its 
ultimate  goal  of  reprivatising  its  stakes  in  the 
systemic banks in the coming years. By the end 

32 

 
5. Financial sector  

the  four  banks  concerning 

followed  from  the  second  governance  review 
carried  out  during  the  summer  of  2017.  The 
review identified significant improvements at each 
their  boards' 
of 
composition, skill and focus  since the first review 
in  2016,  but  stated  that  (i)  additional  actions  are 
needed in the areas of risk culture, compliance and 
internal  control  framework,  and  (ii)  all  the  four 
banks require  substantial time and efforts in order 
to implement the recommendations in full until the 
new  governance  cultures  and  processes  become 
organic  parts  of  the  respective  corporate  cultures. 
total  169 
As  of  May  2018,  out  of 
recommendations  provided  to  the  four  banks,  65 
(38 %) were already closed and 89 (53 %) were in 
progress. 

the 

In  its  efforts  to  increase  the  value  of  its 
participations,  the  HFSF  closely  monitors  the 
banks'  progress  on  NPE  resolution  and  supports 
the  banks  in  their  efforts  to  reduce  NPEs.  That 
support  includes,  among  others,  challenging  the 
banks  with  respect  to  their  NPE  strategies  and 
taking  part  as  an  observer  in  the  interbank  NPE 
Coordination Committee. Over recent  months, the 
HFSF has also been exploring the possibility of an 
Asset Protection Scheme (APS), as an addition to 
the  NPE  resolution  toolkit.  In  order  to  assess  the 
scope  for  creating  a  workable  structure,  several 
important  technical  elements  still  need  to  be 
elaborated 
relevant 
stakeholders,  including  Commission  services  and 
the Single Supervisory Mechanism.  

consulted  with 

and 

of  2018  (specific  commitment),  (i)  the  HFSF  is 
expected  to  develop  a  divestment  strategy  for  the 
sale of its stakes in the systemic banks, and (ii) the 
mandate of the Selection Panel will be extended in 
order to be aligned with the mandate of the HFSF, 
i.e. until end-2022.  

is  having  discussions  with 

The HFSF is preparing the divestment strategy 
and 
its  different 
stakeholders  on  certain  aspects  of  the  strategy, 
with  the  aim  to  have  a  reconciled  and  approved 
strategy  in  place  by  the  required  deadline.  No 
progress has been reported so far by the authorities 
on  the  extension  of  the  mandate  of  the  Selection 
Panel.  

restructuring  plans 

currently  being 
The 
implemented  by  the  four  systemic  banks  are 
scheduled  to  conclude  on  31  December  2018, 
which  may  necessitate  certain  changes  in  the 
operational  framework  of  the  HFSF  and  the 
systemic  banks,  as  (i)  the  HFSF  Law  grants  the 
HFSF  a  number  of  rights  and  imposes  certain 
restrictions on the banks which are also linked with 
the “State aid period” and (ii) the provisions of the 
Relationship  Framework  Agreements  (RFAs)  are 
also linked to a certain extent to the monitoring of 
the  restructuring  plans.(11)  As  a  consequence,  the 
conclusion  of  the  restructuring  plans  may  make 
certain amendments in both the HFSF Law and the 
RFAs  necessary.  In  this  context, 
it  will  be 
warranted  for  the  HFSF  to  maintain  sufficient 
rights and tools to fulfil its objectives and tasks set 
out  in  the  HFSF  law,  including  –  among  others  – 
to execute the eventual disinvestments, to continue 
to facilitate  the reduction of  NPEs and to  monitor 
the fulfilment of the corporate  governance criteria 
and arrangements of the systemic banks. Hence the 
preparations  for  the  post-restructuring  period  and 
the  formulation  of  the  exit  strategy  are  closely 
intertwined, and the HFSF is working on those two 
issues in parallel.  

Since September 2017, the four systemic banks 
have  been  working  on 
the 
recommendations  provided  by  the  HFSF  that 

implementing 

(11)  The RFAs are mandatorily concluded bilateral agreements 
between the HFSF and each of the four systemic banks that 
received State aid regulating in particular – among others – 
the  corporate  governance  of  each  bank,  the  significant 
obligations  and  the  monitoring  of  the  implementation  of 
the  restructuring  plans  and  the  banks'  ensuing  risk  profile 
and the HFSF's consent rights. 

33 

 
                                                           
 
6.  LABOUR AND PRODUCT MARKETS 

6.1. 

LABOUR MARKET  

Major changes have been made to Greek labour 
market 
institutions  and  wage  bargaining 
systems  in  recent  years.  Those  reforms  have 
helped  restore  Greece's  wage  competitiveness 
to  euro-area  partners,  and  have 
compared 
contributed to employment creation in recent years 
which has led unemployment to fall from 27.5% in 
2013 to 19% by the end of the ESM programme.  

2018, 

sectoral 

Upon  the  expiry  of  the  ESM  programme,  the 
favourability  and  extension  principles  of 
collective  bargaining  were  restored.  Since 
collective 
eight 
September 
agreements  that  were  already  in  force  have  been 
extended  to  apply  to  the  entire  sector,  after 
verification  that  they  satisfied  the  requirement  of 
representativeness (i.e. to cover more than 50% of 
the  workforce).  Some  of  them  have  resulted  in 
increases  in  wages  for  firms  in  the  respective 
sectors, such as tourism. (12) At this stage, it is not 
feasible for the Commission to assess the impact of 
those  changes  to  collective  barging  on  wage 
formation  outcomes  and  competitiveness,  and 
much  will  depend  upon  responsible  behaviour  by 
social  partners 
in  negotiating  new  collective 
agreements.  The  restoration  of  the  favourability 
and  extension  principles  imply  a  more  centralised 
approach  to  wage-formation  mechanisms,  which 
may  reduce  the  scope  to  cater  for  the  specific 
challenges facing individual firms, many of whom 
continue  to  face  considerable  challenges,  in  part 
linked  to  outstanding  debts.  The  Commission 
services  have  suggested  that  social  partners  could 
usefully  explore  the  scope  for  opt-out  clauses  or 
temporary  derogations,  as  part  of  collective 
agreements,  to  allow  for  greater  flexibility  for 
companies  facing  particular  difficulties.  It  will  be 
important  in  the  future  for  the  authorities  and 
social  partners  to  carefully  monitor  the  impact  of 
to  collective  bargaining  on  wage 
changes 

(12)  For  instance,  it  is  estimated  that  the  extension  of  the 
collective  agreement  for  travel  agencies  affected  5 117 
employees  who  were  not  previously  covered  by  it.  The 
agreement stipulates wage floors ranging from EUR 800.15 
to  EUR  1,104.78  per  month,  depending  on  seniority.  On 
top  of  wages,  the  agreement  also  stipulates  additional 
benefits such as a marriage allowance (of 10% of the base 
wage),  a  child  allowance  (of  6%  for  every  child),  and  a 
“scientific benefit” (of 18%) for workers holding a tertiary 
education degree. 

formation  in  light  of  the  importance  of  sustaining 
an  economic 
that  delivers  strong 
employment growth.  

recovery 

experts, 

competitiveness, 

the  government 

The  government  has  initiated  the  procedure  to 
revise  the  2019  level  of  the  statutory  minimum 
wage  ahead  of  schedule.  Article  103  of  Law 
4172/2013  provides  that,  following  consultations 
with  social  partners  and  recommendations  by 
independent 
shall 
determine  on  a  yearly  basis  the  minimum  wage 
taking  into  account  the  state  of  the  economy  and 
its  growth  prospects  in  terms  of  productivity, 
prices, 
employment, 
unemployment,  incomes  and  wages.  According  to 
the  same  article,  the  procedure  should  start  in 
February  each  year,  and  be  concluded  in  June  of 
the  same  year  with  the  issuing  of  the  Ministerial 
Decision  establishing 
the 
In  September  2018,  after 
minimum  wage. 
consultation  with  the  European  institutions,  an 
amendment  was  voted that allowed advancing the 
procedure  for  the  year  2019.  The  consultation 
process  will  therefore  run  from  September  until 
December  2018,  and  the  government  will  set  the 
new level of the  minimum  wage  in January 2019. 
The  process  enshrined  in  Law  4172/2013  is 
maintained  in  all  other  respects,  and  according  to 
the 
information  from 
original  calendar  will  apply  again  to  subsequent 
yearly revisions of the minimum wage as of 2020.  

the  Greek  authorities, 

the  new 

level  of 

What  is  most  important  in  economic  terms  is 
that  the  decision  on  the  new  level  of  the 
minimum  wage  is  taken  based  on  a  rigorous 
analysis of the underlying economic and labour 
market  situation,  and  following  a  genuine 
process of consultation with the social partners. 
As  outlined  in  Box  6.1,  minimum  wage  levels  in 
Greece  are  currently  at  683.76  EUR  per  month, 
which are similar to the average rates observed in 
other  euro-area  Member  States.  The  upcoming 
revision  of  the  minimum  wage  therefore  needs  to 
reflect 
labour  market 
developments  in  order  to  safeguard  gains  in 
competitiveness  and  to  support  the  continued 
reduction in unemployment. 

productivity 

and 

The  revision  of  the  minimum  wage  foreseen  in 
early  2019  will  also  require  a  policy  choice  by 
the Greek authorities on whether to maintain or 
abolish  the  sub-minimum  wage  for  workers 

34 

 
                                                           
6. Labour and product markets 

campaigns)  are  being  supported  with  Union-
financed projects.  

under  25  years  of  age.  The  current  statutory 
minimum  wage  introduced  by  Law  4093/2012, 
also  introduced  a  reduced  rate  applicable  to 
workers  with  less  than  25  years  of  age.  However, 
that legal provision was only applicable “until the 
end of the  economic adjustment programme”, and 
thus will expire once the minimum wage rates are 
revised in early 2019, unless primary legislation is 
adopted  that  maintains  a  sub-minimum  wage  for 
youth.  

The authorities have announced their intention 
not to extend the sub-minimum wage for youth.  
It would be advisable that a final decision be taken 
only  after  a  full  impact  analysis  is  conducted 
demonstrating  that  the  potential  impact  on  the 
employment prospects of young people is limited, 
given  that  youth  unemployment  levels  remain 
highly  elevated  and  the  share  of  minimum-wage 
earners in the youth population appears to be high 
(41%  in  2017).  If  the  current  sub-minimum  were 
abolished  and  aligned  with  the  standard  sub-
minimum rate, it would imply an increase of some 
14.7% in one year (and that is before any potential 
increase in the 2019 minimum rate. 

is  broadly  on 

The  implementation  of  the  action  plan  against 
undeclared  work 
track. 
Undeclared work is considered to be widespread in 
Greece.  In  order  to  tackle  the  phenomenon,  in 
2017  the  Greek  authorities  adopted  and  started 
implementing  a  detailed  action  plan,  covering  the 
period 2017-2019. The action plan was based on a 
diagnostic  report  produced  by  the  International 
Labour  Organization  in  the  context  of  a  technical 
support project and on a comprehensive  roadmap, 
which  was  also  endorsed  by  the  social  partners. 
The  action  plan  promotes  an  integrated  approach 
to  undeclared  work,  by  reinforcing  cooperation 
among  different  institutions,  strengthening  the 
capacity  of  the  labour  inspectorate  to  detect  the 
phenomenon  and  improving  the  incentives  for 
compliance.  Progress  with  the  implementation  of 
the  action  plan  is  monitored  by  the  Supreme 
Labour  Council,  a  national  tripartite  body.  A 
number of actions have already been implemented 
between 2017 and 2018, and data from inspection 
results  point  to  a  general  decline  in  the  incidence 
of undeclared labour. A number of actions (such as 
the  development  of  risk-analysis  rules  to  target 
labour  inspections,  the  enhancement  of  the  IT 
system,  or  the  development  of  public  awareness 

35 

 
 
 
6. Labour and product markets 

(Continued on the next page) 

36 

Box 6.1: The Greek minimum wage in an EU perspectiveThe current level of the minimum wage in Greece is not an outlier in international comparison. Currently, 22 out of the 28 EU Member States have a statutory minimum wage, and their level varies considerably both in absolute and in relative terms (when measured in comparison with the national average or median wage). In the euro area, in the second half of 2018 the minimum wage level ranged from EUR 400 per month in Lithuania to EUR 1 999 in Luxembourg (Graph 1, panel A). At EUR 683.76 per month, Greece lies in the lower mid-range group together with Portugal, Malta, Slovenia, and Spain.(1) Panel B of Graph 1 depicts the national (gross) minimum wage expressed as a percentage of median gross earnings. According to this data, the ratio of national minimum to median wages ranges between 40% (Estonia, Spain) and 60% (France, Portugal and Slovenia). At 48% of the median wage, the Greek minimum wage is again in the middle range, at the same level as in Latvia, Slovakia and Germany.  Graph 1: Minimum wage levels in the euro area  Source: Eurostat, OECD  In Greece, as in the vast majority of EU Member States, full-time minimum wage workers with no dependants were above the poverty line in 2016. This is no longer the case for workers with a dependent spouse and children. The disposable income of a minimum-wage worker is determined by a number of other factors, such as household composition and the tax and benefit system. Graph 2 (left panel) compares the equivalised disposable income of a full-time minimum-wage earner (for a single individual and a one-earner couple with 2 dependent children) with the standard at-risk-of-poverty threshold (60% of average equivalised disposable income). The minimum wage can be used as a tool to address poverty in general and in-work poverty in particular. However, given that most research shows that it can also have adverse effects for specific groups(2) (eg. youth, and low-skilled workers), other types of measures would appear generally more appropriate to address the poverty situation of these households, such as providing more generous family benefits and tax allowances, promoting labour market participation of                                                            (1) The cross-country variation is reduced when the difference in price levels is accounted for, but the ranking of Greece is not affected. (2) For a literature review on the effects of MW see European Commission (2016): "Labour Market and Wage Developments in Europe 2016", Chapter II.1. URL: ec.europa.eu/social/BlobServlet?docId=16423&langId=en. 0200400600800100012001400160018002000LUIENLBEFRDEESSIMTELPTEESKLVLTeurosA. Monthly gross minimum wages(July2018)010203040506070FRPTSILTLUDEELLVSKBENLIEEEES%B. Minimum wage as a proportion of the median wage (2017) 
 
