COMMISSION STAFF WORKING DOCUMENT Enhanced Surveillance - Greece, February 2019 Accompanying the document COMMUNICATION FROM THE COMMISSION Enhanced Surveillance - Greece, February 2019
Date: 2019-02-27
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Euro Group (euro area), Greece, economic recovery, gross domestic product, macroeconomics, multilateral surveillance, public debt, stability programme, structural adjustment, sustainable development

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 27.2.2019  SWD(2019) 201 final  COMMISSION STAFF WORKING DOCUMENT Enhanced Surveillance - Greece, February 2019 Accompanying the document COMMUNICATION FROM THE COMMISSION Enhanced Surveillance - Greece, February 2019 {COM(2019) 201 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 
CF: Cohesion Fund 
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: deferred 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:  Εθνική  Κεντρική  Αρχή  Προμηθειών  Υγείας  (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) 
EMFF: European Maritime and Fisheries Fund 
ENFIA: Ενιαίος Φόρος Ιδιοκτησίας Ακινήτων (unified property tax) 
EOPYY: Εθνικός Οργανισμός Υπηρεσιών Υγείας (national health insurance body) 
EPA Attiki: Εταιρεία Παροχής Αερίου Αττικής (Natural Gas Supply Company of Attica) 
ERDF: European Regional Development FundESA: European System of Accounts 
ESF:  European  Social  FundESKAEN:  Εθνικό  Συμβούλιο  για  την  Κωδικοποίηση  και  την  Αναμόρφωση 
της Ελληνικής Νομοθεσίας (National Council for the Codification of Legislation) 
ESM: European Stability Mechanism 
ETAA: Ενιαίο Ταμείο Ανεξαρτήτων 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 
EYATH A.E.: Εταιρεία Ύδρευσης και Αποχέτευσης Θεσσαλονίκης Α.Ε.(Thessaloniki Water Supply and 
Sewerage Company S.A.) 
EYDAP  A.E.: Εταιρεία Ύδρευσης και  Αποχέτευσης  Πρωτευούσης  A.E. (the  Athens Water Supply and 
Sewerage Company S.A.) 
FDI: foreign direct investment 

ii 

 
GAIAOSE: SOE active in the fields of railway property and rolling stock exploitation, management and 
development 
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 
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 
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 
MoJ: Ministry of Justice, Transparency and Human Rights  
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 
NSJ: National School of Judges 
NSRF: National Strategic Reference Framework  
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  /  Πολιτικών  και  Ποινικών 
(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 

iii 

 
 
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 
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 
YEI: Youth Employment Initiative 

iv 

 
 
ACKNOWLEDGEMENTS 

This report is prepared as accompanying document to the Commission's assessment pursuant Article 3(5) 
of  Regulation  (EU)  472/3013  published  as  Communication  from  the  Commission  –  Enhanced 
Surveillance  –  Greece,  February  2019.  It  was  prepared  in  the  Directorate  General  Economic  and 
Financial Affairs, under the direction of Marco Buti, Director General, Carlos Martínez Mongay, Deputy 
Director  General,  Declan  Costello,  Director  and  Mission  Chief,  and  the  coordination  of  Paul  Kutos, 
Head of Unit and Deputy Mission Chief and Júlia Lendvai, Deputy Head of Unit. 

Contributors: 

Chris  Allen,  Giuseppe  Carone,  Declan  Costello,  Fotini  Dionyssopoulou,  Francesco  Di  Comite,  Matteo 
Duiella,  Christos  Gofas,  András  Hudecz,  Alexander  Ioannidis,  Dimitrios  Karastogiannis,  Paul  Kutos, 
Veli  Laine,  Eloise  Lecouturier,  Júlia  Lendvai,  Milan  Lisicky,  Vasileios  Maroulis,  Benedetta  Martinelli, 
Vasilis  Nikitas,  Elena  Pavlova,  Zoltán  Petrov,  Miguel  Angel  Otero,  Nevenka  Tosici,  Andreas  Trokkos, 
Vasiliki Vasilopoulou, Irene Vlachaki, Rainer Wichern, Alkistis Zavakou. Assistance was also provided by 
Fotini Louka and Siofra Mc Donnell. 

The European Central Bank (ECB) Staff participated in the drafting of this report 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.  Staff  of  the  European  Stability 
Mechanism (ESM) contributed to the preparation of this report in the context of the ESM's Early Warning 
System and in accordance with the Memorandum of Understanding of 27 April 2018 on working relations 
between the European Commission and ESM. IMF staff participated in the context of the post-programme 
monitoring framework. 

Comments on the report would be gratefully received and should be sent, by mail or e-mail to: 

Paul Kutos 

European Commission 

Unit ECFIN-F-2 

CHAR 10/236 

B-1049 Brussels 

e-mail: ECFIN-GREECE-REQUESTS@ec.europa.eu 

v 

 
 
 
CONTENTS 

Commission Staff Working Document 

Executive summary 

1. 

Introduction 

2.  Macroeconomic developments 

3. 

Fiscal and fiscal-structural policies 

3.1. 
3.2. 

FISCAL POLICY 
FISCAL STRUCTURAL POLICIES 
3.2.1.  Taxation 
3.2.2.  Revenue administration 
3.2.3.  Public Financial Management 

4. 

Social welfare 

4.1.  PENSIONS 
4.2.  HEALTH CARE 
4.3. 

SAFETY NETS 

5. 

Financial sector 

5.1. 

FINANCIAL SECTOR DEVELOPMENTS 
5.1.1.  Financial sector overview and financial stability assessment 
5.1.2.  Financing of the economy 
5.2. 
FINANCIAL SECTOR POLICIES 
5.3.  HELLENIC FINANCIAL STABILITY FUND 

6. 

Labour and product markets 

LABOUR MARKET 

6.1. 
6.2.  PRODUCT MARKET AND COMPETITIVENESS 

6.2.1.  Business environment 
6.2.2.  Network industries (energy, water, transport and logistics) 

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

7.1.  HCAP 
7.2. 

IMPLEMENTATION OF THE ASSET DEVELOPMENT PLAN 

8. 

Public administration and justice 

8.1.  PUBLIC ADMINISTRATION 

Improving the human resource management in the public administration 

8.1.1.  Appointments of senior management positions 
8.1.2. 
8.1.3.  Better regulation and coordination 
8.1.4.  Strengthening recruitment planning and the internal capacity of the Ministry for 

Administrative Reconstruction 

8.1.5.  Controlling the size and cost of the public sector 

9 

11 

19 

21 

23 

23 
27 
27 
27 
32 

37 

37 
37 
38 

41 

41 
41 
43 
44 
50 

53 

53 
58 
58 
61 

67 

67 
69 

73 

73 
73 
74 
75 

75 
76 

vii 

 
 
 
8.2. 

JUSTICE 

9. 

Sovereign financing and capacity to repay 

SOVEREIGN FINANCING 

9.1. 
9.2.  DEBT SUSTAINABILITY 

Annex 

LIST OF TABLES 

2.1.  Main features of the macroeconomic scenario 
3.1.  Main drivers of the fiscal projection 
Financial stability indicators 
5.1. 
8.1.  Evolution of public sector staff and wage bill (2009-2018) 
8.2.  Hiring limits of permanent personnel and indicative ceilings for temporary personnel to be 

monitored in the Enhanced Surveillance Reports (2018-2022) 
State financing requirements, sources and financial buffer in 2018 and 2019 

9.1. 
9.2.  Main results of the DSA calculations assuming full implementation of the medium term 

measures, and the main underlying assumptions 

LIST OF GRAPHS 

2.1.  Real GDP growth and growth contributions 
3.1.  EU funds claimed in the current and previous programming period (left) and primary 

balances and fiscal space (right) 

5.1.  Bank deposits (left panel) and total borrowing from the Eurosystem (right panel) 
5.2.  Bank credit to non-financial corporations and households 
5.3.  Bank interest rates on new loans 
5.4. 
5.5.  Cumulative number of e-auctions conducted since 29 November 2017 
6.1.  Evolution of competitiveness and employment indicators 
6.2.  Minimum wage levels in euro area countries and relative competitiveness position of 

Submitted out-of-cour workout applications 

Greece 
Share of uninsured workers found in high-risk sectors 
Time required to register private companies 

6.3. 
6.4. 
6.5.  Evolution of retail market share compared to targets 
9.1.  5-year government bond yield spreads to the Bund 
9.2.  Medium and long-term amortisations 
9.3.  Greek spread of 10-year government bond yield over Italy 
9.4.  Main results of the debt sustainability analysis 

LIST OF BOXES 

Taxation – Structure and Main Issues 
Tax administration 

3.1. 
3.2. 
3.3.  Arrears clearance measures 

77 

79 

79 
81 

83 

22 
25 
43 
76 

77 
80 

82 

22 

23 
42 
43 
44 
48 
49 
53 

55 
57 
59 
63 
79 
80 
81 
81 

28 
31 
34 

viii 

 
 
 
 
 
 
 
Commission Staff Working Document 

 
 
 
 
 
 
 
 
 
 
 
 
 
EXECUTIVE SUMMARY  

Greece  has  been  integrated  into  the  European  Semester  and  the  Commission  also  activated 
enhanced surveillance under Regulation (EU) No 472/2013. Enhanced surveillance has been prolonged 
for  a  further  six  months  by  a  Commission  Decision  of  20  February  2019.  The  second  enhanced 
surveillance  report  is  issued  alongside  the  European  Semester  Country  Report  for  Greece,  which  inter 
alia  outlines  the  medium-term  growth  and  investment  challenges  facing  Greece.  This  staff  working 
document accompanies that report. 