 
 
 
 
6. Labour and product markets 

Box (continued) 

(Continued on the next page) 

37 

second-earners or fighting undeclared work. Where household work intensity is low, policies such as childcare and ALMPs may enable workers to increase the working time / households to increase the number of earners. For in-work poverty, the amount of work matters more than the level of salary. When looking at the incidence of in-work poverty, this is driven primarily by the levels of work intensity (Graph 2, right panel). Similarly, the in-work poverty rate is roughly twice as high among part-time workers than for full-time workers (14.5% compared to 7.8% for the euro area, and even 27.5% compared to 11.2% for Greece in 2017). In other words, people are at risk of in-work poverty primarily when they do not work a sufficient number of hours per month, and/or a sufficient number of months in a year. In Greece, 70% of part-time workers work involuntarily part-time. Finally, when discussing the potential effect of minimum wages on poverty, it should be recalled that a key driver of poverty is unemployment (and in particular long-term unemployment). To the extent that a high minimum wage has negative effects on employment, this can lead to an increase in overall poverty and/or undeclared work.  Graph 2: Disposable income of minimum wage workers and in-work poverty rate  The work intensity of a household is defined as the ratio of the total number of months that all working-age household members have worked during the income reference yearm and the total number of months the same household members theoretically could have worked in the same period. Source: Eurostat and OECD Tax-Benefit models Greece has a very high share of workers earning the minimum wage. Within the euro area, the share of minimum wage earners in the labour force is very low (less than 5%) in Belgium, Malta, Slovakia and Slovenia, while it can reach 20% or more in Member States such as Greece, Portugal, Estonia and Latvia.(3) According to administrative data (ERGANI database), in October 2017 21% of workers were earning the minimum wage in Greece (see Graph 3.). The share is somewhat lower (18%) among white-collar workers, and higher (32%) among blue-collar workers. Regarding the sectoral distribution, the highest proportion of minimum wage earners (above 40%) are found in the administrative and accommodation and food services activities, followed by agriculture and arts and entertainment (around 30%).  This share is even higher among young workers. When looking at the youth population, 41% of young workers below the age of 25 were earning the youth sub-minimum wage in Greece (which is 12.8% lower than the standard minimum wage). This high percentage, and the fact that youth unemployment was still at 39% in the second quarter of 2018 underscores the need to carefully consider whether and under which circumstances to abolish the sub-minimum wage for youth.                                                              (3) Eurofound (2018) “Statutory Minimum Wages 2018”, Industrial relations research report. 050100150200ROELIEPTUKBENLHRPLFRLTBGESSKDEMTHUEESILULVCZ%Disposable income of minimum wage earners in proportion of the poverty line (2016)Single individualOne-earner couple, 2 childrenat-risk-of-poverty threshold01020304050Very high workintensityHigh workintensityMedium workintensityLow workintensity%In-work poverty by level of work intensity (2017)Greeceeuro area 
 
 
 
 
6. Labour and product markets 

Box (continued) 

6.2. 

PRODUCT MARKETS AND 
COMPETITIVENESS 

and 
in 

One  of  the  key  objectives  of  the  programme 
foster  a  sustained 
to 
reforms  has  been 
improvement of the business environment, so as 
to  underpin  investment  activity  and  non-price 
competitiveness. The range of actions taken went 
from  the  drastic  reduction  in  time  and  cost  to  set 
up a new business, to a rationalisation of licensing, 
exporting 
inspecting 
to 
procedures, 
improvements 
regulation  of  network 
the 
industries  such  as  energy  and  water.  In  parallel,  a 
wide  range  of  sector-specific  actions  to  remove 
barriers  to  competition  and  simplify  licensing 
procedures have been undertaken or are in process 
being 
support 
provided  by  the  Organisation  for  Economic  Co-
operation  and  Development  (detailed  Competition 
Toolkits)  and 
(investment 
licensing  and  inspections)  through  the  Structural 
Reform  Support  Service  (SRSS)  of  the  European 
Commission. 

implemented  with 

the  World  Bank 

technical 

less 

from 

in  2009 

The  reforms  are  starting  to  bear  fruit  and 
contributed  to  a  broad-based  expansion  in 
exports.  Specifically,  exports  grew  as  a  share  of 
GDP 
(EUR 
than  20% 
45.1 billion)  to  more  than  30%  in  2017  (EUR 
59.5 billion),  with  exports  largely  outpacing  GDP 
in  2017  and  first  half  of  2018.  In  their  Growth 
Strategy, the authorities set a target for exports-to-
GDP  of  at  least  50%  by  2025.  Foreign  Direct 
Investments  are  also  recording  an  increase  as  a 
share  of  GDP  in  recent  quarters,  even  though 
starting  from  a  very  low  base.  The  regulatory 
improvements 
the  good 
performance  of  the  "starting  a  business"  and 
"trading across borders" components of the World 
Bank Ease of Doing Business Index(13). However, 
in  the  overall  index  Greece  has  fallen  further 
behind  for  the  third  year  in  a  row,  indicating  that 
more  ambition  is  needed  to  tackle  bottlenecks  in 
the other dimensions of business environment. 

reflected 

are 

in 

The  authorities  adopted  a  Growth  Strategy  in 
July  2018  containing  a  series  of  additional 
policy  commitments  with  a  detailed  timetable 

(13)  World Bank "Doing Business 2019" (October 2018). 

38 

 Graph 3: Share of minimum wage earners by sector  Source: ERGANI database  01020304050Activities of extraterritorial organisationsPublic administration and defenceMiningElectricity, gas etc.Finance and insuranceEducationInformation and communicationWater supplyTransportation and storageHuman health and social workManufacturingConstructionReal EstateProfessional, scientific and technicalWholesale and retailOther servicesTotalArts and entertainmentAgricultureAccommodation and food servicesAdministrative% 
                                                           
 
 
 
 
6. Labour and product markets 

investment licensing procedures. The objective is 
to  reduce  the  administrative  burden  and  improve 
the  business  environment  by  replacing  a  complex 
system  of  ex-ante  checks  and  permissions  with  a 
clear set of rules for installation and operation and 
a  simple  notification  system,  based  on 
the 
presumption  of  compliance  by  the  economic 
operators.  To  that  end,  most  of  the  necessary 
primary  legislation  has  been  passed  during  the 
programme,  leaving  only  specific  sectors  for 
licensing  simplification  for  the  post-programme 
phase,  according  to  a  roadmap  defined  in  a 
for 
decision 
Economic  Affairs 
(KYSOIP  –  Κυβερνητικό 
Συμβούλιο Οικονομικής Πολιτικής) issued in June 
2018.  A  corresponding  detailed  action  plan  is 
the  authorities  as  an 
being  prepared  by 
intermediate  step  for  the  specific  commitment  to 
finalise  the  simplification  of  investment  licensing 
procedures in the agreed remaining sectors by mid-
2020. More specifically: 

the  Government  Council 

from 

  Work is ongoing to prepare enabling secondary 
legislation by end-2018 (specific commitment) 
in order to define the installation and operation 
licensing procedures for activities in the sector 
of  environmental  infrastructures.  There  have 
been delays with respect to the deadline for the 
adoption of primary legislation (October 2018), 
and work needs to be accelerated to make sure 
the  end-2018  deadline  can  be  met.  Secondary 
legislation  should  only  be  used  to  clarify  the 
procedural  steps  of  licences  described  in  the 
primary legislation, but no new licences should 
be introduced in that context.  

for 

ICT 

system 

  The authorities have prepared an action plan to 
conclude  the  tendering  procedures  for  the 
relevant 
licensing  and 
inspections  (specific  commitment  for  end-
2019).  From  the  signature  of  the  contract,  the 
basic functionalities of the Integrated Licensing 
and  Inspections  Management  System  (ILIMS) 
are expected to be ready within 13 months and 
the full functionalities within 34 months. 

commitment 

  The  authorities  are  taking  first  steps  towards 
inspection 
to 
the 
legislation  (mid-2020)  and 
the 
nuisance  classification  (mid-2021).  An  action 
plan 
the  nuisance 
revision  of 
classification  is  under  preparation  and  will  be 

to  revise 

finalise 

the 

for 

to  strengthen 

for  implementation.  Those  policy  commitments 
include  additional  reforms 
the 
business  environment,  promote  social  inclusion 
and regional cohesion, and improve environmental 
performance,  as  well  as  new  commitments  on 
transport,  energy,  and  other  sectoral  policies.  A 
draft  of  the  first  implementation  report  on  the 
Growth Strategy has been received. 

There  is  still  much  work  ahead  to  overcome 
persistent  structural  weaknesses,  especially  as 
far  as  registering  property  and  enforcing 
contracts  are  concerned.  To  that  end,  a  steady 
progress towards completion of the cadastre would 
be  a  key  stepping-stone 
towards  protecting 
investors and their assets. Investments as a share of 
GDP  are  still  significantly  below  historical  trends 
and cross-country comparisons, reflecting not only 
difficulties for consumers and producers to access 
credit but also uncertainties on the side of investors 
the 
the  commitment  and  ambition  of 
over 
authorities  in  strengthening  and  deepening  the 
ongoing 
the  post-
reforms.  Progress  during 
programme  phase  will  thus  be  essential  to  signal 
the persistence and enforceability of the reforms. 

6.2.1.  Business environment 

remove  unnecessary  barriers 

The  authorities  have  committed  to  complete 
several  key  reforms  in  the  area  of  product 
markets  and  competitiveness,  as  well  as  to 
continue  and  uphold  the  key  programme 
reforms  more  generally.  Several  elements  are 
worth  highlighting  in  that  context.  In  the  area  of 
health  product  markets  (private  clinics  and  day 
clinics),  Greece  has  introduced  several  reforms  to 
open  up  the  relevant  markets,  boost  competition 
to  entry. 
and 
However,  the  Greek  authorities  have  not  yet 
enacted  the  law  on  private  clinics  (which  is 
pending  since  July  2018).  In  the  area  of  day 
clinics,  the  Greek  authorities  adopted  a  reform  in 
the  basis  of 
June  2018.  Nevertheless,  on 
on 
data 
information 
practical 
the 
and 
implementation  of 
(number  of 
reform 
that 
applications;  number  of  successful  applications; 
duration  of  procedures),  it  is  unclear  to  the 
institutions  whether  any  new  day  clinic  has  yet 
actually been licenced under the new regime.  

Under the ESM programme, Greece has started 
an  ambitious  reform  project  to  simplify  and 
sector-specific 
streamline  horizontal 

and 

39 

 
6. Labour and product markets 

the  determination  of  the  fees  for  the  tendering  of 
the local plans. Six new special spatial plans (SSP) 
have  received  pre-approval,  while  one  was  sent 
back  to  the  investor  with  comments.  Two  plans 
have  reached  the  final  stage  and  are  awaiting 
approval (The Mall, HELEXPO). 

SRSS 

through 

Finally, a study will be launched with technical 
support 
the 
the 
systematisation  of  environmental  legislation.  It 
will be a complementary action to the cadastre and 
spatial planning aiming at  facilitating citizens and 
investors  to  access  and  understand  environmental 
legislation. 

for 

6.2.2.  Network industries (energy, water, 

transport) 

In the area of energy, fundamental reforms are 
underway,  focused  on  opening  up  the  sector  to 
competition  and  establishing  a  coupled  market 
with Italy and Bulgaria, in line with the Target 
Model,  by  2019.  The  energy  sector  faces  some 
structural  issues:  competition  continues  to  be 
restricted due to the dominant position of the State-
owned  energy  company  PPC  (Public  Power 
Corporation),  responsible  for  the  vast  majority  of 
retail and wholesale supply. However the financial  
financial issues of PPC make investment difficult, 
which  makes  it  harder  to  move  away  from  the 
dependency on lignite. However, there are already 
signs of improvement.  