Enhanced surveillance also provides the basis for assessing the commitments given by Greece to the 
Eurogroup  of  22  June  2018.  These  include  a  general  commitment  to  continue  and  complete  reforms 
adopted  under  the  ESM  stability  support  programme  and  to  safeguard  the  objectives  of  the  reforms 
adopted under this programme and its predecessors. In this context, it provides the basis for monitoring 
the implementation of specific reform commitments annexed to the Eurogroup statement of 22 June 2018 
in the areas of (i) fiscal and fiscal-structural policies, (ii) social welfare, (iii) financial stability, (iv) labour 
and product markets, (v) privatisation and (vi) public administration.  

Real GDP is forecast to grow by 2% in 2018 and to accelerate to around 2.2% and 2.3% in 2019 
and 2020, respectively.  Labour market conditions continued improving in the second half of 2018: the 
unemployment  rate  dropped  to  18.5%  in  November  2018,  down  from  its  peak  of  27.9%  in  mid-2013, 
although  long-term  unemployment  (13.5%  2018  third  quarter)  and  youth  unemployment  (39.1%  in 
November 2018) remain high. Overall, the balance of risks is tilted to the downside.  

Greece has made progress in implementing the specific reform commitments due for end-2018, but 
some actions remain to be completed, especially in the area of financial sector reform.  Beyond the 
specific  reform  commitments,  developments  in  some  areas  raise  concerns  about  reform  delivery  and 
continuity, including with a view to risks to the medium-term outlook. 

As  regards  fiscal  and  fiscal  structural  policies,  Greece  implemented  many  reform  commitments. 
Greece is likely to have over-achieved the primary surplus target of 3.5% of GDP in 2018. Moreover, the 
2019 budget is projected to ensure the achievement of the primary surplus target of 3.5% of GDP, thus 
completing an end-2018 specific commitment. The Greek authorities have initiated preparatory work on 
assessing the fiscal impact and risks stemming from court rulings on reforms enacted under the financial 
assistance  programmes:  the  authorities  should  continue  to  monitor  these  fiscal  risks,  and  should  take 
offsetting  measures  as  needed  in  the  context  of  the  Medium-Term  Fiscal  Strategy  (MTFS).  Greece  has 
reduced  its  stock  of  net  arrears  (continuous  specific  commitment)  however,  the  pace  of  reduction  has 
slowed significantly and new arrears continue to be created. 

Further steps are needed to fully implement all reform commitments on fiscal and fiscal-structural 
policies. More specifically:  

  To  address  the  shortfall  (an  end-2018  specific  commitment)  in  the  staff  levels  of  permanent 
employees at the Independent Authority for Public Revenue (IAPR), the authorities need to complete 
the adoption of complementary measures including the amendment of the enabling legislation to allow 
for the establishment of a grading system for the IAPR that is linked to job descriptions. 

  The authorities should address concerns on the medium-term orientation of fiscal and fiscal structural 
policies. Greater effort is needed to tackle structural problems which lead to the continued creation of 
new  arrears  and  persistent  under  execution  of  the  public  investment  budget.  The  authorities  should 
take  steps  to  respect  their  ceilings  for  permanent  and  temporary  recruitments  in  the  public  sector, 
which  are  at  risk  based  on  announcements  of  excessive  levels  of  recruitments  in  2019.  Finally,  the 
authorities are expected to implement growth-friendly tax reforms for 2020, involving the widening of 
tax bases and the lowering of tax rates on corporates and labour.  

Reform  commitments  to  establish  a  sustainable  social  welfare  system  are  largely  on  track.  The 
rollout of the primary health care system is advancing, with significant progress in the opening of primary 

11 

 
Commission Staff Working Document -  

Chapter Executive summary -  

health  care  units  (TOMYs)  almost  reaching  the  nominal  target  of  120  (an  end-2018  specific 
commitment). EKAPY, the body for centralised procurement,  has been set up in line with the end-2018 
specific commitment and activity has resumed, though on a limited scale. Progress on other aspects of the 
health care  reform is uneven  and the authorities should address issues identified by the  Commission as 
regards the frequency and design of pharmaceutical repricing and the operation of the clawback scheme. 
The  reform  of  other  social  safety  nets  (disability  benefits,  the  Social  Solidarity  Income  scheme)  has 
continued, and a new housing benefit for renters is about to be introduced (albeit with a slight delay). 

The  financial  system  in  Greece  continues  to  face  important  challenges.  The  liquidity  situation  of 
banks has improved and the reduction of non-performing loans (NPL) has continued, although the take-up 
of tools for their resolution lags behind expectations. The number of e-auctions rose in the fourth quarter 
of 2018, but the failure rate remains high and a large share of successful auctions lead to the purchase of 
the  asset  by  the  bank  that  launched  the  auction.  The  Hellenic  Financial  Stability  Fund  (HFSF)  has 
developed  its  exit  strategy  for  the  sale  of  its  shares  in  the  four  systemic  banks  (end-2018  specific 
commitment). Progress has been made in enhancing the case-processing capacities of courts through new 
staff  appointments  and  through  the  financial  training  of  judges  (specific  commitment  for  end-2018). 
Capital  controls  have  been  gradually  relaxed  in  line  with  the  agreed  roadmap  (continuous  specific 
commitment). 

Greece needs to complete some remaining reform commitments related to the financial sector: 

  Discussions  are  still  ongoing  regarding  a  proposal  of  the  Greek  authorities  for  a  new  system  of 
protection  of  primary  residences  to  replace  the  current  protection  under  the  Household  Insolvency 
(Katseli) law. There are a large number of design and technical details which need to be settled so as 
to  ensure  that  the  scheme  is  genuinely  temporary,  properly  targeted,  can  be  operational  in  the  near 
future  and  improves  the  payment  culture.  In  addition,  the  action  plan  to  eliminate  the  backlog  of 
pending cases  under the household insolvency law by 2021 needs to be better specified, taking into 
account  the  new  legal  framework  for  the  protection  of  primary  residences,  impediments  to  the 
successful  conduct  of  e-auctions  should  be  addressed.  An  agreed  legislative  amendment  and  a  draft 
action plan for State-guaranteed loans are are currently under assessment. Finally, the alignment of the 
mandate  of  the  HFSF  Selection  Panel  with  the  recently  extended  mandate  of  the  HFSF  needs  to  be 
confirmed by the Legal Council of State. In line with the HFSF law, the Minister of Finance should 
complete the appointment of the Deputy CEO of the HFSF and the vacant General Council position. 

  On  a  more  medium-term  orientation,  greater  priority  needs  to  be  attached  to  measures  needed  to 
restore the banking sector to robust health. To this end, coordination across government departments 
and  vis-à-vis  stakeholders  should  be  improved,  and  policy  initiatives  should  avoid  across-the  board 
solutions which, by protecting strategic defaulters, create risks of moral hazard and further undermine 
the payment culture. Recent proposals from the authorities on new systemic instruments to achieve a 
faster  pace  of  NPL  reduction  are  welcome,  but  inter  alia  will  need  to  be  assessed  from  an  antitrust 
perspective.   

As regards reforms on labour and product market reforms, the picture is  mixed as some reforms 
are still underway. The government has increased the statutory minimum wage by 10.9%, effective as of 
1 February 2019, and abolished the sub-minimum wage for persons aged under 25 (implying an increase 
of 27% for this group). In making the revision, the authorities formally followed the procedure (an end-
2018  specific  commitment)  of  Law  4172/2013;  however,  such  a  large  increase  poses  risks  for 
employment growth and competitiveness and important lessons should be drawn for the next revision of 
the  minimum  wage  due  in  June  2020.  As  regards  product  market  reforms,  enabling  legislation  on 
installation  and  operation  licensing  procedures  for  environmental  infrastructures  has  been  adopted  (an 
end-2018 specific commitment) and work is progressing well on the cadastre and the forest maps.  

However, further actions and commitments are needed on product and labour market reforms: 

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Commission Staff Working Document -  

Chapter Executive summary -  

  The divestment of lignite-generating capacity by the Public Power Corporation (specific commitment 
for  end-2018)  was  not  completed,  and  discussions  between  the  Greek  authorities,  PPC  and  the 
Commission  are  still  underway  to  find  an  acceptable  remedy  to  the  antitrust  case  in  line  with  the 
requirements of EU law.  

  The  Greek  authorities  should  clarify  how  they  intend  to  safeguard  wage  competitiveness  over  the 
medium  term  and  to  establish  an  environment  which  is  genuinely  business  and  investment-friendly. 
The  large  increase  in  the  minimum  wage  may  generate  a  short-term  positive  impact  on  economic 
activity,  but  this  comes  at  the  potential  costs  of  lower  employment  growth  and  a  sustained  loss  of 
competitiveness over the medium term. More generally, the authorities need to develop a compelling 
reform strategy that supports investment and potential growth based on progress in key reforms such 
as energy and privatisation.  

Progress has been made as regards reform commitments on the Hellenic Corporation of Assets and 
Participations (HCAP) and on privatisation, but some open issues need to be addressed. HCAP has 
continued the implementation of its strategic plan in line with the continuous specific commitment, and 
the  real-estate  subsidiary  ETAD  has  been  restructured;  the  implementation  of  the  coordination 
mechanism  for  SOEs  falling  under  HCAP  has  been  launched,  and  a  roadmap  has  been  adopted  for  the 
transfer  of  the  Olympic  Centre  (OAKA)  (end-2018  specific  commitments).  Regarding  the  end-2018 
commitments on privatisation tenders, the transaction of DESFA (the natural gas transmission operator) 
and the concession for Athens International Airport were successfully concluded, and on the Hellinikon 
project key intermediate steps related to the casino licence and urban planning and environmental studies 
have been completed.  

Nonetheless, the following actions on privatisation remain to be finalised:  

  The authorities need to accelerate the implementation of the transactions for 2019, as reflected in the 
specific commitments  made by  the Greek authorities to the Eurogroup partners in June  2018 and in  
the updated Asset Development Plan (ADP), and in particular adopt all the agreed actions to remove 
impediments in the Egnatia transaction.  

Progress  with  advancing  public  administration  reforms  has  been  uneven,  and  there  is  a  need  to 
clarify the medium-term orientation of policies, especially as regards recruitment. The third cycle of 
the mobility scheme was launched in August 2018 with a view to be completed as a specific commitment 
by mid-2019, while the fourth mobility cycle is planned to be launched by the end of February 2019. The 
authorities  have  continued  their  solid  progress  towards  establishing  an  integrated  Human  Resource 
Management System which is a specific commitment for the end of 2019. While the appointment of 90 
Directors  General  has  been  completed,  the  authorities  need  to  address  significant  delays  on  the 
appointment of Administrative Secretaries (end-2018 specific commitment). To this end, the authorities 
have adopted a series of complementary measures to ensure that the core objectives of the reform remain 
on track, including the adoption of a law on strategic recruitment as well as specifying the modalities of 
the  independent  assessment  of  the  selection  process  for  the  Administrative  Secretaries  and  Directors 
General that is planned to be completed by mid-2019.  

To complete their reform commitments in the area of public administration:  

  The  authorities  need  to  accelerate  the  appointment  of  senior  managers  at  the  level  of  directors  and 
heads  of  division,  and  related  to  legal  codification,  take  the  approval  decision  for  'digital  portal' 
tender,  and  the  legal  provisions  for  'Central  Committee  on  Codification'  should  be  submitted  to  the 
Parliament. 

  The  authorities  should  clarify  how  they  intend  to  respect  their  own  ceilings  for  permanent  and 
temporary  recruitments  in  the  public  sector,  as  announcements  on  planned  recruitments  in  2019 
appear to be above the available ceilings.  

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Commission Staff Working Document -  

Chapter Executive summary -  

Progress with the implementation of end-2018 specific commitments to the Eurogroup (Eurogroup annex 22 June 2018) 

Commitment 

State of play and next steps 

Fiscal  target:  the  annual  budget  achieves  a 
medium-term primary surplus of 3.5% of GDP. 

The 2019 budget was adopted and it is consistent with the primary surplus target.  

revenue  administration:  Permanent 
Public 
staffing  positions  at  the  Independent  Authority  of 
Public  Revenue  (IAPR)  to  reach  12,000  by  end-
2018. 

Permanent  staff  stood  at  11,487  at  end-2018,  thus  below  target.  The  authorities  have  adopted  the  following 
complementary measures:  

  Blueprint (2019-2021): IAPR has adopted its 'Blueprint'  

 

IT: agreement reached between GSIS and IAPR on an annual envelope for IAPR services part of GSIS' budget. 

In addition, the authorities need to complete the following actions: 

  HR  Reform:  adopt  enabling  legislation  regarding  establishment  of  a  grading  system  based  on job  descriptions. 

This measure is connected to the public administration reform area (#16). 

  Liability for tax/customs officials: legislation to be adopted.  

  Transfers to IAPR from the mobility scheme: legal provisions to be adopted to facilitate the transfer of staff to 

IAPR from the mobility scheme.  

 

Joint Ministerial Decision on 'fuel markers': to be adopted. 

Public 
accumulation of new arrears. 

financial  management:  Avoid 

the 

December 2018 data show that the stock of net arrears has been reduced since the end of the ESM programme. Going 
forward, additional efforts are still needed to clear the backlog and avoid the build-up of new arrears.  

Health  care:  Open  at  least  120  primary  health 
care centres (TOMYs) by end-2018. 

Health care: Establish the main body responsible 
for central procurement (EKAPY) by end-2018. 

Based on the latest reports, 112 primary health care units (TOMYs) were opened across the territory.  

The main body responsible for central procurement, EKAPY,  and centralised procurement has resumed.  

1 

2 

3 

4 

5 

14 

 
 
Commission Staff Working Document -  

Chapter Executive summary -  

Commitment 

State of play and next steps 

Non-Performing  Loans  (NPL):  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. 

The authorities need to complete the following measures. Household insolvency law: the authorities’ proposal for a 
successor  scheme  to  the  primary  residence  protection  under  the  Katseli  law  is  currently  being  assessed  by  the 
institutions  with  a  number  of  open  crucial  issues.  Backlog  of  household  insolvency  cases:  the  current  Household 
Insolvency action plan will need to be updated, with a view to reaching the target of eliminating the backlog by end-
2021. E-auctions: impediments to the successful conduct of e-auctions should be addressed. State-guaranteed loans: 
agreed legislative amendment and a draft action plan are under assessment.  

Capital controls: relaxation  of capital controls  in 
line with the roadmap of May 2017. 

The authorities continued to lift capital controls in line with the agreed roadmap. 

Justice:  complete  phase  I  of  the  establishment  of 
the e-justice system (OSDDY-PP) by end 2018. 

Phase  I  of  the  OSDDY-PP  has  been  completed  with  all  deliverables  formally  handed  over  by  the  contractor  by 
January 2019.  

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. 

Labour  market:  Safeguard  competitiveness 
through an annual update of the minimum wage in 
line with the provisions of Law 4172/2013. 

Exit Strategy: The HFSF General Council has approved the divestment framework for the sale of its shares in the four 
systemic  banks.  Selection  Panel  mandate  extension:  The  authorities  clarified  that  in  their  view  the  mandate  of  the 
HFSF  Selection  Panel  as  a  body  is  in  alignment  with  the  recently  extended  mandate  of  the  HFSF;  this  is  to  be 
confirmed  by  the  Legal  Council  of  State.  In  line  with  the  HFSF  law,  the  Minister  of  Finance  should  complete  the 
appointment of the Deputy CEO of the HFSF and the vacant General Council position on the basis of the shortlist 
produced by the Selection Panel. 
The authorities have updated the minimum wage following the procedure laid down in Article 103 of Law 4172/2013. 
As a result, the minimum wage has been raised by 10.9% and the sub-minimum wage for persons aged under 25 was 
eliminated (implying an increase of some 27%). The magnitude of the increase raises concerns for the employment 
prospects (especially for the young and old-age low-skilled workers), and for competitiveness in the medium term.  

adopt 

Investment  Licensing: 
licensing legislation  
the  agreed  divestment  of 
Energy:  Complete 
Public  Power  Corporation's  lignite-fired  capacity 
w by end-2018. 

enabling 

all 

and 
Hellenic  Corporation 
Participations  (HCAP):  The  Strategic  Plan  of 
HCAP will be implemented on a continuous basis. 

of  Assets 

All enabling legislation had been adopted by the issuance of a joint ministerial decision (FEK/B/436 - 14.02.2019). 

The  divestment  of  the  Public  Power  Corporation  lignites  been  delayed  as  the  tender  process  did  not  yield  any 
successful  bids.  Steps  to  remedy  this  situation  need  to  be  agreed  with  the  Commission,  and  the  authorities  have 
signalled their intention to submit a new proposal. 
HCAP prepared the Strategic Plan which was approved by the General Assembly in January 2018. On the basis of the 
Strategic Plan, the non-listed subsidiaries submitted updated Business Plans to HCAP. Furthermore, HCAP prepared 
the  Business  Plan  of  the  Corporation  for  the  period  2019-2021  implementing  the  Strategic  Plan  and  setting  key 
performance indicators for the non-listed subsidiaries. 

15 

6 

7 

8 

9 

10 

11 

12 

13 

 
 
Commitment 

State of play and next steps 

HCAP  The  transfer  of  OAKA  to  HCAP  and  the 
restructuring of ETAD  will be completed by end-
2018. 

The  restructuring  of  ETAD  has  been  completed.  The  transfer  of  OAKA  is  taking  longer  to  complete  than  initially 
planned. The authorities have developed a roadmap for specific actions to be taken during 2019 to address the open 
technical issues, which appears appropriate in light of the complexity of the project. In addition, on 21 February 2019, 
the Cabinet Committee and HCAP have launched the coordination mechanism for State-owned enterprises. 

Commission Staff Working Document -  

Chapter Executive summary -  

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-2018 

Public  Administration  -  Appointments.  The 
implementation of reforms to modernise the public 
administration  will  be  sustained.  As  part  of  this 
effort, Greece will complete reforms to modernise 
human resource  management  in the public  sector, 
of 
and 
all 
Administrative  Secretary  Generals 
Directors  General  according  to  law  4369/2016  by 
end-2018. 

appointment 
and 

particular 

the 

in 

Asset Development Plan (ADP): The updated ADP of TAIPED was endorsed by KYSOIP on 15 February (FEK 461, 
15 February 2019). DESFA: The financial closing of the transaction was completed on 20 December 2018. AIA: The 
AIA extension agreement was ratified by the Greek Parliament on 14 February 2019 and the payment of the financial 
transaction of EUR 1.1 billion plus an annual rate  of 10.3% paid proportionally by AIA from 1 January 2019 until 
closing date, was done on 22 February 2019, thereby closing the transaction. Hellinikon: the project has encountered 
some delays mainly concerning the award of the casino licence and the urban planning and environmental approvals. 
As  key  intermediate  steps:  (i)  the  request  for  proposal  for  the  award  of  the  casino  licence  was  uploaded  on  19 
February;    (ii)  the  studies  on  the  urban  planning  zone,  the  development  zone,  and  the  park  were  submitted  by  the 
investors to the Greek authorities, on 6 February 2019, and the Integrated Environmental Impact  Assessment  study 
followed  on  18  February.  The  authorities  need  to  implement  all  agreed  complementary  actions  related  to  the 
concession of Egnatia motorways, to remove impediments to the transaction.   