The agreed divestiture of PPC’s lignite plants is 
going ahead more or less according to schedule, 
with  investors  found  and  the  Sale  Purchase 
Agreement  due  to  be  signed.  The  divestment  of 
that large element of power generation away from 
the national incumbent is a key step in the process 
of  opening  up  the  market 
to  new  entrants. 
Financial  closure  is  expected  in  early  2019  as  a 
specific  commitment.  Any  investors  will  have  to 
comply  with  unbundling 
their 
presence  in  electricity  generation,  and  investors 
should  operate  those  plants  as  independently  as 
possible from PPC. 

rules,  given 

Another  key  element  to  increase  competition 
the 
and  remove  pricing 
(specific 
launching  of 
commitment)  by  April  2019.  Progress  has  been 
achieved  here  too,  as  the  relevant  rulebooks  (the 
‘spot market’ rulebook covering the day ahead and 

the  Target  Model 

inefficiencies, 

is 

finalised  following  consultations  with 
the 
institutions.  Additional  secondary  legislation 
and  actions  will  be  undertaken  in  the  coming 
years to complete these actions. 

The  action  plans  for  export  promotion  and 
trade  facilitation  are  currently  under  review, 
including specific KPIs and benchmarking of best 
practices across the Union in order to facilitate the 
achievement of the Growth Strategy target of 50% 
exports-to-GDP ratio by 2025. 

through 

the  World  Bank 

The  implementation  of  the  cadastre  and  forest 
maps  road  map  has  continued  with  a  view  to 
fully  completing  those  projects  by  mid-2021 
(specific  commitments).  The  reform  of 
the 
cadastre  benefits  from  technical  support  provided 
by 
the  SRSS.  A 
transitional  management  of  the  newly  established 
cadastral  agency  (Hellenic  Cadastre)  has  been 
appointed  and  the  procedure  for  the  appointment 
of the permanent  management has been launched. 
A 
(Project 
Management Information System) for the cadastral 
projects  has  been  completed  and  is  functional. 
More specifically:  

custom-made  monitoring 

tool 

  Seventeen  new  engineers  have  been  recruited 
to strengthen the team that manages 72 ongoing 
cadastral  contracts  and  15  ongoing  contracts 
for  forest  maps.  It  has  however  been  more 
difficult to recruit IT staff, as the remuneration 
that  the  agency  offers  has  proved  not  to  be 
competitive  for  the  sector.  The  migration  of 
mortgage  offices  to  the  new  agency  is  a 
sensitive  issue.  A  dedicated  migration  team  of 
nine  senior  staff  has  been  established.  There 
has  been  a  delay  in  the  merging  of  the  first 
mortgage  offices  into  the  new  structure,  but 
that activity is in progress. 

  The  authorities  have  applied  for  Union  co-
financing  of  the  cadastral  mapping  and  in 
recent months they have worked on completing 
the  requirements  for  the  project  to  be  eligible 
for such funding. 

On local spatial  plans, an EIB framework loan 
has  been  secured  and  the  Ministerial  Decision 
that will activate the loan is expected to be adopted 
by  mid-November  2018.  By  the  beginning  of 
December 2018, a circular will also be issued with 

40 

 
6. Labour and product markets 

The  Renewable  Energy  Sources  (RES)  support 
account  is  now  in  surplus.  Due  to  the  strong 
increase  of  the  revenues  originating  from  the 
trading emission scheme (ETS)  the authorities are 
due to adopt a law amendment in November 2018 
to  abolish  the  supplier  surcharge  as  of  1  January 
2019  (initially  planned  for  end  of  2020).  The 
advancement  of  the  removal  of  the  supplier 
surcharge is a positive development, as it removes 
a distortive levy  in the electricity  market and it  is 
especially welcome that this is to be done prior to 
the launch of the Target Model. Coupled  with the 
decision  to  abolish  the  supplier  surcharge,  the 
authorities are also proceeding with abolishing the 
so-called  ‘lignite  fee’  (as  of  1  January  2019), 
which also contributed to the RES account, but to a 
much  lesser  extent  (1.54%  of  overall  revenues  in 
2017).  However,  in  order  to  ensure  that  the  RES 
account remains in balance it is important that the 
authorities  proceeds,  as  has  been  agreed,  to 
increase  the  share  of  the  ETS  revenues  (the 
increase  in  such  revenues  is  due  to  higher  prices 
for  ETS  credits,  which  can  still  rise  or  fall)  being 
allocated  to  the  RES  account  and  that  any  further 
adjustments  of  current  revenue  streams  (e.g.  the 
ETMEAR consumer surcharge), will be consistent 
with  maintaining  the  established  buffer  (EUR  70 
million). It should also be noted that although the 
delays incurred by RES producers to receive their 
payments  has been reduced, the  RES account  still 
experiences  cash  flow-related  problems,  mainly 
due to the challenging  financial situation faced by 
PPC.  

A  further  positive  development  has  been  the 
launch  of  RES  auctions  that  now  take  place 
regularly  (the  first  was  in  July  2018  and  the 
second  one  is  planned  for  December  2018), 
allowing for some uptake of solar and wind energy 
onto  the  grid  and  helping  investment  in  this  that 
area,  though  questions  remain  about  the  auctions’ 
effectiveness in sustaining developed projects.  

Regarding  the  gas  market,  the  restructuring 
and  partial  privatisation  of  DEPA,  the  State-
should  allow  more 
owned  gas  company 
competition  and  further  unbundling  of  gas 
supply  and  distribution.  Following  the  Hellenic 
Competition  Commission’s  approval  in  regards  to 
(retail  and  distribution 
the 
companies) 
the  relevant  primary 
legislation,  in  line  with  the  jointly-agreed  Term 
Sheet,  is  expected  to  be  adopted  by  the  Hellenic 

two  EPA/EDA 

transactions, 

intraday  markets,  as  well  a  rulebook  for  the 
balancing  market)  have  met  regulatory  approval. 
Furthermore,  the  national  regulator  (RAE)  is 
preparing  supplementary  decisions  to  set  up  the 
working  structure  of  the  composite  markets.  A 
national  energy  exchange  and  spin-off  company 
for  a  clearinghouse  have  already  established 
(EnExClear  established  on  2  November  2018),  so 
the  initial  elements  will  soon  be  in  place  to  start 
with  the  setting  up  of  functional  intra-day,  day-
ahead and balancing markets. Discussions with the 
Bulgarian  and  Italian  regulators  continue  with 
regards  to  coupling  the  different  markets.  In  that 
regard,  the  Greek  Exchange  is  awaiting  Price 
Coupling of Regions (PCR) certification. Although 
the  core obligation is compliance  with the Union-
wide ‘network codes’, care should be taken to have 
a  market  that  efficiently  prices  energy  and  allows 
further opening of the market. 

The  Nouvelle  Organisation  du  Marché  de 
l'Electricité-type  (NOME)  auctions,  set  up  to 
facilitate  fair  access  of  alternative  suppliers  to 
the  fuel  mix,  are  achieving  some  success  in 
reducing  PPC’s  dominance,  though  slightly 
below  the  ambitious  levels  set.  A  review  of  the 
NOME  system  is  foreseen  during  2019,  also  as  a 
specific  commitment,  with 
the  goal  of  de-
escalating the quantities put into the auctions once 
less  energy  production  is  in  the  hands  of  the 
incumbent. 

There  has  been  some  progress  on  the  financial 
situation of PPC, through attempts to deal with 
the large amount of arrears regarding end-user 
accounts.  A  a  large  amount  of  arrears  is  due  to 
‘inactive’  customers,  either  domestic  users  that 
changed  supplier  or  commercial  customers  that 
declared insolvency. Regulatory  measures  may be 
needed here. It is essential that current efforts that 
seem  to  be  bringing  positive  results,  such  as  the 
mass  mail  out  over  the  summer  to  customers 
owing more than EUR 500 million and not having 
paid  two  consecutive  invoices,  are  continued  and 
reinforced,  in  order  for  PPC's  precarious  financial 
situation  to  be  further  improved.  Further,  it  is 
essential that PPC's tariff regime  for all consumer 
categories  will  be  reflective  and  linked  to  the 
dynamic  costs  structure  faced  by  PPC.  It  is 
particularly critical due to the increase of emission 
allowances  in  2018,  to  which  PPC  is  particularly 
sensitive due to its significant share of lignite-fired 
electricity generation. 

41 

 
6. Labour and product markets 

liquid  markets  and  secure,  sustainable,  affordable 
energy for households and industry. 

to 

ensure 

in 
in 

the  context  of 

As for the water sector, a major reorganisation 
the  ESM 
took  place 
programme 
the 
order 
sustainability,  functionality  and  quality  of  the 
water  infrastructures  in  Greece.  To  that  end, 
legislation has been passed to ensure cost recovery 
while allowing for targeted social policies, putting 
a recently-empowered Special Secretary for Water 
(SSW) as a guardian of the new system, collecting 
data  and  providing  advice  to  the  actors  in  the 
sector.  The  new  ICT  system  allowing  SSW  to 
collect  regular 
the  water 
companies is on track to be operational by the end 
of 2018. The next steps will include the creation of 
a  helpdesk  to  support  small,  peripheral  water 
companies  to  fill  in  the  data  properly  and  the 
creation of a technical capacity within the SSW to 
maintain the ICT system and analyse the incoming 
flow  of  data  on  items  such  as  operational  and 
administration  costs,  cost  recovery,  status  of  the 
physical  assets,  human  resources  and  investment 
needs. 

information  on  all 

In the area of transport, OASTH, the transport 
company  of  Thessaloniki  was  nationalised  in 
in  order  to  undertake  a  substantial 
2017 
restructuring  and  generate  savings  on  an 
expensive  private  concession.  Balance-sheet 
information shared with the institutions on the first 
half  of  2018  indicates  a  successful  reduction  in 
operating  costs  and  public  transfers.  Revenues 
appear  below  the  target  set  for  the  company,  but 
they are expected to recover during the second half 
of  the  year.  An  analysis  of  those  results  will  feed 
into  a  comprehensive  progress  report  on  the 
reduction  of  State  transfers,  the  preparation  of  a 
business  plan  and 
the  definition  of  cost 
containment  measures  to  ensure  the  sustainability 
of the company, which are expected by the end of 
the year. 

Parliament soon. The release of Greece’s National 
Energy  and  Climate  Plan  should  be  important  in 
setting  the  long-term  direction  of  its  energy 
renewable 
strategy, 
generation,  energy  efficiency  and  CO2  emissions 
reduction.  

regarding 

including 

electricity 

Despite  the  structural  issues,  Greece’s  climate 
and  geographical  positioning  gives  it  a  chance 
to  become  a  strategic  energy  hub  should  the 
development  of  major  infrastructure  projects  with 
the  neighbouring  countries  proceed,  such  as  the 
gas  pipelines,  liquefied  natural  gas  terminals  and 
international 
interconnections.  An 
example  of  such  an  international  project  is  the 
EuroAsia  Interconnector,  which  will  establish  a 
interconnector  between 
2,000  MW  electricity 
Israel, Cyprus Greece (Crete – Attica) and Europe 
and  has  been  labelled  a  'European  Project  of 
Common Interest' (PCI). Discussions are currently 
ongoing  between  the  Commission,  the  project 
promoter  and  other  stakeholders  on  the  phasing 
and overall implementation framework, which will 
hopefully  be  finalised  before  end  of  2018  and 
allow  the  project  to  proceed  as  planned  and 
potentially  draw  financial  support  through  the 
Union’s  'Connecting  Europe  Facility'  for  all  parts 
of that project. It should be noted that any potential 
the 
delay  as  concerns 
interconnection  between  Crete-Attica  is  likely  to 
trigger  an  adjustment 
the  Public  Service 
Obligation  (PSO)  account,  which  is  expected  to 
the  various 
reduced 
continue 
interconnections with the mainland are completed. 
Further,  Greece  has  the  potential  for  solar  and 
wind  generation  to  be  stepped  up,  but  to  do  so 
requires  both  a  level  of  investment  support  and  a 
market that makes best use of them. 

the  completion  of 

to  be 

as 

in 

It  will  be  essential  to  maintain  momentum  in 
energy market reforms. Ensuring that the Target 
Model actually allows for entrance of new players 
and  realistic  pricing  is  essential  to  underpin  the 
future  development  of 
the  energy  market, 
combined with measures that provide the requisite 
support  for  investment  in  renewable  sources. 
Technically 
the 
relevant markets are vital to an effective coupling. 
Progress in Greece and the chance to use energy as 
an  asset  is  dependent  on  well-implemented  and 
governed  reforms  and  on  making  the  necessary 
investment  in  networks  and  generation,  to  ensure 

interconnections  with 

robust 

42 

 
7.  HELLENIC CORPORATION OF ASSETS AND PARTICIPATIONS 

(HCAP) AND PRIVATISATION 

7.1.  HELLENIC CORPORATION OF ASSETS AND 

PARTICIPATIONS 

The  Hellenic  Corporation  of  Assets  and 
Participations  (HCAP)  gathers  under  a  single 
institutional  structure  a  significant  portfolio  of 
assets  and  shareholdings  in  public  enterprises. 
The  overarching  objective  of  the  HCAP  is  to 
effectively manage those assets, preserve, develop 
and  ultimately  maximise  their  value,  and  to 
maximise  the  quality  of  the  services  provided  to 
the  Greek  people  as  well  as  to  contribute  to 
reducing  the  financial  obligations  of  Greece.  The 
HCAP's  centralised,  holding-style  structure  sets 
the  framework  for  stronger  governance  and 
professional management of public assets.   

Since  its  establishment,  a  number  of  key  steps 
have  been  taken  to  enable  the  HCAP  to  create 
value  in  its  portfolio.  Key  achievements  of  the 
HCAP so far include, inter alia, the establishment 
of  the  organization  and  staffing,  the  review  and 
appointment  of  the  boards  of  direct  subsidiaries 
(Hellenic  Republic  Asset  Development  Fund, 
TAIPED  and  the  real-estate  fund,  ETAD),  the 
initiation  of  the  review  and  appointment  of  the 
boards  of  the  other  subsidiaries  (State-owned 
enterprises), the adoption of a Strategic Plan of the 
HCAP  and  its  subsidiaries,  the  establishment  of 
monitoring systems of the subsidiaries, and the re-
organization  plan  for  the  real  estate  subsidiary 
ETAD. 

in 

and 

service  provision 

the  unlisted  companies 

A  portfolio  of  State-owned  enterprises  (SOEs), 
including  major  water  and  energy  utilities, 
transport and postal providers was transferred 
to the HCAP as of 1 January 2018. To increase 
focus  on 
financial 
the 
sustainability, 
HCAP's portfolio submitted their business plans to 
the  HCAP 
increase 
accountability,  the  boards  of  those  companies  are 
also  under  review,  while  the  required  collective 
competencies 
been 
specifically  examined  by  a 
special  HCAP 
Committee  for  the  board  of  each  SOE.  In  ELTA 
the  board  was 
(the  national  postal  service), 
replaced.  In  terms  of  reporting,  the  HCAP  has 
issued timely and consistently all financial reports 

in  April  2018.  To 

experience 

have 

and 

(quarterly,  semi-annually  and  also  the  annual 
consolidated financial report) as  well as corporate 
governance reports every quarter and submitted the 
reports  to  the  competent  corporate  bodies.  It  has 
also  instituted  a  range  of  governance  initiatives 
within  the  SOE  portfolio,  in  particular  in  relation 
to compliance, audit, and reporting guidelines and 
initiatives  are  expected  to 
workshops.  Those 
significantly 
and 
transparency 
accountability  within  SOEs,  and  ultimately 
improve  the  services  they  provide  to  the  Greek 
public  as  well  as  their  value  to  the  HCAP  as 
shareholder.  

increase 

Regarding the management of real estate assets, 
the  HCAP  has,  with  the  assistance  of  external 
advisors,  provisionally  identified  and  proposed 
a list of approximately 10,000 real estate  assets 
to  be  transferred  to  ETAD,  in  addition  to  its 
existing  portfolio.  Due  to  gaps  in  the  available 
data, each asset has to be screened to determine its 
suitability  for  transfer  in  accordance  with  various 
exceptions  described  in  the  HCAP  Law  (e.g.  for 
cultural  or  archaeological  assets).  The  Greek 
authorities,  with  the  support  of  ETAD  and  the 
HCAP  (if  needed),  are  proceeding  to  promptly 
perform the final screening of the list of assets, so 
that 
the  eligible  assets  can  effectively  be 
transferred. 

ETAD  is  being  restructured  to  significantly 
increase  its  effectiveness  in  the  management  of 
real  estate  assets.  The  first  two  stages  of  the 
process (diagnosis and gap analysis; design of new 
organisational structure) have been completed. The 
completion  of  stage  3  (mapping  of  new  processes 
and  systems)  is  in  the  final  phase,  while  stage  4 
(staffing)  has  been  launched  and  general  manager 
posts are expected to be filled in November 2018, 
whereas  the  posts  of  heads  of  unit  are  planned  to 
be filled in December 2018. In that final stage, the 
objective  is  to  ensure  that  the  right  people  are  in 
the  right  position,  supporting  employees  in  their 
effort  to  effectively  deliver  and  meet  the  business 
plan  challenges.  That  phase  will  be  critical  as  it 
will  set 
the  successful 
implementation  of  the  reorganization  within  the 
whole company. Overall, the specific commitment 
on  the  restructuring  of  ETAD  by  the  end-2018  is 
well  on  track.  While  the  reorganisation  has  been 

the  conditions 

for 

43 

 
7. Hellenic Corporation of Assets and Participations (HCAP) and privatisation 

including OASA. That state of affairs is a result of 
a restrictive legislative cap on remuneration, which 
also affects the broader process of appointing fresh 
the  SOE  portfolio.  Draft 
directors  across 
legislation  to  make  the  remuneration  of  SOE 
directors  more  competitive  was  submitted 
to 
Parliament  before 
summer  2018  but  was 
withdrawn.  In  order  for  the  HCAP  to  proceed 
promptly with any necessary changes in the boards 
of  the  non-listed  SOEs  and  be  able  to  do  so  this 
sustainably into the future, that practical issue will 
need to be addressed.  

An important factor of the mission and success 
of the HCAP is the development of the strategy 
for better exploitation of the assets of the Greek 
State  that  became  part  of  its  portfolio.  The 
Strategic Plan of the Corporation, approved by the 
General  Assembly  of  the  HCAP  in  January  2018, 
incorporates  the  overall  strategic  approach  along 
the  objectives  and  priorities  for  better 
with 
management of the portfolio of the HCAP's assets, 
as  well  as  the  objectives  of  its  exploitation, 
including  both  sectoral  and  financial  analyses  for 
each  company.  The  Strategic  Plan  of  the  HCAP 
also  sets  the  objectives  that  the  subsidiaries, 
including  the  SOEs,  must  incorporate  in  their 
business  and  operational  planning.  The  HCAP  is 
monitoring  the  alignment  of  the  business  plans  of 
the  subsidiaries to the  Strategic Plan and is in the 
process of defining and setting the quantitative and 
qualitative KPIs to the subsidiaries. 

of 

the 

The HCAP has begun preparatory work for the 
implementation 
Coordination 
Mechanism,  which  sets  out  the  procedures  and 
deliverables  for  coordination  between  the  State, 
the  HCAP  and  SOEs,  in  relation  to  (i)  the  SOEs' 
mandates,  which will define the main activities of 
each  public  enterprise 
(ii)  a  Statement  of 
Commitments  for  each  SOE,  which  will  include 
the  operational  and  financial  objectives  that  each 
SOE must adopt to achieve its strategic goals, and 
(iii)  a  Performance  Contract  that  will  clearly 
reflect the mission, objectives and financing of any 
special  obligations  required  by  the  State.  The 
successful  implementation  of  the  coordination 
mechanism  constitutes  another  key  task  for  the 
HCAP in the coming months. Recent legislation in 
certain  sectors  appears  to  potentially  overlap  with 
the  coordination  mechanism,  or  to  affect  the 
HCAP's 
respect  of  certain  assets 
transferred  to  it.  That  possible  overlap  is  under 

rights 

in 

ongoing, the HCAP and ETAD have been making 
improvements  where  possible.  In  particular,  they 
accelerated the classification of real estate assets as 
well  as  significantly  increased  collection  of  lease 
receivables. Completion of the restructuring should 
enable  ETAD  management  to  focus  fully  on 
significantly improving ETAD’s performance. The 
significant  improvement  in  ETAD's  performance 
will  remain  a  key  challenge  for  the  HCAP  and 
should be a primary source of value creation.  

the  asset 

information 

is  provided 

The  transfer  of  the  Olympic  Athletic  Centre 
(OAKA), while ongoing, is subject to delays and 
it is not expected to be completed by the end of 
2018.  The  transfer  involves  multiple  stakeholders 
as  well  as  a  series  of  administrative  and 
procurement  steps,  including  in  relation  to  the 
repair  or  overhaul  of  the  asset,  in  order  to  ensure 
in  a  satisfactory 
that 
condition.  Based  on  current 
the 
deadline  of  2018  is  not  realistic,  partly  due  to  the 
complexity  of  the  issue  and  factors  outside  the 
authorities’  control.  The  authorities  are  also 
examining  options  for  commercial  utilisation  of 
parts  of  the  site  while  retaining  its  athletic 
character.  This  could  result  in  a  project  of 
impressive  scope.  While  this  is  welcome,  it  will 
extend  the  timeline  for  transfer.  Progress  since 
August  2018  on  matters  within  the  authorities’ 
control  appears  to  have  been  uneven,  but  it  is 
improving.  An  initial  step,  a  request  for  the  re-
zoning of the site, was initiated in November 2018. 
is  under  preparation. 
An  updated 
Concerted efforts will need to continue to maintain 
momentum and ensure swift progress. 

timeline 

The  Board  of  Directors  of  the  HCAP  reviewed 
the  boards  of  ELTA  and  OASA  with  the 
assistance of external advisors. The procedure of 
reviewing  the  boards  of  the  SOEs  is  ongoing  (the 
June  2018  Eurogroup  commitments  include  the 
review and replacement, as may be required, of all 
SOEs'  boards  by  mid-2019).  In  August  2018,  the 
HCAP  voted  its  shares  at  the  annual  general 
meeting  of  ELTA 
to  replace  all  applicable 
members  of  the  ELTA  board.  The  process  for 
OASA is still ongoing, as there  was a  withdrawal 
of interest by two of the selected candidates. A key 
challenge  for  the  appointment  of  new  directors  to 
the  OASA  board  is  the  limited  remuneration  that 
can  be  offered  to  prospective  members  of  SOEs' 
boards, considering the level  of responsibility and 
the  SOEs 
the  business  activity  of  some  of 

44 

 
7. Hellenic Corporation of Assets and Participations (HCAP) and privatisation 

completion  of  DESFA’s  final  certification  by 
RAE; the lapse of the 60-day creditor objection 
period required by law as part of the “in kind” 
reduction  of  DEPA’s  share  capital  in  DESFA 
and  the  completion  of  said  process  and  the 
transfer  of  shares  to  the  Preferred  Investor 
versus  payment.  In  brief,  good  progress  is 
being made on the particular transaction and its 
financial closing can be realised by the  end of 
2018, in line with the specific commitment. 

  Athens  International  Airport  (AIA):  In 
August  2018,  AIA  submitted  an  updated 
financial proposal of EUR 1,115 million for the 
20-year extension of the concession agreement 
(Airport  Development  Agreement,  ADA) 
which was approved by the Board of Directors 
of  TAIPED  on  14  September  2018.  On  28 
September  2018  AIA  notified  TAIPED  that  it 
obtained  committed  terms  from  the  banks  for 
the  required  debt  concerning  the  financing  of 
the  ADA  extension.  On  15  November,  the 
transaction  was  approved  by  the  Court  of 
Auditors.  The  notification  to  the  Commission 
for State aid clearance was formally submitted 
by the Greek authorities on 16 November 2018. 
Several  steps  are  still  required  for  concluding 
the  transaction,  most  of  which  are  underway, 
including  inter  alia,  the  fulfilment  of  all  the 
conditions  precedent  included  in  the  amended 
ADA  extension,  amongst  which  are 
the 
approvals from European Investment Bank, the 
the 
competent  European  authorities,  and 
ratification of the ADA extension by the Greek 
Parliament. In brief, despite the progress made, 
delays have occurred, which make the financial 
closing  of  the  transaction  by  the  end  of  2018 
very challenging. Work on all pending actions 
would  need  to  be  accelerated.  The  completion 
of  the  ADA  extension  will  allow  for  the 
disposal  through  a  tender  offer  of  TAIPED’s 
stake of 30% of AIA’s share capital.   

the  efforts 

  Hellinikon  (development  of  the  site  of  the 
former  Athens  International  airport):  The 
to 
authorities  have  continued 
complete the conditions precedent to allow the 
transfer  of  shares  to  the  developer.  However, 
due to the complexity of the project, a delay is 
and 
expected  on 
environmental  approvals  as  well  as  the  award 
of  the  casino  licence  (the  success  of  which 

the  urban  planning 

review.  Overlaps  would  need  to  be  removed,  in 
order to give effect to the intent and balance of the 
coordination mechanism, as well as would be acts 
that impinged on the exercise of rights transferred 
to the HCAP. 

7.2. 

IMPLEMENTATION OF THE ASSET 
DEVELOPMENT PLAN 

investment, 

Privatisation  helps  to  make  the  economy  more 
efficient  and  contributes  to  reducing  public 
debt.  Implementation  of  the  Asset  Development 
Plan  (ADP)  of 
the  Hellenic  Republic  Asset 
Development  Fund  (TAIPED)  is  key  to  stimulate 
private 
increase  efficiency,  and 
provide  financing  to  the  State.  In  the  context  of 
Greece's  June  2018  commitments,  the  authorities 
committed to implement the ADP on a continuous 
basis,  and  confirmed  their  intention  to  complete 
the  Athens  International 
the 
Airport  (AIA)  concession,  the  former  airport  site 
Hellinikon  and  the  Natural  Gas  Transmissions 
System  Operator  (DESFA)  by  end-2018.  Further 
commitments were taken for the subsequent years.  

transactions  on 

Overall, there has been progress as regards the 
transactions  scheduled  to  be  completed  by  the 
end of 2018. More specifically,  

  Natural  Gas 

Transmission 

System 
Operator: On 19 April 2018, TAIPED’s Board 
of  Directors  announced  the  preferred  investor 
for the acquisition of 66% of DESFA against a 
financial consideration of EUR 535 million (for 
the  31%  share  of  TAIPED,  it  corresponds  to 
EUR 251 million). The procedure has advanced 
since  then,  with  a  recent  step  being  the 
preliminary  approval  by  the  energy  regulator 
(RAE)  of  DESFA’s  Certification  as  Fully 
Ownership Unbundled on 29 August 2018 and 
official  notification  to  the  Commission  on  the 
same  date.  The  Commission's  opinion  on 
RAE's  preliminary  approval  of  DESFA's 
certification  was  adopted  by  the  Commission 
on  24  October  2018,  whereas  the  process  for 
the  “in  kind”  reduction  of  the  Public  Gas 
share  capital  was 
Corporation,  DEPA’s 
launched 
the 
relevant  announcement  on  the  website  of  the 
competent  authority  (GEMI)  on  9  October 
2018.  The  last  pending  steps  required  for 
the 
concluding 

the  publication  of 

transaction 

through 

involve 

the 

45 

 
7. Hellenic Corporation of Assets and Participations (HCAP) and privatisation 

depends on business interest). If the authorities 
continue  the  strong  efforts,  financial  closing 
could  be  expected  within  the  first  quarter  of 
2019. In particular:  

  Establishment 

and  Operation  of 

the 
Hellinikon  Management  Authority:  Further 
to  its  establishment  in  June  2018,  the 
authorities  have  enacted  the  regulation  for 
the operation of the Authority.   