Director-Generals:  all  appointments  (90  posts)  have  been  completed.  Administrative  Secretaries:  to  date  no 
appointment  (of  69)  has  been  made  and  as  complementary  actions,  the  authorities  have  adopted  a  law  on  strategic 
recruitment (also linking the hiring plan with the Medium-Term Fiscal Strategy) and strengthening the capacity of the 
Ministry  of  Administrative  Reconstruction  and:  (i)  provided  an  updated  timeline  for  the  completion  of  the 
recruitments  of  Administrative  Secretaries  by  end  2019;  (ii)  agreed  with  the  Commission  the  modalities  of  the 
independent  assessment  of  the  appointment  cycles  of  Administrative  Secretaries  and  Director-Generals  to  be 
completed by June 2019 with follow-up measures adopted by September 2019; (iii) committed to a specific road map 
on  the  streamlining  job  qualifications  ('klados'),  (iv)  committed  to  update  the  census  ('apografi')  database  to  also 
report on - flows of permanent staff of legal entities of private law and insert a category of temporary staff of legal 
entities of private law being paid by NSRF/other sources; (v) committed to launch the first calls for Heads of Division 
appointments  by  end-March  2019.  As  a  complementary  measure,  the  authorities  need  to  complete  the  following 
actions: related to legal codification, they should take the approval decision for the 'digital portal' tender and should 
submit the legal provisions for the 'Central Committee on Codification' to the Parliament. In addition,  related to the 
important HR reform of the public revenue administration, the authorities should adopt an amendment that allows the 
implementation of the first-stage linking of grading to job descriptions for IAPR.  

14 

15 

16 

16 

 
 
1. 

INTRODUCTION 

Economic  developments  and  policies  in  Greece  are  monitored  under  the  regular  economic 
surveillance framework for  euro-area Member States under the European Semester for economic 
policy co-ordination and under the enhanced surveillance framework according to Regulation (EU) 
No  472/2013.(1)  The  Commission  has  prolonged  enhanced  surveillance  for  Greece,  effective  for  six 
months  as  from  20  February  2019.(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  made  a  general  commitment  at  the  Eurogroup  of  22  June  2018  to  continue  and  complete 
reforms  adopted  under  the  ESM  programme  and  to  ensure  that  the  objectives  of  the  important 
reforms  adopted  under  the  financial  assistance  programmes  are  safeguarded.  In  addition,  Greece 
made  specific commitments  to 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.(3)  In  this  context,  16  specific  commitments  were  made  with  a 
deadline of end-2018, progress on which is assessed in this report.  

This  report  is  based  on  the  findings  of  a  mission  to  Athens  between  21  and  25  January  2019 
conducted by the Commission in liaison with the ECB(4); the IMF participated in the context of its Post-
Programme  Monitoring  (PPM)  framework,  while  the  ESM  participated  in  the  context  of  its  Early 
Warning  System  and  in  line  with  the  Memorandum  of  Understanding  of  27  April  2018  on  working 
relations between the European Commission and ESM.  

Enhanced  surveillance  provides  a  comprehensive 
for  monitoring  economic 
developments and the pursuit of policies needed to ensure a sustainable economic recovery. To this 
end, this report includes 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); and an 
update on sovereign financing conditions and debt repayment capacity (chapter 9). 

framework 

The Eurogroup on 22 June 2018 agreed that the package of debt relief measures for Greece should 
include incentives to ensure a strong and continuous implementation of the reform measures agreed 
in the programme. To this end, the implementation of some of the agreed debt measures (the abolition of 
the step-up interest rate  margin related to the debt buy-back tranche of the European Financial Stability 
Facility  (EFSF)  programme  as  of  2018  and  the  restoration  of  the  transfer  of  equivalent  amounts  to  the 
income earned by euro-area national central banks on Greek government bonds held under the Agreement 
on Net Financial Assets (ANFA) and the Securities Market Programme (SMP) will be made available to 
Greece  subject  to  compliance  with  its  commitments  on  reform  continuity  and  completion,  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. Given that half of last year’s and the full amount of this year’s instalments of the 

(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)  XX/2019  of  XX  February  2019  on  the  extension  of  enhanced  surveillance  for 

Greece, OJ L xxx, dd.mm.yyyy, p. xx. 

(3)  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 

(4)  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. 

17 

 
 
                                                           
 
Commission Staff Working Document -  

Chapter 1 - Introduction 

step-up  margin  are  currently  eligible  for  a  waiver,  the  policy-contingent  debt  measures  for  possible 
release at this stage amount to some EUR 970 million. 

18 

 
2.  MACROECONOMIC DEVELOPMENTS 

The economic recovery will continue into 2019.(5) The recovery continued in the third quarter of 2018 
with  real  GDP  growing  at  1%  quarter-on-quarter  (seasonally  and  working-day  adjusted),  which 
corresponds to a 2.2% year-on-year growth. This followed an already encouraging 0.5% and 0.4% q-o-q 
growth rate in the first and second quarter. Growth is expected to have reached 2% for 2018 as a whole. 
GDP  is  forecast  to  accelerate  further  in  2019  and  2020  to  reach  growth  rates  of  2.2%  and  2.3% 
respectively.  Domestic  drivers  of  growth,  i.e.  private  consumption  and  investment  are  expected  to 
strengthen,  while  contributions  from  the  external  sector  are  expected  to  moderate  on  the  back  of  the 
projected slowdown in the EU and increased domestic import demand. 

Private consumption is expected to remain a major contributor to growth in 2019. Private spending 
was an important driver of growth in the first two quarters of 2018 and, although its (quarterly) growth 
halted,  in  the  third  quarter  it  is  still  expected  to  have  had  a  major  contributory  effect  for  the  year  as  a 
whole. Despite some moderation in aggregate economic sentiment indicators, consumer confidence and 
retail  confidence  have  improved  up  until  January  2019  and  reached  some  of  their  best  readings  since 
2008-2009.(6)  Private  consumption  is  thus  expected  to  provide  much  of  the  growth  contribution  on  the 
demand side in 2019 and possibly in 2020 as well. 

The  export  sector  continues  to  perform  well,  and  its  outlook  remains  mostly  positive  despite  the 
slowdown  in  the  EU.  Both  the  tourism  industry  recorded  a  very  good  year  in  2018  with  over  10% 
increase  in  tourist  expenditures,  and  export  of  goods  increased  dynamically,  reaching  almost  9%  real 
growth on average in 2018 from January to November. Import growth was moderate in the first half of 
the year, but has increased markedly since, and thus will limit the growth contribution of foreign trade. In 
2019, export of goods is projected to continue to grow, albeit some slowdown is expected after what was 
an exceptionally good year for Greek exports. The slowdown in the EU is not expected to be disruptive to 
Greek  goods’  exports,  as  demand  for  primary  products  are  generally  less  closely  linked  to  income 
developments.  The  export  of  services,  however,  is  likely  to  see  very  modest  growth  at  best,  as  the 
renewed  competition  from  Turkey,  and  the  contracting  demand  from  some  key  markets  pose  severe 
challenges in 2019. 

Investment  performance  has  been  mixed.  The  residential  construction  sector  has  started  to  recover. 
According  to  anecdotal  evidence,  the  increased  activity  on  flat  sharing  platforms  and  the  Golden  Visa 
program are channelling purchasing power to the real estate market, thereby boosting investment demand. 
Non-residential  construction  is  markedly  below  its  2017  level,  due  to  the  base  effect  created  by  the 
delivery  of  the  highway  construction  in  2017-Q3.  As  for  equipment,  transport  and  weapon  equipment 
purchases show a decline compared to 2017, while other types of equipment show a steady increase. In 
any case, the broad-based recovery of business investment has not materialised as it was expected a year 
ago.  In  the  coming  years,  a  rebound  and  sustained  growth  of  investments  will  be  key  for  a  healthy 
economic recovery. An encouraging first sign of investment potential is that new corporate lending has 
mildly  accelerated  in  the  very  last  months  of  2018,  even  though  it  remained  mostly  in  the  negative 
territory throughout the year indicating that the deleveraging process is still in place. 

Labour  market  conditions  continued  improving  in  the  second  half  of  2018.  Employment  grew  by 
1.5% in the first three quarters of 2018 according to national accounts statistics, which is the same growth 
rate as in 2017. Labour Force Survey data show a slightly better figure: 2% annual growth for the period 
January-November 2018. Consistently, unemployment rate  dropped to 18.5% in November from 20.8% 
at the end of 2017. However, youth and long-term unemployment remain very high (respectively, 39.1% 
of the labour market participants and 71.8% of total unemployed).  

(5)  The  Commission’s  most  recent  forecast  was  published  on  7  February  2019:  European  Economic  Forecast,  Winter  2019 
(Interim),  Institutional  Paper  096,  February  2019.  https://ec.europa.eu/info/publications/european-economic-forecast-winter-
2019_en 

(6)  This opposing dynamics of business and consumer confidence was observed during the last pre-election period in 2015 as well. 

19 

 
                                                           
Commission Staff Working Document -  

Chapter 2 - Macroeconomic developments 

Inflation reached 0.8% in 2018. The almost 4% annual increase in energy prices was one of the main 
contributors  to  headline  inflation  in  2018.  Although  the  headline  figure  marks  a  slight  disinflation 
compared to 2017, some of this is due to the inflationary effect of the indirect tax increases in 2017. Core 
inflation reached 0.5% in 2018, slightly below its 0.6% value in 2017. Due to a downward revision of the 
oil  price  forecasts,  the  inflation  forecast  for  Greece  is  also  revised.  As  energy  prices  are  expected  to 
moderate  significantly  in  2019,  headline  inflation  is  expected  to  remain  below  1%  in  2019  and  in  the 
outer years as core inflation strengthens and energy prices stabilise. 

Overall,  the  balance  of  risks  is  tilted  to  the  downside.  The  outlook  assumes  that  reform  momentum 
will  be  maintained,  providing  credibility  and  a  good  investment  climate.  Consumption  growth  may  be 
higher than expected in 2019, should the increase in the minimum wage translate into higher consumption 
spending.(7)  However,  downside  risks  dominate  the  forecast:  the  increase  in  the  minimum  wage  poses 
potential  downside  risks  both  on  investment  recovery  and  on  export  performance  due  to  the  possible 
losses in competitiveness. Risks to investment are exacerbated by the high level of non-performing loans 
which continues to weigh on the intermediation capacity of banks (a pre-requisite for the financing of the 
projected investment growth). FDI inflows could be further hampered by delays in privatisation, and on 
public  administration  and  business  environment  reforms.  Finally,  the  global  and  in  particular  the  EU 
slowdown, may further hamper Greece's recovery. 

Graph 2.1: 

Real GDP growth and growth contributions 

Source: European Commission  

Table 2.1: 

Main features of the macroeconomic scenario 

Source: European Commission 

(7)  As of 1 February 2019, the statutory minimum wage was increased by close to 11% and the sub-minimum wage for youth has 
been abolished. A detailed assessment of this policy action is provided in section 6.1 of this report. The macroeconomic effect 
of the minimum wage increase is highly debated, and baseline macroeconomic scenario will be reassessed to incorporate the 
effects  of  the  minimum  wage  increase  at the time  of the Commission 2019  spring  forecast,  when  first  information  about the 
impact  of  the  measure  may  become  available.  In  the  short  run,  one  may  expect  an  increase  in  private  consumption,  as  the 
disposable income of those employees that benefit from the minimum wage hike increases. However, firms, especially micro 
and small firms, will have to either raise prices and/or cut back on investments and adapt their hiring plans, which may reduce 
the aggregate effect of the minimum wage increase. The cancellation or delay of some investments is expected to  deteriorate 
labour  productivity  in  the  long  run  and  could  slow  down  the  ongoing  recovery.  Also,  the  minimum  wage  hike  (by  11%  in 
general  and  effectively  27%  for  the youth) may  increase  the  share  of  the  informal  sector,  which is  generally  associated  with 
lower productivity and limited growth potential. Overall, the additional domestic demand that would follow the minimum wage 
increase  may  come  at  the  cost  of  more  subdued  employment  growth  and  deteriorating  productivity  hence  loss  of 
competitiveness, especially over the medium and long run.  

20 

-2-10123201520162017201820192020%, pps.PrivateconsumptionPublicconsumptionInvestmentNet exportsChange ininventoriesForecast201720182019202020212022Real GDP1.522.22.32.11.8Employment growth1.51.81.81.410.7Unemployment rate21.519.31816.615.414.4GDP deflator0.60.511.41.61.8Harmonised index of consumer prices1.10.80.71.31.51.7Annual percentage change 
 
 
 
 
 
                                                           
3. 

FISCAL AND FISCAL-STRUCTURAL POLICIES 

3.1. 

FISCAL POLICY 

Public finances in 2018 

Greece is likely to have over-achieved the primary surplus target of 3.5% of GDP in 2018, for the 
fourth year in a row. Based on data available to date, the authorities expect the primary surplus in 2018 
to  have  reached  3.8%  of  GDP,  after  taking  into  account  wage  refunds  that  were  paid  to  uniformed 
personnel and other public officials following a court ruling and the payment of a means-tested transfer 
(’social dividend’), both implemented at the end of 2018. The outcome could be even higher based on the 
incoming  data  confirming  large-scale  underspending  vis-à-vis  the  initial  2018  budget.  As  in  previous 
years, the main driver of the over-performance is likely to be the public investment budget; other factors 
include  lower-than-budgeted  ordinary  expenditure  of  the  State  budget  and  on  lump-sum  pensions,  all 
recurrent issues. First outturn data for the 2018 general government headline balance in accrual terms will 
be released on 23 April this year. 

Faced with an expected over-performance, the government decided to grant a one-off means-tested 
cash transfer targeting low-income households (the so-called "social dividend") at the end of 2018, 
the size of which turned out to be larger than expected. The cost of the benefit is expected to reach 
EUR  782  million  in  total,  which  represents  a  considerable  overrun  compared  to  the  initially  foreseen 
envelop  of  EUR  710  million.  The  overrun  is  related  to  a  sudden  increase  in  the  number  of  persons 
reported  as  self-standing  households,  which  may  imply  risks  for  other  social  benefits  and  the  taxable 
income, where the household status is a relevant criterion. The authorities are expected to investigate this 
issue further. 

Graph 3.1: 

EU funds claimed in the current and previous programming period (left) and primary balances and fiscal space 
(right) 

Left: the horizontal axis shows years of each programming period. Data for the 4th year of the 2014-2020 period (2018) are 
preliminary. The 5th and the following years of the same period are based on the authorities’ most recent projections. Years 
labelled as T+1 and T+2 refer to the fact that, according to EU rules, amounts can also be drawn also in a horizon of 2 to 3 
years after the end of the programming period. EU funds included in the analysis: ERDF, ESF & YEI, ESF, YEI, CF and EMFF. 
 Right: Primary balance in terms monitored under the enhanced surveillance framework. 
Source: European Commission deparatments and the Greek authrotrities’ projections 

21 

0.00.72.83.33.24.52.82.30.50.21.41.11.33.02.82.82.11.80123451234567T+1T+2EUR bn2007-20132014-20202014-2020 EL forecast-0.30.51.83.53.53.53.53.5-0.50.51.52.53.54.520152016201720182019202020212022Fiscal spaceFiscal targetPrimary balance%of GDP 
 
Commission Staff Working Document -  

Chapter 3 - Fiscal and fiscal-structural policies 

Although Greece has been among the top absorbers of EU funds until recently, an under-execution 
of the public investment budget was observed in 2018 which did not only concern domestic but also 
EU  co-financed  investment.  In  2018,  the  authorities  effectively  drew  EUR  870  million  under  the 
European Regional Development Fund and the Cohesion Fund, falling well short of the EUR 1.85 billion 
forecast  by  the  authorities  in  July.  As  shown  in  Graph 3.1,  so  far  the  use  of  EU  funds  in  the  current 
programming period (2014-2020) has been significantly lower than in the previous one (2007-2013). The 
delays result largely from a lack of high-quality projects in the pipeline and complex public procurement 
procedures.  While  the  risk  of  losing  EU  funds  is  contained  until  2020,  the  back-loaded  profile  induces 
significant risks for the remaining years. Accelerating the implementation of EU funded programmes is 
essential to avoid pressure at the closure of the programming period. 

Outlook for 2019 and beyond 

The 2019 budget adopted in December 2018 is expected to ensure the achievement of the primary 
surplus  target  of  3.5%  of  GDP  (end-2018  specific  commitment).  The  assessment  of  the  budget  was 
provided in the first enhanced surveillance report published in November 2018. Updated projections will 
be  presented  in  the  Commission  2019  spring  forecast  and  the  Commission  assessment  of  the  2019 
Stability  Programme.  This  report  presents  an  overview  of  recent  and  expected  upcoming  developments 
with an impact on the budget, which will need to be addressed in the upcoming Stability Programme. 

A number of measures with an impact on the 2019 public finances has been adopted or announced 
after the 2019 budget was voted. The impact of these measures will need to be quantified in the Stability 
Programme. Measures with a balance-deteriorating impact include: 

 

the extension of the VAT discount on five Aegean islands hosting refugee centres for the fourth  time 
in  December  2018.  While  the  impact  of  the  extension  on  the  primary  balance  is  expected  to  be 
limited,  the  abolition  of  the  discount  was  an  important  reform  commitment  under  the  ESM 
programme.  The  new  framework  links  the  elimination  of  the  discount  to  the  easing  of  migration 
pressures, an assessment of which is to be carried out on a biannual basis; 

  plans to introduce new settlement schemes for social contributions and tax debt. These measures have 
not yet been adopted but, if confirmed, they could have a sizeable negative impact on the collection of 
public revenues and the primary balance; 

 

the public wage bill shows some worrying trends that need to be addressed. The main challenges are 
related to the increase in the number of temporary personnel and the pressures that may arise to extend 
the  application  of  newly  adopted  wage  calculation  rules  for  Ministry  of  Finance  staff  to  the  wide 
public administration.  

The  increase  in  the  minimum  wage  as  from  1  February  could  have  a  balance-improving  impact  in  the 
short  run,  as  higher  revenues,  mainly  from  social  security  contributions,  are  expected  to  outweigh 
increased spending on unemployment benefits and other benefits affected by the change.  