  Relocation of public and private users from 
the  Hellinikon  site:  The  Greek  authorities 
have almost completed the relocation,  with 
full  completion  expected  by  the  end  of 
2018.  

  Ministerial decisions on the urban planning 
and  environmental  approvals  as  well  as 
partition  of  the  site:  The  Greek  authorities 
are in close cooperation with the developer 
to complete all processes for the approvals. 
Delays  occur  as  a  result  of  the  complexity 
of  the  project.  Timely  completion  is  a 
challenge.  Increased  efforts  between  all 
involved parties are required. 

  Award  of  casino  licence:  The  tendering 
procedure is ongoing. A delay has occurred 
vis-à-vis the agreed timetable as a result of 
the  complexity  of  the  project.  Increased 
cooperation  between  the  Greek  authorities 
and  the  developer  is  required  to  minimise 
the risk of substantial delays. 

  Rolling-Stock  Maintenance 

Company 
(ROSCO):  TRAINOSE 
(a  wholly-owned 
subsidiary of Ferrovie Dello Stato Italiane after 
its  acquisition)  submitted  a  bid  of  EUR  22 
million  for  the  acquisition  of  ROSCO  in  June 
2018.  The  transaction  was  approved  by  the 
Court  of  Auditors  on  3  September  2018.  The 
completion  of  the  transaction  is  expected  to 
take place by the end of 2018. 

  In 

for 

contrast,  progress 

the  other 
transactions  due  to  be  completed  in  2019  is 
relatively  limited  and  some  cases  are  a 
considerable  source  of  concern.  Satisfactory 
progress  is  made  in  the  case  of  the  tender  for 
the  long-term  concession  of  the  marina  of 
Alimos, while open issues still exist in the joint 

transactions 

sale (along with the other strategic shareholder 
of  Hellenic  Petroleum  (HELPE),  PanEuropean 
Oil  and  Industrial  Holdings  S.A.  (POIH)  of  a 
majority stake (50.1%) in HELPE, whereas for 
the  other 
to  be 
financially closed in 2019 preparatory work has 
been  done  for  the  tendering  processes.  The 
situation is particularly problematic in the case 
of  Egnatia,  and  significant  delays  have  been 
experienced in the enactment of the legislative 
amendment 
the 
regional ports.  

sub-concessions 

scheduled 

for 

for 

  Egnatia  motorway:  The  privatisation  process 
for the Egnatia motorway entails the award of a 
long-term  concession  for  the  operation  and 
maintenance  of  the  motorway  and  its  three 
vertical  axes.  The  transaction  is  characterised 
by systematic delays and problems,  showing a 
lack  of  ownership.  Virtually  no  progress  is 
being  made  in  the  implementation  of  the 
transaction,  due  to  various  delays  attributable 
to  either  Egnatia  S.A.  or  the  Ministry  of 
Infrastructure:  Regarding  Egnatia  S.A,  there 
are delays in (i) the completion of toll stations 
under  construction, (ii) 
the 
construction of all remaining frontal and lateral 
toll  stations,  and  (iii)  the  submission  of  the 
tunnel 
necessary  documentation 
licencing  (full  tunnel  licensing  is  a  condition 
precedent  for  the  concession  to  go  forward). 
On  the  side  of  the  Ministry  of  Infrastructure, 
there  are  delays  in  (i)  issuing  the  relevant 
Interministerial  Decision 
into 
operation the already constructed toll station of 
Asprovalta,  and  (ii)  the  submission  of  all 
technical specifications on the Ministry's e-toll 
system and associated arrangements.  

for  putting 

launch  of 

the 

the 

for 

in 

  Regional  Ports:  There  is  significant  investor 
interest  to  operate  specific  and/or  combined 
port  activities/services  by  means  of  sub-
the  ports  of 
concession  agreements 
Igoumenitsa  and 
Alexandroupolis,  Kavala, 
Kerkyra.  Following  a 
lengthy  discussion 
between  the  Greek  authorities  and  TAIPED, 
the  approach 
for  sub-
concessions  for  the  regional  ports  was  agreed 
in  June  2018.  However,  the  agreed  legislative 
changes  have  not  yet  been  enacted,  although 
the authorities had committed to do so by mid-
July  2018.  Instead,  new  conditions  have 

followed 

to  be 

46 

 
7. Hellenic Corporation of Assets and Participations (HCAP) and privatisation 

recently been added, which could put at risk the 
successful privatisation of the regional ports. .  

47 

 
8.  PUBLIC ADMINISTRATION AND JUSTICE 

8.1. 

PUBLIC ADMINISTRATION REFORM 

through 

The modernisation of the public administration 
has  been  a  critical  area  of  reforms  since  2010. 
That  process  has  involved  far-reaching  reforms 
across  a  wide  range  of  policy  areas,  including 
efforts  to  reduce  the  headcount  and  public  sector 
wage  bill  in  Greece  towards  levels  typically 
observed  in  other  euro-area  Member  States.  In 
addition, there  has been a  multitude  of reforms  to 
enhance the efficiency of the public sector through 
better  management  of  human  resources.  There 
have  also been reforms to strengthen coordination 
across government, and to ensure better regulation 
the 
including 
codification of legislation in key areas such as the 
labour market. The continuation and completion of 
those  reforms  is  key  to  Greece  achieving  a 
sustainable  recovery  and  the  authorities  have 
undertaken commitments to this effect for the post-
programme  period.  The  authorities  have  also 
clearly  recognised 
the  Growth 
Strategy,  which  sets  out  specific  priorities, 
including  reducing  bureaucracy  through  process-
based  management, 
improve  public  services 
management  by  using  digital  infrastructure  and 
tools,  enhancing  human  resource  management, 
codifying  and  improving  legislation  and  tackling 
corruption. 

programme 

issue 

the 

for 

in 

a 

8.1.1.  Controlling the size of the public sector 

The  size  of  the  public  sector  in  Greece  is  now 
broadly on a par with levels in other euro-area 
Member  States,  and  a  key  challenge  for  the 
post-programme  period  is  to  avoid  a  return  to 
pre-crisis  practices  of  excessive  levels  of  hiring 
to  the  public  sector.  To  that  end,  Greece  in  its 
Medium-Term  Fiscal  Strategy 
(MTFS)  has 
committed to a 1:1 attrition rule over the  medium 
term,  namely 
to  one 
recruitment  for each departure. The application of 
this  rule  will  allow  for  new  hiring  to  be  made  in 
priority areas whilst maintaining the overall size of 
the  public  sector  at  its  current  level.  Box  8.1 
presents the evolution of the public sector staff and 
wage  bill  in  recent  years  as  well  as  presenting 
figures for the current hiring plans/limits for 2018-
2022. 

recruitments 

limit 

to 

It  is  expected  that  hirings  in  the  general 
government  in  2018  will  exceed  the  attrition 
rule mainly due to lower than expected number 
of  staff  retiring.  Given  that  the  attrition  rule  will 
be  eased  from  1:3  (i.e.  one  new  recruit  for  every 
three  exits)  to  1:1  as  of  2019  and  onwards,  there 
should  be  room  to  re-balance  and  still  allow  the 
authorities  to  carry  out  new  hirings  of  permanent 
staff  in  prioritised  areas.  More  specifically,  for 
2019,  the  hiring  plan  included  in  the  MTFS 
indicates around 7,000 new permanent posts under 
the attrition rule, up from close to 5,700 new hires 
expected in 2018. As concerns the temporary staff 
at  general  government  entities,  the  authorities 
committed under the ESM programme to maintain 
the  level  of  temporary  personnel  at  the  level  of 
2016  (i.e.  47,584).  Data  available  through  the 
census  until  August 2018 suggest  that  there could 
be an increase of about 1,270 staff compared to the 
'baseline'.  It  is  also  noted  that,  the  temporary 
personnel of legal entities of private law, which are 
not  bound  by 
the  ceiling,  has  significantly 
increased  by  around  2,500  in  2018,  up  from  a  an 
average stock of 12,298 in 2017. In addition, in the 
context  of  the  2019  draft  budget,  the  government 
has  announced  hirings  of  4,500  teachers  and  that 
3,000  employees 
'Home  Assistance' 
Programme  are  planned  to  be  hired  as  permanent 
staff in 2019. However, the planned conversion of 
7,500  staff  is  not  expected  to  have  any  fiscal 
impact  on  the  wage  bill  as  the  authorities  have 
committed 
reduction  of 
temporary  staff.  It  should  be  noted  that  such  a 
conversion of temporary to permanent staff is seen 
to be exceptional for 2019 and that the staff moved 
to  permanent  contracts  are  seen  to  be  covering 
permanent/long-term needs. 

to  a  corresponding 

the 

for 

Very close attention needs to be paid to that the 
authorities will fully comply with their attrition 
rule,  as  otherwise  the  size  of  the  public  sector 
could increase rapidly. Accordingly, the planning 
and  announcements  of  recruitments  to  the  public 
sector  needs  to  be  based  on  prudent  estimates  of 
estimated  exits  each  year.  Further,  it  also  entails 
that  all  staffing  categories  burdening  the  State 
budget are properly reported and their salary costs 
paid  through  the  Single  Payment  Authority,  in 
order  to  allow  for  accurate  monitoring  of  the 
overall wage bill and compliance with the limit set 
by  the  attrition  rule.  Given  the  significant  efforts 
undertaken  to  bring  the  overall  wage  bill  of  the 

48 

 
8. Public administration and justice 

have 

that  an 

finalised 

increasing  number  of  general 
(ii) 
government 
their 
entities 
organigrams and job descriptions and can therefore 
take  part  in  the  mobility  scheme.  It  is  therefore 
even  more  important  that  the  authorities  continue 
their  efforts  to  fully  complete  all  transfers  of  the 
first  cycle  (c.  250  in  total)  that  was  initiated  in 
November  2017  and  assess  whether  additional 
adjustments  are  needed  in  order  to  increase  the 
efficiency  of  forthcoming  cycles.  The  first  round 
of  performance  assessments  was  completed 
electronically  earlier 
is 
planning to initiate the process for the 2018 round 
early in 2019, in order to ensure sufficient time for 
the HR departments to register all relevant staff. 

in  2018,  and  MAR 

the 

tasks: 

reform 

foresees 

following 

In  addition, 

(HRMS),  a 

The  authorities  have  taken  steps  towards  the 
completion  of  an  integrated  Human  Resource 
Management  System 
specific 
commitment  for  end-2019.  The  process  involves 
the 
in  particular, 
several 
establishment  of  digital  organigrams  under  the 
ESM  programme, 
the 
completion  of  job  descriptions  for  all  posts  in  the 
general  government.  A  unified  software  tool  will 
be  established  which  will  link  jobholders  to  posts 
and job descriptions as well as creating links to the 
census database and the Single Payment Authority 
integrated  software 
the 
(SPA). 
platform  is  expected  to  incorporate  other  tools 
created  under  the  ESM  programme,  such  as 
performance assessments and the mobility scheme. 
The  authorities  have  presented  an  updated 
quarterly roll-out plan for the completion of digital 
organigrams by general government entities, which 
should be completed by the end of 2019. To date, 
411 
digital 
organigrams,  well above  the target of 100 entities 
set for the end of September 2018. As concerns the 
linking  of 
job 
descriptions  as  well  as  linking  it  to  the  census 
database  and  SPA,  the  authorities  are  progressing 
and  are  expected  to  present  a  technical  fiche 
(including a road map) before the end of 2018. The 
authorities  have  also  reported  solid  progress  on 
job 
completing 
descriptions 
large 
independent  agencies  (e.g.  IAPR)  by  end-2018. 
However,  one  critical  area  for  HR  policy,  also 
linked  to  the  HRMS,  and  more  specifically  to  the 
job descriptions where the authorities are urged to 
follow  up  and  commit  to  a  specific  road  map 
the  old, 
concerns 

organigrams 
all  Ministries 

entities  have 

digital 
for 

to  posts  and 

to  streamline 

the  efforts 

and 
and 

jobholders 

uploaded 

their 

the 

general government close to the Union average, it 
is  key  to  avoid  a  return  to  pre-crisis  practices  of 
excessive levels of hiring in the public sector. 