A large unspecified spending appropriation created in the 2019 budget raises concern, as it could be 
used for spending not foreseen in the Commission fiscal projection. The appropriation was created as 
a buffer for the case that the above-mentioned wage refunds, which were foreseen to be paid in December 
2018, should slip to 2019. While statistically this transaction still accrues to 2018, i.e. the year when the 
liability  to  carry  out  the  refund  was  recognised  by  the  government  and  the  amount  determined,  an 
appropriation  needed  to  be  created  in  the  budget  to  cater  for  the  possible  cash  expenditure.  Part  of  the 
refunds was indeed paid only in early 2019 but to a smaller extent than expected, leaving thus about EUR 
650 million (0.3% of GDP) of the appropriation available for other spending that was not foreseen in the 
fiscal projections of the first enhanced surveillance report. As the forecast is based on the assumption that 
spending  appropriations  will  be  used  fully,  removing  the  unused  appropriation  would  be  warranted  to 
avoid a negative impact on the Commission assessment.  

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Finally yet importantly, the Stability Programme provides an opportunity to clarify the consistency 
of the medium-term elements of the 2019 budget package with the tax reform adopted in June 2017 
and set to enter into force in 2020. In the 2019 budget, the authorities presented a number of measures 
to  enter  into  force  in  2020:  a  progressive  cut  in  the  corporate  income  tax  (CIT)  rate  in  total  by  4 
percentage points over  four  years starting  from 2020, a  reduction  in the dividend tax rate from 15% to 
10%  in  2020,  and  the  agreement  to  limit  the  size  of  the  public  investment  budget  to  EUR  1  billion 
throughout 2020. Some of these measures will interact with the balance-neutral tax reform adopted during 
the second review of the ESM programme in June 2017 to enter into force as from 1 January 2020. The 
pre-legislated  package  encompassed,  on  the  consolidation  side,  a  reduction  in  the  personal  income  tax 
credit  threshold  to  broaden  the  tax  base,  and,  on  the  expansionary  side,  reductions  in  the  personal  and 
corporate income tax rates and the property tax rate. Box 3.1 provides a short overview of the main issues 
in  the  Greek  tax  system.  It  is  critical  that  the  tax  system  be  made  more  growth  friendly  through  a 
broadening of the tax base and lowering of tax rates on labour and in particular on corporates. 

Table 3.1: 

Main drivers of the fiscal projection 

(1) Fiscal projections consistent with the 1st enhanced surveillance report (November 2018) reflecting the impact of measures 
included in the 2019 budget that have been legislated so far, to be confirmed in the MTFS. The outcome of 2018 will be 
adjusted based on the outturn data released in April 2019. 
(2) Primary balance in terms monitored under enhanced surveillance. 
(3) The decrease in 2018 reflects a negative carry-over from revenues collected in 2017 that were considered temporary. 
(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  

23 

Actual201720182019202020212022Total revenues, bn EUR87.188.889.490.692.494.1Total revenues, % of GDP48.348.046.745.744.944.1Level Total revenues, bn EUR87.11.80.61.21.81.7Macro1.31.61.82.12.3Revenue measures0.0-0.4-0.2-0.1-0.1Non-tax revenues & claims on EU funds1.6-0.4-0.30.1-0.3Other adjustments (3)-1.2-0.2-0.2-0.3-0.2Total  primary expenditures, bn EUR79.682.082.783.785.186.0Total  primary expenditures, % of GDP44.244.343.242.241.440.3Level Total primary expenditures, bn EUR79.62.40.71.01.40.9Compensation of employees21.50.70.80.50.30.3Social transfers38.4-0.40.10.50.40.6Investments (4)5.02.10.10.10.00.0Intermediate consumption9.0-0.30.5-0.10.70.0Other expenditure (5)5.60.3-0.80.10.00.1Primary balance, bn EUR (2)7.56.86.76.97.28.0Primary balance, % of GDP4.13.73.53.53.53.8Memo items, % of GDPHeadline balance0.70.70.20.10.20.3Structural balance4.54.01.91.00.80.5Pension reforms (net savings)1.21.61.82.02.32.2of which: recalibration and freeze0.00.10.20.40.50.5y-o-y change (bn EUR)y-o-y change (bn EUR)Projections 
 
 
 
 
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Fiscal risks 

Greece’s  public  finances  are  facing  important  fiscal  risks.  The  risks  are  mostly  related  to  past  and 
pending court rulings related to reforms enacted under the financial assistance programmes but some also 
have  a  more  political dimension. The most significant ones are the recent court rulings against the past 
pension reforms and the potential restoration of seasonal wage bonuses to civil servants. Other risks relate 
to  pressures  on  the  public  wage  bill.  The  risks,  once  materialised,  may  entail  a  retrospective  and/or  a 
recurrent impact on public finances of significant size. The Greek authorities should continue to monitor 
fiscal  risks,  including  court  rulings,  and  are  invited  to  take  offsetting  measures  as  needed  to  meet  the 
medium-term  fiscal  targets  in  the  context  of  the  Medium-Term  Fiscal  Strategy  (MTFS)  and  its  annual 
updates.  In  the  event  of  court  rulings  overturning  key  structural  elements  of  reforms  agreed  under  the 
programme,  the  recurrent  fiscal  implications  of  such  rulings  should  be  largely  addressed  by 
reforms/actions within the same policy field. 

Regarding the 2012 pension reform, on 10 June 2015, the Council of State (CoS), Greece’s highest 
administrative court, ruled  that pension cuts implemented in 2012 and 2013 as part of a broader 
pension  reform  were  unconstitutional  and  will  need  to  be  partly  refunded.  More  specifically,  the 
court challenged: (a) the reduction of supplementary  pensions by 10 - 20% which came into effect on 1 
January 2012, (b) the reduction of  main pensions  higher  than EUR 1,000 by 5  - 20%  which came  into 
effect on 1 January 2013 and (c) the abolition of seasonal  bonuses of pensioners  from 1 January 2013. 
The  court  decided  that  the  unconstitutionality  of  the  reductions  comes  in  effect  from  the  date  of  the 
ruling’s publication in June 2015 and only claims that  were  submitted before that date  are entitled to a 
refund. The period of the refund starts from the date the reduction came into effect and goes up to the end 
of  2014,  as  the  following  period  is  covered  by  the  2016  pension  reform  that  was  applied  retroactively. 
Therefore, the fiscal impact of the decision depends on the number claimants who filed a petition before 
June 2015. It should be noted that long delays occur between the time of an appeal and the time when the 
administrative  department  of  the  main  pension  fund  is  notified.  However,  the  Ministry  of  Labour 
estimates  that  by  today  all  appeals  submitted  until  June  2015  should  be  known.  According  to  the 
authorities, the number of claimants eligible for a refund is only 121, which implies negligible fiscal cost; 
however,  the  question  is  not  yet  finally  settled  as  some  lower  courts  have  ruled  against  the  restricted 
eligibility  for  the  compensatory  payments  Moreover,  residual  uncertainty  concerns  the  retroactive 
application of the 2016 pension reform (recalibration of pensions, new replacement rates, etc.), which has 
also been challenged at the CoS and the ruling is expected to be published in 2019. Since the reform has 
followed the guidance of the CoS ruling from 2015, it is not clear at this stage whether the challenge will 
succeed and, if so, which aspects of the reform could be affected. 

The potential restoration of seasonal wage bonuses to public servants, still to be decided by the CoS, 
creates  additional  uncertainty.  The  seasonal  bonuses  totalling  some  EUR  1,000  annually  were 
eliminated  as  of  2013.  Since  then,  several  courts  ruled  in  favour  of  claims  that  the  abolition  of  the 
bonuses was unlawful. In December 2018, the Supreme Court of Cassation ruled that the elimination of 
seasonal bonuses was unconstitutional indeed but given the high importance of the case, it will be settled 
by the plenary session of the CoS. The decision is likely to be made in 2019 and given the chain of court 
decisions up to now, the risk of a ruling in favour of unconstitutionality is material. The eventual fiscal 
cost  could  entail  both  a  retroactive  and  a  recurrent  amount  in  case  the  court  rules  in  favour  of  the 
reinstitution of the bonuses. The overall fiscal cost is estimated at 1.3% of GDP, of which 1.1% relates to 
the retroactive liability, assuming that all public servants will be eligible for a refund and the limitation on 
wage claims is five years; the recurrent costs would amount to 0.2% of GDP annually.  

The public wage bill could be additionally affected by the recent decision to exempt certain officials, 
mostly  at  the  Ministry  of  Finance,  from  the  unified  wage  grid  introduced  under  the  ESM 
programme. To recall, employees hired before November 2011, when the first uniform wage grid came 
into effect, are entitled to receive a ‘personal difference’ that limited the size of the wage cuts implied by 
the uniform wage grid to 25%. An October 2018 legislation, however, extended the personal difference to 
employees hired or transferred to the Ministry of Finance and its supervised entities from November 2011 
to  October  2018.  Although  the  estimated  direct  cost  of  the  legislation  is  small,  pressure  could  arise  to 
extend  the  application  of  the  personal  difference  to  the  wider  public  administration.  Unlike  for  the 

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previous  two  cases,  no  final  court  case  is  pending.  The  trigger  could  be  either  an  individual  legal 
challenge on equal treatment grounds, or a unilateral decision of various general government entities to 
extend it on an ad hoc basis. The process may be difficult to contain once the process, which has already 
started,  reaches  a  critical  mass.  At  this  stage,  no  personal  difference  has  been  restored  retrospectively, 
hence the fiscal risk relates only to recurrent cost that could reach up to 0.1% of GDP once/if the personal 
difference is spread across entire public administration. 

3.2. 

FISCAL STRUCTURAL POLICIES 

3.2.1.  Taxation  

Greece has continued to make progress in the reform of ENFIA property tax valuation. The reform 
aims at fully aligning property tax zonal values with market prices by 2020, thus widening the tax base 
and improving the efficiency and fairness of the tax. The legal framework for the new system of property 
valuation by professional real estate valuers has been established by an amendment in law 4587/2018. A 
Property Tax Valuation Unit has now been established and two key IT projects have been initiated to map 
electronically zonal boundaries and to systemise the collection of real estate data. An independent quality 
assessment exercise of the results of the last year's nationwide valuation exercise is currently underway 
with technical support. Preliminary results suggest that a new nationwide valuation exercise is not needed 
in  2019  and  that  the  realignment  of  property  tax  values  can  be  continued  on  the  basis  of  last  year's 
exercise.  Moreover,  only  a  limited  number  of  public  objections  to  last  year's  revaluation  have  been 
received to last year's partial revaluation of zonal values. 

Progress has also been made on other tax policy issues. Three joint ministerial decisions have finally 
established a user-friendly framework for business tax incentives for the employment of youth and long-
term  unemployed,  investments  in  energy-  and  water-saving  technologies,  and  for  the  support  of  audio-
visual productions. With the help of technical support, reviews are currently underway of the system of 
Stamp Duty and of the potential individual liability of corporate managers for tax offences. 

3.2.2.  Revenue administration  

The specific commitment related to staffing levels was not met, however this reporting period has 
seen significant progress on a number of key reforms (e.g. HR reform, blueprint and IT envelope) 
that will still need to be firmed up by early March 2019. Overall the Independent Authority for Public 
Revenues (IAPR) is continuing to make steady progress in terms of improving tax collection, including 
reducing the  long overdue debts. A  more detailed overview of IAPR's achievements  since its  launch in 
2017 and progress in achieving set targets on a number of key performance indicators (KPIs) is included 
in the end of this section (see Box 3.2).  

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The  specific  commitment  to  have  reached  a  staffing  level  of  12,000  permanent  employees  at  the 
IAPR by the end of 2018 has not been met. The overall staff level actually decreased during 2018 (from 
11,682 to 11,492). The main reason given by the authorities was the delay of new hirings, in particular as 
concerns  the  recruitment  carried  out  by  the  Supreme  Council  for  Civil  Personnel  Selection  (ASEP)  of 

26 

Box 3.1: Taxation – Structure and Main IssuesThe overall tax-to-GDP ratio in Greece increased substantially in recent years and is already higher than in peer countries. The tax system imposes a high tax burden on corporates and on low-income earners and households with children, which undermines Greece’s international competitiveness and discourages labour supply. These issues, coupled with the high additional cost carried by Greek citizens to purchase complementary services to basic public services, help explain the recent surge of the notion of over-taxation in Greece. Graph 1: Tax burden on corporates and households with children exceeds the peer countries  Left: commercial proﬁt is computed as sales minus cost of goods sold, gross salaries, other expenses, provisions and depreciation (see WB Doing Business Report for details). Labour taxes and social contributions paid by the employer are excluded. Right: tax wedge at different levels of income of the first earner (as % of the average wage), for a two-earner couple with two children, spouse earning 67% of the average wage. Source: WB Doing Business 2019 and DG TAXUD Taxation Trends Report 2017 (for the top CIT statutory rate) (left panel) and OECD/EC, Tax and benefits indicators, 2017 (right panel). The high tax burden on corporations, including high administrative burden, discourages investment. Apart from the high statutory corporate income tax (CIT), all businesses active for more than five years are also due to pay a fixed annual levy of EUR 650 irrespective of their profitability, and relatively high and complex stamp duties. According to the 2019 Pricewaterhouse Coopers Paying Taxes Report, Greek companies spend more than twice as many hours complying with taxes than companies in other EU countries. The tax system further shows a high debt bias, which disadvantages young and innovative companies. Moreover, despite the high statutory rate (6th highest in the EU), Greece collects only an average amount of revenues from the CIT.  The average tax burden on labour in Greece is also high. In 2016, Greece had an implicit tax rate on employed labour of 41%, compared with the EU average of 36%. The tax burden is materially higher than in peer countries for couples with only one wage earner and households with dependent children. Owing to the high tax-free allowance, the structure of taxation is skewed towards social contributions, which impacts heavily on low earners. Despite the high tax burden, Greece collects a below-average amount of revenues from taxing employees’ income. Increases in the tax and social security burden has also affected self-employment, which is twice as common in Greece than in the EU. Declared income from self-employment fell by 27% between 2015-17, whilst the number of self-employed fell by 14% over the same period. Despite numerous efforts to improve compliance, VAT fraud remains substantial. The VAT gap is the second largest in the EU based on 2016 data and, unlike for the rest of the EU, does not show a decreasing trend over time. The main driver of the high VAT gap appears to be fraud as the contribution of tax policy parameters, captured by the ‘VAT policy gap’, is only somewhat above the EU average. The VAT policy gap is mostly driven by the structure of VAT rates and the geographical discounts for the Aegean islands. The number of islands benefiting from the discount was reduced in 2017 to five islands hosting refugee centres. 05101520253020102011201220132014201520162017Corporate tax as % of commercial profitsELEACYBGROPTEL top2025303540455033506780100125167Tax wedge as % of labour costsELEABGROPT 
 
 
 
 
 
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new tax/customs officials (546 posts). However, it should be noted that a contributing factor of ASEP's 
limited  processing  capacity  causing  this  delay  was  the  priority  assigned  by  the  government  to  another 
ongoing recruitment process(8) that was determined to be of specific public interest to which ASEP had to 
consequently allocate a significant proportion of its resources. According to latest updates by ASEP the 
final  selection  table  for  the  tax/customs  officials  (546  posts)  should  be  published  by  April  2019.  This 
would  mean  that  the  first  new  hirings  should  be  able  to  take  up  their  positions  by  mid-2019.  Another 
reason  provided  why  the  staffing  target  was  not  met  was  the  lower  than  expected  number  of  realised 
transfers from the mobility scheme. In addition, more exits took place than expected, mainly due to the 
increased number of retirements. The authorities will need take specific actions in order to ensure that the 
specific  commitment  to  reach  a  staffing  level  of  12,500  permanent  employees  by  end-2019,  while  also 
reflecting if the number of retirements is expected to remain at the elevated level of 2018, considering the 
rather high average age of current IAPR staff. Worryingly, IAPR's own estimates currently indicate that 
12,114 permanent staff will be in place by end of 2019. 

By contrast, the authorities have agreed to take complementary measures with a view to enhancing 
the  overall  operational  capacity  and  efficiency  of  the  IAPR  across  a  number  of  dimensions, 
although for some of these intensive discussions are ongoing with the expectation that the measures 
will be adopted by early March 2019. In particular: 

  Steps  have  been  taken  to  further  enhance  the  IAPR's  overall  capacity  and  efficiency,  with  the  most 
noteworthy  measure  concerning  the  human  resources  (HR)  reform  of  the  IAPR.  This  entails  the 
introduction of grading, remuneration and performance assessment tailored to the IAPR and is seen as 
essential in order to enhance  IAPR's prospects to attract highly-qualified staff and to allow for their 
development  and  progression.  More  specifically,  a  legislative  amendment  to  IAPR's  enabling 
legislation is currently under intense discussions with the authorities with the expectation that it will 
be adopted by the Parliament by early March 2019. This law amendment, if adopted, will allow IAPR 
to  proceed  and  adopt  the  required  secondary  legislation,  thereby  introducing  a  new  grading  scheme 
that  is  linked  to  job  descriptions.  This  is  the  first  step  needed  for  the  introduction  of  a  specific 
remuneration scheme linked to job descriptions. As concerns the second and final step to introduce a 
supplementary  remuneration  scheme  for  IAPR,  this  will  require  primary  legislation  setting  out  the 
provisions for the supplementary wage grid. The authorities are in the process of finalising a detailed 
timeplan  for  completing  the  HR  reform  that  is  expected  to  be  in  place  by  end  of  2019.  It  is  worth 
pointing out that (i) the HR reform  is closely aligned  with the overall principles of the  HR reforms 
promoted  by  the  Ministry  of  Administrative  Reconstruction  (MAR)  and  covering  the  overall  public 
administration; and (ii) the additional budget foreseen for the supplementary remuneration part of the 
HR reform is already part of the budget adopted for 2019. Further, the Governor has issued a decision 
end-2018, setting out another part of the HR reform, namely the appraisal system that will be applied 
for all IAPR staff as of 2019. This decision is yet to be published in the Government Gazette.  

  The IAPR has adopted its reform action plan ("Blueprint") for the period 2019-2021 following 
securing the additional funding needed. The "Blueprint" sets out specific measures and investments 
that will be required to continue the transformation of the IAPR into a modern, flexible and effective 
organisation. The "Blueprint" foresees specific actions on a number of areas, such as the automation 
of  obligations  currently  requiring  physical  presence  and  enforcing  compliance.  Most  actions  and 
projects  will  be  covered  through  secured  funding  sources  (mainly  from  EU  funds);  however,  the 
Ministry of Finance agreed to cover the financing gap of about EUR 80 million, out of which EUR 5 
million  is  expected  to  annually  recurrent  cost,  thereby  demonstrating  its  strong  support  to  continue 
strengthening the capacity of IAPR.  