8.1.2.  Better human resource management in 

the public administration 

has 

towards 

the 
progressed 
Work 
implementation  by  end-2018  of  the  reform  of 
managerial appointments in the public sector in 
line  with 
the  specific  commitment.  Good 
progress  has  been  made  with  the  appointments  of 
Directors-General, with 88 out of 90 appointments 
completed  to  date.  Progress  on  the  selection 
procedure  for  Administrative  Secretaries  has  been 
slower.  The  authorities  proceeded  to  re-launch  all 
problematic  calls  (22  in  total)  as  had  been  agreed 
as part of the final review of the ESM programme. 
Further,  a  second  selection  panel 
(FEK  B 
4696/2018)  was  established,  to  further  facilitate 
the completion of all appointments (69 in total) of 
the  Administrative  Secretaries  by  end  of  2018. 
However,  to  date  no  appointment  has  been  made 
and  it  is  therefore  critical  that  the  authorities, 
including the Supreme Council for Civil Personnel 
Selection  (ASEP),  proceed  with  great  urgency  to 
complete  the  selection  process  in  line  with  the 
agreed  timeline.  Following  the  completion  of  the 
selection process of the Administrative Secretaries, 
and  considering  some  issues  faced  during  the 
selection  process, 
lack  of  uniform 
including 
minimum  eligibility  criteria  to  be  applied  for  all 
posts,  it  is  essential  that  the  agreed  independent 
assessment of the selection procedure will proceed 
as planned and be completed by spring 2019, with 
follow-up measures to be adopted by mid-2019. 

Good  progress  has  been  made  on  the  mobility 
scheme  and  performance  assessments  that 
Greece  committed  to  complete  by  mid-2019 
with the provision of technical support through 
the Structural Reform Support Service (SRSS). 
The third mobility scheme was initiated on 20 July 
2018.  According  to  data  released  by  the  Ministry 
of  Administrative  Reform 
the 
participation  of  entities  taking  part  and  posting 
vacant  positions  exceeded  by  far  the  vacant 
two  cycles,  with 
positions 
in 
applications 
entities 
concerning  5,481  vacant  positions.  Progress  made 
to  date  is  highly  encouraging  both  in  terms  of 
demonstrating 
is 
becoming  an  established  tool  for  recruitment;  and 

the  previous 
originating 

the  mobility  cycle 

that  (i) 

(MAR), 

from 

165 

49 

 
fragmented  framework  of  the  job  classification  in 
the  Greek  public  administration,  the  so  called 
'klados'  system.  The  aim  here  is  to  make  it 
consistent  with  the  generic  and  specific  job 
description  framework  that  has  been  established 
for  the  general  government  entities,  with  the 
provision  of  technical  support  through  the  SRSS. 
The  aim  here  is  to  make  it  consistent  with  the 
generic  and  specific  job  description  framework 
that  is  currently  being  established  for  the  general 
government  entities,  with 
the  provision  of 
technical support through the SRSS. 

the 

In  particular, 

Notwithstanding  progress  on 
specific 
commitments,  from  a  broader  perspective,  a 
recently-adopted  change  in  the  remuneration 
policy of the Ministry of Finance causes serious 
concern  regarding  the  integrity  of  the  uniform 
the  ESM 
introduced  under 
wage  grid 
programme 
the 
(4354/2015). 
authorities  adopted  a  specific  salary  provision 
(Article  45,  Law  4569/2018,  FEK  A  179/2018) 
that will extend the so-called "personal difference" 
granted  to  employees  hired  prior  to  November 
2011, when the first uniform wage grid came into 
effect  (Law  4024/2011,  FEK  A  226/2011)  to 
employees  hired  by  the  Ministry  of  Finance  and 
agencies  attached  to  it  between  November  2011 
and  October  2018.  While  the  direct  fiscal  cost  of 
the adopted measure is  negligible, it creates fiscal 
risks  for  the  future  –  in  case  of  a  widening  of 
eligibility  across  the  public  administration  –  and 
appears inconsistent with the spirit and the essence 
of  the  uniform  wage  grid  by  re-introducing  a 
differentiation  in  remuneration  by  the  employing 
entity  rather  than  being  based  on  seniority  or 
responsibility  of  the  specific  position  as  was  the 
objective  of  the  reform.  Given  that  the  uniform 
wage  grid  is  considered  one  of  the  key  structural 
reforms  in  the  public  administration  that  was 
adopted  and  implemented  during  the  programme 
period, its undermining through the adoption of the 
specific  salary  provisions  for  the  Ministry  of 
Finance  and  its  agencies  appears  not  in  line  with 
the  general  commitment 
the  key 
programme reforms. 

to  uphold 

8. Public administration and justice 

8.1.3.  Better coordination and regulation 

the 

the 

strategy 

approach 

The  'National  Council  for  Codification  and 
Reform  of  Legislation'(14)  of  adopted  the 
to 
on 
national 
codification.  The  national  strategy  adopted  (15 
November  2018)  will  guide  the  legal  codification 
work  to  be  undertaken  by  Ministries  and  other 
entities (incl. completion of a unified Labour Code 
by  mid-2020).  The  completion  of 
legal 
codification reform is expected to greatly facilitate 
access  of  citizens  and  businesses  to  consolidated 
and  up-to-date  legislation.  In  terms  of  proceeding 
to  operationalise  the  adopted  national  strategy, 
MAR  has  also  established  relationships  with  the 
relevant services at the Hellenic Parliament as well 
as the 'Central Committee of Codification' (part of 
the General Secretariat of the Government), which 
has  taken  on  a  more  central  role  since  the 
appointment  of  a  new  Chairman  and  committee 
members  in  July  2018  and  is  expected  to  have  a 
key  function in the implementation of the  reform. 
Finally,  there  are  significant  funds  committed 
through the Operational Programme for the Public 
(part  of  National  Strategic 
Sector  Reform 
Reference  Framework  2014-2020),  which  will 
allow for the establishment of a National Gateway 
for Codification and  Reform  of Greek  Legislation 
by mid-2022, as well as targeted technical support 
provided through the SRSS. 

Looking  at  the  broader  public  administration 
reform  agenda,  on  inter-ministerial  coordination 
(IMC)  the implementation plan  for the  manual on 
IMC  adopted  (and  made  publicly  available)  in 
June  2018  is  yet  to  be  updated,  with  the  aim  to 
better link the annual action plans of each Ministry 
with  the  annual  budget  cycle.  In  that  regard,  an 
amendment  of  Law  4109/2013  is  expected  to  be 
adopted  before  the  end  of  2018.  The  General 
Secretariat for Coordination (GSCO) has however 
already  collected  action  plans  from  the  Ministries 
involved in the Growth Strategy and issued a first 
comprehensive 
the 
implementation 
Growth Strategy. Effective intra-governmental co-
ordination,  which  had  been  lacking  in  Greece  in 
the  past  but  has  been  substantially  strengthened 
over  the  recent  years,  needs  to  be  preserved  and 
further strengthened where necessary, in particular 
through  continuing  the  efforts  to  strengthen  the 

report  of 

(14)  Εθνικού  Συμβουλίου  για  την  Κωδικοποίηση  και  την 

Αναμόρφωση της Ελληνικής Νομοθεσίας 

50 

 
                                                           
8. Public administration and justice 

GSCO.  As  concerns  the  legal  framework  for 
independent  authorities,  the  authorities  are  yet  to 
provide  an  update  as  concerns  (i)  changes  to 
primary and secondary legislation  for the national 
energy  regulator  (RAE)  and  its  internal  operation 
rules;  and  (ii)  actions  to  be  taken  following  the 
adoption  of  a  decision  on  the  legal  status  of  the 
Regulatory  Authority  for  Passenger  Transport 
(RAEM)  and  amendments  to  its  primary  and 
secondary 
internal 
operation  and  management  rules  as  well  as  the 
issuance  of  decisions,  rules  and  regulations 
necessary  for  the  performance  of  its  statutory 
duties. 

legislation, 

including 

its 

51 

 
 
8. Public administration and justice 

(Continued on the next page) 

52 

 Box 8.1: Evolution of the public administration size and costGreece entered the financial crisis with a public administration that was overstaffed with public sector employment and the public wage bill well above EU average levels. In addition, the absence of a modern human resource management system resulted in very poor allocation of resources within the administration and contributed to low efficiency in the delivery of key public goods and services. A key element of the public sector reform under the programmes consisted in the downsizing of the public sector to levels seen in other euro-area countries, to modernise HR practices. A key challenge for the future will be to continue and complete these reforms and this would involve keeping the administration's size broadly stable at its current level and avoid a return to the poor practices of the pre-crisis period.   Since 2010, a reduction of permanent staff in the public sector was achieved by introducing limits to hirings through a freeze of recruitments in 2010 and the application of an attrition rule thereafter. The attrition rule restricted the ratio of new hires to exits to 1:10 (i.e. one new recruitment for every ten exits) in 2011, 1:5 for the period 2012-2016, 1:4 in 2017 and 1:3 for 2018. Similarly, a significant restriction was placed on temporary personnel through a 50 percent decrease in approvals/renewals in 2011 compared to 2010 and a further annual decrease of 10 percent in 2012 and onwards compared to the previous year – until 2016. For the period 2016-2018, the authorities committed to maintain the level of temporary personnel at the level of 2016 (i.e. 47,584).   A framework to monitor these commitments has been put in place, but it is technically challenging and implementation is not straight forward for several reasons. First, monitoring relies on data from the 'Apografi' (census) database, data of which are not fully comparable across the years: e.g. data for 2014 do not contain information on all categories of public employees. Second, some hirings are excluded from the attrition rule, notably those financed by local governments' own revenues (i.e. reciprocal duties). Third, recognising time lags in the selection procedures, deviations (surpluses or shortfalls) from the attrition rule can be carried over to the following year. For example, during the period 2012-2015, the actual recruitments were less than the ceiling imposed by the respective attrition rule. These "unrealised" hirings were carried over to the  Table 1: Evolution of public sector staff and wage bill (2009-2017)  (1) Includes all temporary contracts in General Government entities and legal entities under private law. For 2009-2013 the figure refers to the stock at the end of each year, whereas for 2014-2017 the figure is a yearly average (Jan-Dec). (2) General government, imputed social contributions are not included. (3) Imputed social contributions are not included. (4) 2014 figures are not comparable because data on personnel of legal entities of private law (permanent and temporary) are not available in census database. (5) Data on temporary staff not burdening the budget is not available for 2014. The figure of temporary staff  for 2014 derived based on the cencus database comment that the number of temporary staff not burdening the budgets is 45,000 for 2014 (which equals the approvals of 2013 for this type of personnel). Source: Apografi database, Eurostat  Permanent staffTemporary staff burdening the budget (1)Elected staffOther categoriesTotalWage bill (EUR mn) (2)Wage bill (% GDP)Euro Area compensation of employees (% of GDP) (3)2009730,234153,08721,2863,366907,97325,86610.99.72010700,962109,96821,2863,262835,47823,11410.29.52011674,01257,85312,1133,088747,06620,96810.19.32012654,78141,86912,0313,053711,73418,8239.89.22013618,57222,62613,2523,103657,55316,9679.49.22014 (4)576,85612,833 /46,1882,891598,76816,3429.19.12015600,48456,3857,1494,773668,79115,9269.09.02016598,87058,0538,0574,851669,83115,8399.18.92017602,90859,7318,2485,728676,61516,2549.18.8Change compared to 2009-17.4%-61.0%-61.3%70.2%-25.5%-37.2% 
 
 
 
 
 
8. Public administration and justice 

Box (continued) 

(Continued on the next page) 

53 

 following year and hence, the actual recruitments for the years 2016 and 2017 were above the annual hirings automatically calculated by the attrition rule. However, what is essential is that in aggregate the attrition rule was respected over time. Finally, it should be recalled that the very rapid decrease of staff seen during the first years of the downsizing was to a large part due to a significant number of exits through retirements (sometimes early) as the employees sought to anticipate the impact of planned pension reforms.  Notwithstanding of some annual/periodic deviations, the big picture remains that overall, the rules were respected. Since 2009, as a result of the aforementioned interventions, the overall number of overall staff was reduced by around 25% both through significant reductions in permanent and temporary staff (see Table 1). Moreover, the wage bill was reduced by 37% compared to 2009 and thereby brought in line with the EU average.  Going forward, for the medium-term period of 2019-2022, the authorities included in their Medium-Term Fiscal Strategy (MTFS) an attrition rule of 1:1 for permanent staff which represents 90% of total public employees. Regarding temporary personnel, there is no official commitment to a ceiling for 2019 and onwards. However, in order to maintain the public administration at its current size and cost as is projected in the MTFS, it is necessary for the number of temporary personnel to remain broadly stable in the following years. As regards specific hiring plans for 2019, in the context of the 2019 draft budget, the government has announced hiring of 4,500 teachers and 3,000 employees for the 'Home Assistance' Programme as permanent staff in 2019. At the same time, the authorities have committed to a corresponding reduction of temporary staff. Projected ceilings for permanent recruitments are presented in Table 2 and suggest the hiring of around 7,000 permanent staff in 2019 (accounting for the negative carry-over from 2018 and excluding conversions), increasing to over 8,500 by 2022.   Table 2: Hiring  of permanent personnel based on the attrition rule to be monitored in the Enhanced Surveillance Reports (2018-2022)  2019 figures include (a) 4,500 hirings of teachers for special education and (b) 3,000 contract conversions from temporary to permanent related to "Home assistance" program. Source: Medium Term Fiscal Strategy 2019-2022  In addition, Table 3 shows Commission projections of temporary personnel for the period 2019-2022, which would be consistent with the MTFS wage bill projections over the period. This level corresponds to a level similar to that of 2018, adjusted downward by the conversion of the 7,500 contracts announced for 2019. The institutions will continue to monitor closely any significant fluctuations around these figures in order to avoid a return to pre-crisis practices of excessive levels of hiring in the public sector. In parallel, ongoing human resource management reforms initiated under the ESM programme, are expected to increase the efficiency of the public administration, including introducing a recruitment system focusing on prioritised needs.  20182019202020212022Permanentstaff-newhirings(asperHiringPlaninMTFS):compliancewithattritionrule(1:3for2018and 1:1 for 2019-2022)5,65414,5757,6398,7028,597 
 
 
 
 
8. Public administration and justice 

implementation of all actions of the project, and 
more  generally,  of  the  ongoing  three-year 
strategic  plan  for  Justice.  The  acceleration  of 
the  upgrading  of  court 
judicial  proceedings, 
functions and services and the securing of accurate 
and  complete  data 
in  a  homogeneous  and 
standardized  form,  allowing  for  the  effective 
monitoring and problem resolution, are decisive in 
the  context  of  the  contribution  of  justice  to 
strengthening 
the  business  environment  and 
attracting investment in the aftermath of the crisis. 

to 

related 

One development that causes concern relates to 
out-of-court  mediation.  Earlier  in  2018,  its  legal 
framework  was  thoroughly  overhauled,  including 
the introduction of compulsory mediation in some 
types  of  disputes.  However,  in  June  2018,  the 
Greek  Supreme  Court  opined 
that  certain 
provisions  of  the  law  are  unconstitutional  and 
incompatible  with  Union  law  in  certain  aspects, 
mainly 
financial  burden  of 
the 
compulsory  mediation  on  the  parties  and  to  the 
professional  qualifications  of  mediators. 
In 
response,  the  authorities  adopted  a  postponement 
of the entry into force of the provisions in question 
from  mid-October  2018  to  mid-September  2019. 
That period seems unduly long; in consideration of 
the limited scope of the Supreme Court's findings, 
the  issues  identified  should  be  addressed  within  a 
significantly  shorter  time  span.  The  authorities 
should  consider  revising  the  time  parameter  so  as 
to allow for the availability of the full spectrum of 
mediation options to the public as soon as possible, 
in  compliance  with  Greece's  commitment 
to 
continue  the  implementation  of  all  key  reforms 
adopted under the ESM programme. 

In line with the request of the Eurogroup of 22 
June  2018,  the  Commission  has  continued  to 

Box (continued) 

8.2. 

JUSTICE AND FIGHT AGAINST 
CORRUPTION 

to 

end-2018 

completed  by 

The  first  phase  of  the  Integrated  Judicial  Case 
Management  System  (OSDDY/PP)  is  expected 
to  be 
(specific 
commitment),  to  be  followed  immediately  by 
the activation of the second phase. The objective 
of that project is to support courts and prosecutors’ 
offices  in  the  administration  of  criminal  and  civil 
processes,  to  provide  services  to  the  public  and 
assistance  in  the  operational  functions  of  the 
courts. It provides, for the first time, the ability  to 
monitor online the progress of any case pending in 
the  participating  courts.  The  scope  of  the  first 
phase  covered  41  courts  including  the  major 
metropolitan  areas  and  all  degrees  of  jurisdiction 
up 
the  Supreme  Court.  The  attainments 
perceived  so  far  are  acceleration,  reduction  of 
bureaucracy  and,  to  a  certain  degree,  elimination 
of  paperwork,  as  well  as  the  elaboration  of 
standardized  and  more  reliable  statistics.  The 
second  phase  will  follow  immediately  and  will 
cover  the  rest  of  Greece,  also  drawing  on  the 
lessons  from  the  first  phase.  To  that  end,  the 
project  was  extensively  redesigned  and  upgraded 
as of September 2018 and its budget was increased 
to  EUR  24  million, 
from  EUR  13  million 
necessitating a revision of its timetable which is a 
priori  justifiable  in  view  of  its  expanded  scope. 
Emphasis  will  be  put  on  achieving  the  electronic 
issuance  of  decisions  and  certificates,  using  the 
electronic  signature  and  thereby  dispensing  with 
the need for a physical presence at courthouses. 

Based  on  that  overall  positive  outlook,  it  is 
critical  to  ensure  that  all  efforts  be  deployed 
thorough 
speedy 
towards 

and 

the 

54 

  Table 3: Indicative stock of temporary personnel  for the period 2018-2022  (1) 2019 figures include corresponding reductions of 7,500 persons due to the hirings of 4,500 teachers and 3,000 persons in "Home assistance" program. Source: Commission services   20182019202020212022Stockoftemporarystaffburdeningthebudget-totalnumber of staff contracted (1)62,43954,93954,93954,93954,939  of which    Temporary staff of General Government entities47,58440,08440,08440,08440,084    Temporary staff of public entities of private law14,85614,85614,85614,85614,856 
 
 
 
 
8. Public administration and justice 

the  members  of 

monitor  developments  in  relation  to  the  legal 
proceedings  against 
the 
Committee  of  Experts  (CoEx)  of  TAIPED  and 
the  former  President  and  senior  staff  of 
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  ruling 
was  appealed  by  the  Supreme  Court  Prosecutor, 
his  appeal  has  been  recently  examined  by  the 
Supreme  Court  Council,  and  its  ruling  is  now 
awaited.  In  the  EDP-related  case  against  former 
the  Greek 
ELSTAT  President  A.  Georgiou, 
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  Council.  The 
Commission  will  continue  to  closely  monitor 
developments in both procedures to report back in 
the context of enhanced surveillance. 

against 

Following 

Fight 
a 
corruption. 
reorganisation in the relevant Ministry, there have 
been  some  delays  on  the  submission  of  the 
quarterly 
the 
implementation  of  the  National  Anti-Corruption 
Plan  which  Greece  committed  to  fully  implement 
is  provided 
by  mid-2021.  Technical  support 
through the SRSS. 

information/progress 

report  on 

55 

 
 
 
9.  SOVEREIGN FINANCING AND CAPACITY TO REPAY 

9.1. 

SOVEREIGN FINANCING 

and 

them 

justifies 
of  Greece's 

to 
the 
economic 

Between  2010  and  2018,  Greece  received 
assistance  from  the  euro-area  Member  States 
which  leads  to  a  non-negligible  direct  and 
the  Greek 
indirect  exposure  of 
enhanced 
sovereign 
surveillance 
and 
structural policies. Specifically, in support of the 
first  Macroeconomic  Adjustment  Programme, 
between  May  2010  and  December  2011,  Greece 
received  EUR  52.9  billion  of  bilateral  loans  from 
euro-area  Member  States,  pooled  by 
the 
Commission  under  the  Greek  Loan  Facility;  in 
support of the second Macroeconomic Adjustment 
Programme,  between  March  2012  and  February 
2015,  Greece  received  additional  loans  provided 
by 
the  European  Financial  Stability  Facility 
(EFSF)  of  EUR  130.9  billion(15);  and  between 
August  2015  and  June  2018  Greece  received  an 
additional amount of EUR 59.9 billion(16) in form 
of  loans  from  the  European  Stability  Mechanism. 
Altogether, Greece's outstanding liabilities towards 
the  euro-area  Member  States, 
the  European 
Financial  Stability  Facility  and  the  European 
Stability  Mechanism  come  to  a  total  amount  of 
EUR  243.7 billion.  In  addition,  in  support  of  the 
Economic  Adjustment 
first 
Programmes,  Greece  also 
financial 
assistance  from  the  International  Monetary  Fund, 
amounting to EUR 32.1 billion. 

received 

second 

and 

Towards  the  end  of  the  ESM  programme, 
Greece  managed  to  tap  markets  and  issue  two 
bonds. In July 2017, Greece issued EUR 3 billion 
five-year 
worth  of  government  bonds  with 
maturity and a coupon rate of 3.4%, part of which 
was used to exchange older bonds that would have 
matured  in  2019.  Later  that  year,  in  November 
the  Public  Debt  Management  Agency 
2017 
(PDMA)  successfully  conducted  a  large  liquidity 
management exercise, where the 20 tranches of the 
(relatively illiquid) so-called step bonds worth over 
EUR  25  billion  were  converted  into  five  tranches 
of  (more  liquid)  new  government  bonds  with 
maturities  between  2023  and  2042  and  coupon 

(15)  Net  of  EFSF  bonds  in  the  value  of  EUR  10.9  billion 
transferred  to  the  Hellenic  Financial  Stability  Facility  in 
March 2012 and returned in February 2015. 

(16)  Net of EUR 2 billion loans for bank recapitalisation which 

were repaid in February 2017. 

rates  ranging  from  3.5%  for  five-year  maturity  to 
4.2%  for  24-year  maturity.  The  latest  issuance  of 
government  bonds  occurred  in  February  2018, 
when  EUR  3  billion  worth  of  seven-year  bonds 
were issued with a coupon rate of 3.4%. 

Graph 9.1:  Medium and long term amortizations 

Source: PDMA, IMF, ESM, Commission services 

is 

to 

term 

favourable.  Due 

Greece's  sovereign  financing  profile  over  the 
medium 
its 
exceptional  debt  structure,  the  roll-over  risk  of 
Greece's  public  debt  in  the  medium  term  is  very 
moderate.  In  light  of  the  very  long  average 
maturity  of  debt,  financing  needs  in  the  short  to 
medium  term  are  relatively  contained  in  spite  of 
the  very  high  debt-to-GDP  ratio.  In  addition,  the 
significant cash buffer will contain roll-over risk in 
case  market  access  is  hindered.  Graph  9.1  shows 
the  amortizations  due  until  2030.  In  2019  there 
will  be  a  minor  peak  in  amortizations  when  most 
of  the  SMP  and  ANFA  bonds  fall  due,  but  the 
amortisation  of  medium-  and  long-term  debt  will 
remain below 7% of GDP. In 2020 and 2021, the 
corresponding  needs  will  be  as  low  as  2.5%  of 
GDP  or  EUR 5 billion.  In  the  following  decade 
amortizations  of  existing  debt  hover  between  2% 
and 6% of GDP. While the environment for market 
issuances by Greece remains volatile, the maturity 
extensions  of  EFSF  loans,  once  implemented  by 
the  EFSF  board,  will  offer  significant  savings  in 
debt  service  costs  and  provide  an  opportunity  to 
further  smoothen  and  extend  its  debt  maturity 
profiles.  Debt  servicing  needs  are  contained  until 
2033,  when  the  deferrals  of  EFSF  loans  end. 
Together  with  Greece's  sizeable  cash  buffer  and 
projected  primary  fiscal  surpluses,  the  maturity 
extensions  and  interest  payment  deferrals  will 
support Greece's repayment capacity. 

56 

01234567% of GDPExisting other loans and bondsEurosystemEFSFGLFIMF 
                                                           
 
9. Sovereign financing and capacity to repay 

and  contribute  to  an  easier  market  access  of  the 
Greek private sector. 

Graph 9.3: 

Spreads of the 10-year government bonds to 
the German Bund 

Source: Eurostat 

State liquidity, however is sufficient for the next 
two  years  even  without  new 
issuances. 
According to data  provided by the  authorities and 
Commission services' estimates the State financial 
buffer is expected to reach EUR 26.6 billion at the 
end  of  2018  and  EUR 15.5 billion  by  the  end  of 
2019  even  without  new  issuances.(17)  The  debt-
for  2020  are  estimated  at 
servicing  needs 
EUR 10. billion,  thus  the  estimated  cash  buffer 
would  cover  the  State  debt-financing  needs  well 
into 2021.  

Issuance  at  expensive  rates  should  be  avoided, 
given  the  available  cash  buffer  that  covers  the 
financing  needs  for  several  years  ahead.  A  too-
long absence from the market may, however erode 
investor  confidence.  It  is  therefore  essential  that 
the  reform  momentum  is  kept  to  support  the 
prospects  for  economic  activity  and  therefore 
market access.  

(17)  Assuming  no  net  issuances  of  short  term  debt  except  for 
repo operations with maturing intragovernmental loans that 
need to be deposited in the treasury account of the Bank of 
Greece.  

Greece's credit ratings have improved, but they 
are  still  well  below  investment  grade.  All  three 
major  credit  rating  agencies  have  gradually 
improved  Greece's  sovereign  credit  rating.  The 
first  mover  was  Moody's  in  the  summer  of  2017, 
while  most  recently  on  10  August  2018  Fitch 
upgraded its rating by two notches from B to BB- 
with  a  stable  outlook,  three  notches  away  from 
investment  grade.  This  came  a  few  days  after  the 
ESM  disbursed  the  EUR  15  billion  agreed  by  the 
Eurogroup 
the 
commitment  to  specific  medium-term  debt  relief 
measures  and  readiness  for  further  measures  if 
needed.  This  was  the  same  reason  for  which 
Standard  and  Poor's  had  upgraded  Greece's 
sovereign  at  the  end  of  June  2018,  though  its 
revision  was  only  one  notch,  from  B  to  B+. 
Moody's  has  not  issued  any  revision  since  early-
2018, thus Greece remains in B3 on its scale. 

June  2018,  along  with 

in 

Graph 9.2:  Greece's credit ratings 

Source: Commission services 

Despite  the  improved  credit  ratings,  market 
conditions  remain  challenging.  The  spreads  of 
ten-year  government  bonds  vis-à-vis  German 
Bunds  have  widened  to  some  380 basis  points  in 
October  2018  from  some  330  basis  points  in 
January  2018.  The  volatility  was  also  driven  by 
contagion  from  Italy  and  emerging  markets,  but 
concerns  about  the  banking  sector  and  budget 
easing  may  have  also  contributed  to  the  most 
recent spike in the ten-year from a low of 4.0% in 
September 2018 to 4.3% most recently. Given the 
challenging market developments, there have been 
no new issuances since February 2018. The PDMA 
is  planning  to  publish  an  issuance  calendar  for 
2019  by  the  end  of  2018. The  eventual  issuances, 
if  successful,  would  strengthen  market  confidence 

57 

AAAAA+AAAA-A+AA-BBB+BBBBBB-BB+BBBB-B+BB-CCC+CCCCCC-CCCDAaaAa1Aa2Aa3A1A2A3Baa1Baa2Baa3Ba1Ba2Ba3B1B2B3Caa1Caa2Caa3CaC200720082009201020112012201320142015201620172018Moody'sS&PFitchS&P,FitchMoody'sGreece024681012142015201620172018%GreeceCyprusPortugalIreland 
 
 
                                                           
9. Sovereign financing and capacity to repay 

Table 9.1: 

State financing requirements, sources and 
financial buffer in 2018 and 2019 

Assuming  the  full  implementation  of  all  the 
medium-term  measures  politically  agreed  in  June 
2018,(20)  the  baseline  scenario  shows  the  debt 
remaining  on  a  downward  path  until  2033,  when 
the  deferred  interest  are  to  be  capitalised  and 
included  in  the  EDP  debt,(21)  which  results  in  a 
hike  of  public  debt.  After  2033,  debt  declines 
further  but  remains  above  100%  of  GDP  until 
2050.  

Graph 9.4:  Debt to GDP ratio 

Estimates based on no-policy change scenario assuming no 
new market issuances for medium or long-term debt and no 
medium term debt measures. 
Source: Commission services 

9.2.  DEBT SUSTAINABILITY ANALYSIS(18) 

A technical update(19) of the debt sustainability 
analysis carried out in June 2018 and published 
in  the  Compliance  Report  after  the  fourth 
review  of  the  ESM  programme  shows  that  the 
assessment of the sustainability of Greece's debt 
has  broadly  unchanged.  The  changes  since  June 
2018  are  due  to  the  sizable  revision  of  the  GDP 
level  for  2017, 
the  updated  macroeconomic 
projections and interest payment forecast updates.  

(18)  This debt sustainability analysis is not directly comparable 
with  the  debt  forecast  of  the  Commission  2018  Autumn 
forecast,  as  it  is  based  on  a  different  set  of  assumptions 
regarding the medium term debt measures (see footnote 6) 
and the use of the states cash buffer for debt financing. 
(19)  The  technical  update  includes:  incorporation  of  updated 
gross  debt  figures  for  2017,  updated  GDP  data  and 
macroeconomic scenarios, updated assumption on risk free 
rates, updated interest and amortization payments on GLF, 
EFSF and ESM loans as well as other non-official loans. 

Source: Commission services 

(20)  The abolition of the step-up interest rate margin related to 
the debt buy-back tranche of the second Greek programme 
as  of  2018;  the  use  of  2014  SMP  profits  from  the  ESM-
segregated  account  and  the  restoration  of  the  transfer  of 
ANFA and SMP income equivalent amounts to Greece (as 
of  budget  year  2017);  a  further  deferral  of  EFSF  interest 
and  amortization  by  ten  years  and  an  extension  of  the 
maximum weighted average maturity (WAM) by ten years, 
respecting the programme authorized amount. 

(21)  In  the  programme  documents,  the  deferred  interests  have 
been  added  to  the  debt  stock  in  the  year  of  their  deferral. 
Under the EDP definition of debt, however, they should be 
added  only  once  the  whole  deferral  period  is  over.  If 
market  rates  are  assumed  the  same  under  the  two 
approaches  (which  they  are),  the  two  approaches  result  in 
an  identical  outcome  for  GFN-to-GDP  on  the  whole 
horizon, and identical debt-to-GDP figures after the end of 
for  numerical 
the  deferral  period 
comparison). 

(See  Table  9.2 

Table 9.2: 

Different definitions of debt (baseline scenario, after medium term measures) 

Source: Commission services 

58 

EUR billion20182019Funding requirementState cash balance  ('-' = surplus) 3.54.3Amortisation (excl. short-term)4.611.7  of which IMF1.72.1  of which Eurosystem1.95.8Other (including arrears clearance)2.00.0Total requirements10.016.0Funding sourcesMarket financing ( medium-/long-term + repos)11.54.0Official financing21.70.0Other (including privatisation)2.50.9State deposit financing-25.711.1Total sources10.016.0Financial buffer26.615.5040801201602002018202020222024202620282030203220342036203820402042204420462048205020522054205620582060%Baseline scenarioAdverse scenario% of GDP20182019202020212022202320242025202620272028202920302031203220332060Programme186.4176.0168.2159.8152.4147.9144.3140.9138.0135.4133.0130.7128.7126.8124.9123.187.6EDP182.6171.6163.3154.4146.5141.3137.0132.9129.2125.7122.3119.1116.1113.3110.5123.187.6difference3.84.44.95.46.06.67.38.08.89.710.711.612.613.514.50.00.0 
 
 
 
 
                                                           
 
                                                           
 
 
 
9. Sovereign financing and capacity to repay 

Gross financing needs (GFN) will hover around 
10%  of  GDP  until  2032.  Later,  GFN  starts  to 
increase  slowly, but remains  around 18% of GDP 
at  the  end  of  the  forecast  horizon.  In  the  adverse 
scenario  debt  remains  on  a  downward  path  until 
the  end  of  the  deferral  period,  but  then  starts  to 
increase  and  becomes  explosive 
from  2036 
onwards.  Under  that  scenario,  GFN  reaches  20% 
in  the  late  2030's  and  then  remains  constantly 
above it. 

Graph 9.5:  GFN to GDP ratio 

Source: Commission services 

Table 9.3: 

Results of the baseline scenario including the 
implementation of all the agreed debt 
measures 

Source: Commission services 

Table 9.4: 

Main assumptions underlying the DSA 

Source: Commission services 

59 

0510152025303540201820212024202720302033203620392042204520482051205420572060%Baseline scenarioAdverse scenariosustainability% of GDP2018201920202030204020502060Debt182.6171.6163.3116.1112.6100.187.6GFN23.310.99.510.615.216.917.7201820192030204020502060Average2019-60Baseline3.73.52.22.22.22.22.4Adverse3.73.51.51.51.51.51.7Baseline2.63.43.03.03.03.03.1Adverse3.03.42.82.82.82.82.9Baseline3.85.14.74.34.04.6Adverse3.75.45.45.76.05.4Primary surplus (% of GDP)Nominal growth (%)Re-financing rates (%) 
 
 
 
 
 
 
 
 
 
ANNEX A 

Table A.1: 

Progress on specific reform completion commitments due end-2018 (Eurogroup annex 22 June 2018) 

Source: Commission services 

60 

CommitmentState of playFiscal target: Greece will fully respect its commitment to ensure that its annual budget achieves a primary surplus of 3.5% of GDP over the medium-term which respects the objectives of key reforms enacted under the ESM programme.The Greek authorities plan to adopt a package of discretionary measures in the 2019 budget that is projected to ensure the achievement of the primary surplus target of 3.5%. Public revenue administration: Permanent staffing positions at the Independent Authority of Public Revenue (IAPR) to reach 12,000 by end-2018.At the end of October 2018, the staffing level was at 11,633 with an ongoing ASEP competition for 548 permanent posts close to being completed and the list of successful candidates expected to be published in November 2018.Public financial management: Avoid the accumulation of new arrears.The stock of net arrears in August 2018 was EUR 3.2 billion. It will be the benchmark for the first assessment for the non-accumulation of arrears in the 2nd Enhanced Surveillance report.Health care - PHC: Ensure the rollout of the primary health care system, in particular by opening at least 120 primary health care centres by end-2018.Based on the latest reports, around 90 primary health care units (TOMYs) have opened over the territory, with different levels of staffing across sites. Health care – centralised procurement: The main body responsible for central procurement (EKAPY) will be set up by end-2018, with a view to achieving a share of centralised procurement in total hospital expenditure of 30% in mid-2020.While the management board is still on temporary appointment, and EKAPY is not yet fully staffed, EKAPY has managed to finalise some old tenders and achieve savings.Financial market - NPL resolution tools: Greece will continue to implement reforms aimed at restoring the health of the banking system, including NPL resolution efforts by ensuring the continued effectiveness of the relevant legal framework (i.e. household and corporate insolvency, out-of-court workout, NPL sales, e-auctions) and taking all necessary actions to this effect.The OCW shows a net increase both in submitted applications and successful negotiations. Further upgrades to the process are planned. Regarding household insolvency cases, data show a constant trend of backlog reduction as well as a decrease in incoming cases. Work on further improvements is ongoing. The provision of financial training to judges is expected to start by December 2018. Plans to extend debtor protection under the household insolvency law should be subject to advance discussion, given the need to prevent a negative impact on NPE resolution efforts. The authorities provided a report on e-auctions conducted up to September 2018; no problems signalled. Financial market - capital controls: Greece will continue the relaxation of capital controls in line with the roadmap on the relaxation of capital controls published in May 2017.A further loosening of capital controls was adopted as of 1 October 2018, which allows for unlimited cash withdrawals from credit institutions in Greece and further mitigates the adverse impact on Greek businesses.Justice: In the context of implementing the Three-Year Action Plan on Justice, phase I of the establishment of the e-justice system will be completed by end 2018.Authorities confirmed that phase I will be completed on time.Hellenic Financial Stability Fund (HFSF): The HFSF will by end-2018 develop an exit strategy for the sale of its stakes in the systemic banks and the mandate of the Selection Panel of the HFSF shall be aligned with the mandate of the HFSF; the independence of the HFSF will be fully respected and it shall continue to operate under commercial terms and without any political or other interference.Preparation of the exit strategy is ongoing. No progress has been reported on the extension of the mandate of the Selection Panel.Labour market: Safeguard competitiveness through an annual update of the minimum wage in line with the provisions of Law 4172/2013.The authorities have advanced the next revision cycle to start in September 2018 and to be completed by February 2019. Other provisions of the law will remain unchanged. Investment Licensing: Greece will complete the investment licensing reform, and to this end adopt all enabling licensing legislation Secondary legislation corresponding to Article 78 of 4549/2018 (licensing procedures for environmental services) under preparation. The primary law foresaw the adoption of secondary legislation already by end-October 2018. Energy: With a view to completing reforms in the energy sector, the agreed divestment of Public Power Corporation's lignite-fired capacity will be completed by end-2018.An initial one-month extension to the Divestiture Period was granted by DG COMP (C(2018) 6528), and now a further extension has been granted (C(2018) 7439), which means that the full divestment will likely be completed by February 2019. Concerning any future relationships with potential investors and PPC, care should be taken to ensuring the agreement is fully compliant with the goal of opening up energy markets.HCAP The Strategic Plan of HCAP will be implemented on a continuous basis.HCAP is monitoring the alignment of the Business Plans of the subsidiaries to the Strategic Plan and is in the process of defining and setting the quantitative and qualitative key performance indicators to the subsidiaries.HCAP The transfer of OAKA to HCAP and the restructuring of ETAD will be completed by end-2018.The restructuring of ETAD is progressing. Based on current information the end-2018 deadline for the transfer of OAKA is not realistic, partly due to the complexity of the project and delays beyond the government's control.Tenders The Asset Development Plan of TAIPED will be implemented on a continuous basis. The transactions on the AIA concession, Hellinikon and DESFA will be completed by end-2018The financial closing of the DESFA transaction is expected for end-2018, while this deadline will be challenging for AIA. The authorities have continued the efforts to complete the conditions precedent to allow the transfer of shares of Hellinikon to the developer. 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 the strong efforts, financial closing could be expected within the first quarter of 2019.Public Administration - Appointments. Greece will complete reforms to modernise human resource management in the public sector, and in particular the appointment of Administrative Secretaries and all Directors General according to law 4369/2016 by end-2018.The process for the appointment of 88 of 90 Directors General has been completed as of end-October. The appointment of Administrative Secretaries has suffered significant delays with no appointment completed until now (out of 69 positions). The authorities have proceeded to re-launch all calls (22 in total) as per agreement reached during the final review of the ESM Programme. The establishment of a second selection panel should facilitate the selection process and timely completion of all appointments of the ASs.  
 
 
 
 
A. Annex 

61