  The  General  Secretariat  of  Information  Systems  (GSIS)  and  the  IAPR  have  reached  an 
agreement  on  an  annual  envelope  for  the  IAPR’s  IT  infrastructure/tools.  This  means  that  a 
specific  amount  for  2019  (approximately  EUR  5  million)  has  been  pre-allocated  for  IT  support  and 
services to be provided exclusively to IAPR mainly relating to maintenance and renewal of licenses. 

(8)  Concerning 8166 permanent posts (note: self-financed through municipal levy, mainly for waste management collection) in the 

local and regional administration (3K/2018) for which over 120 000 applications were submitted. 

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Other measures expected to be taken by early March, include (i) legal provisions to further facilitate 
the  transfer  of  staff  to  IAPR  from  the  mobility  scheme;  (ii)  legal  provisions  to  strengthen  liability 
protection for tax/customs officials, which are expected to facilitate the introduction of new/indirect audit 
methods; and (iii) joint ministerial decision adopted by the Ministry of Finance, Ministry of Infrastructure 
&  Transport,  Ministry  of  Economy  &  Development  and  Ministry  of  Environment  &  Energy  that  will 
allow IAPR to launch the tender for the procurement of fuel markers. 

The single centre for the collection of social security debt (KEAO) continues to meet its set targets 
for  the  collection  of  social  security  debt.  For  2018,  the  target  was  an  overall  collection  of  EUR  1.2 
billion  and  the  actual  collection  exceeded  this  target  by  close  to  15%.(9)  Notwithstanding  the  steady 
progress achieved in terms of social  security debt collection, the total amount of debt due to  the single 
pension  fund  EFKA  continues  to  increase  (11%  increase  in  2018(10)).  As  concerns  the  joint  actions 
between IAPR-KEAO, a positive step expected during the next reporting period, secondary legislation is 
expected to be adopted that will allow KEAO to consider directly applying IAPR’s classification of the 
persons/entities considered to have 'uncollectable' debt.  

The government has informed the European institutions that they do not intend to proceed in the 
near future with revisions to instalment schemes for tax debt and social security debt, as they need 
to undertake further technical analysis and reflection. It is important to avoid creating fiscal risks or 
undermining the payment culture, and to respect the core objectives of the reforms carried out as part of 
the ESM programme. 

(9)  Total collection of debt in 2018 was EUR 1.374 billion (source: KEAO). 
(10)  January 2018: EUR 31.42 billion. December 2018: EUR 34.79 billion. 

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(Continued on the next page) 

29 

Box 3.2: Tax administrationThe Independent Agency for Public Revenue (IAPR) became operational on 1 January 2017 as an autonomous revenue agency. This significant change followed numerous reforms undertaken during the preceding years to the tax system and public revenue administration, which had little impact in terms of providing a coherent and efficient institutional structure. The key aim of IAPR’s establishment was therefore to substantially contribute in remediating Greece's long-standing weakness in the areas of tax collection and compliance. The reasons behind this weakness were manifold, such as low administrative capacity demonstrated through not being able to efficiently integrate modern and efficient collection and audit tools, but also by a lack of tailored human resources management systems as well as political interference that resulted in frequent changes in senior management positions and subsequent low level of trust among citizens. IAPR has already demonstrated its added value, for example through increasing tax collection, which in 2018 reached EUR 5.6 billion (i.e. 8.5% higher than in 2017). This achievement should also be considered in the overall context, where a large share of the population has seen their average household income going down while the overall tax pressure has increased. Contributing factors for IAPR's success to date have been (i) high rates of electronic filing and payment; (ii) a strong legal framework allowing for withholding at source; and (iii) comprehensive sources of third party information. IAPR has been provided significant technical support from the Commission services and IMF from its inception and until today. The technical support has gradually shifted from a focus on strengthening IAPR's institutional capacity to introducing modern collection and audit tools in the tax and customs administration. For example, introducing audit techniques based on market segmentation, strengthening risk analysis and audit cases prioritisation, but also by alleviating IAPR from new public prosecutors' orders. In the area of customs, a coordination centre involving inter-ministerial cooperation for the fight against smuggling of excisable goods has been established while and supply chain legislation for tobacco smuggling has been adopted. Significant progress has also been made in the use of electronic payments, which exceeded EUR 31 billion in 2018 compared to EUR 25 billion in 2017 (i.e. 24% increase). Key Performance Indicators (KPIs) Table 1 sets out the 11 KPIs of IAPR and compares the targets against actual results for 2017 and 2018. The KPIs cover a number of areas, including debt collection, audits and compliance. As the table shows, IAPR has managed to exceed targets set for KPIs relating to debt collection, but is struggling a bit when it comes to increasingly focus on so called "fresh" cases for the audit carried out. It is encouraging that while four (out of 11) KPIs were achieved in 2017, in 2018 this number had increased to nine (out of 11). Most targets for 2019 seem to build on results realised to date, although it is noteworthy that the target set for KPI 3 (Collection of debts by Large Debtor Unit) is significantly less than the actual result for 2018. Looking to 2019 and beyond Although, significant work has been done a number of key areas of IAPR's core functions need further improvement, such as (i) developing a reliable and up-to-date tax registry; (ii) establish a structured approach for the identification and mitigation of compliance risks; and (iii) further strengthen the level of assurance from internal audit. It is therefore essential that key actions to both strengthen the overall institutional capacity and introduce modern collection and compliance tools are followed up on. [The recently adopted 'blueprint' for 2018-2021 sets out a detailed road map on prioritised actions, such as (i) improving services to citizens and businesses (e.g. automation of obligations requiring physical presence at the IAPR offices); (ii) enforcing compliance (e.g. redesign of the operation and audit processes); (iii) effective and efficient use of resources (e.g. Human Resource Management System and IT infrastructure); and iv) improvement of enforced collection through consolidation.   
 
 
 
 
 
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Chapter 3 - Fiscal and fiscal-structural policies 

Box (continued) 

3.2.3.  Public Financial Management 

The  Greek  authorities  have  committed  to  avoid  the  accumulation  of  new  arrears  (continuous 
action) and to complete the implementation of reforms identified by the Hellenic Court of Auditors 
(HCA) by mid-2019. The net stock of arrears has decreased since the end of the programme. However, 
the  pace  of  reduction  has  slowed  significantly  as  new  arrears  continue  to  be  created  .  Besides,  the 
implementation of some reforms identified by the HCA is so far lagging behind.   

Programme  financing  and  own  resources  have  been  utilised  to  clear  arrears.  The  end-December 
2018 stock of net arrears stood at EUR 1.4 billion, thus EUR 0.3 billion lower than the end-August 2018 
stock  of  arrears,  which  was  set  as  benchmark  for  the  assessment.  While  September  and  October  saw 
mixed  progress,  clearance  re-accelerated  in  November  and  December.  Of  the  total  EUR  7  billion 
disbursed  for  arrears  clearance  during  the  programme,  only  EUR  0.2  billion  remain  unused  by  end-
December 2018. In the same period, the authorities have used more than four times the disbursed amount 
to clear arrears from own resources, i.e. in total some EUR 35 billion including about EUR 28 billion of 
Greek own resources). Much of this amount needed to be devoted to new arrears, which have continued 
to be created. Despite the substantial improvement relative to the initial stock, the remaining arrears as of 
end-December  2018  need  to  be  cleared,  and  looking  ahead,  the  stock  of  arrears  to  be  preserved  at  the 
minimum level possible. 

30 

More specifically, the model collection office should be operational before end of 2019 and should allow for it to then be rolled out to the wider tax administration with more modern collection and audit methods being applied and integrated into the day-to-day operations. This is then expected to be complemented by an end-to-end user system that is expected to be ready by beginning of 2021.  Table 1: KPIs of the IAPR (2017-2019)  Green indicates KPI achieved, red indicates KPI not achieved. Source: IAPR   2019TargetResultTarget ResultTargetKPI 1Collection of tax debts as of the end of the previous year (EUR millions)2 7002 6782 8002 8782 900KPI 2Collection of new debts in the current year (percent of new debt in the year)23.5%22.4%24.0%28.8%27.0%KPI 3Collection of debts by Large Debtor Unit (EUR millions)690698645852675Audits of fresh tax cases by the whole IAPRKPI 4Percent of fresh tax audit cases in total completed audits60.0%48.8%70.0%46.3%70.0%Tax audits and collection of large tax payersKPI 5Collection after audits in the year (percent of assessed tax and penalties)41.0%15.1%40.0%40.9%40.0%Tax audits and collection of high wealth individualsKPI 6Collection after audits in the year (percent of assessed tax and penalties)23.5%12.0%20.0%52.2%40.0%Tax refundsKPI 7Percent of VAT tax refund claims processed within 90 days70.0%88.5%95.0%96.3%95.0%Compliance and enforcementKPI 8Percentage of total tax paid on time for VAT, Income and Property taxes83.0%80.7%84.0%80.8%84.0%Percentage of total tax paid on time for VAT, Income and Property taxesKPI 9Percentage of debtors under enforcement measures57.0%60.2%59.0%64.1%66.0%Pre litigation phaseKPI 10Percentage of cases closed by explicit decision of the DRU95.0%91.9%91.0%93.0%85.0%Prosecution audits by Mobile UnitsKPI 11Prosecution audits by Mobile Units  (Customs Administration)15 40019 32017 50020 24820 000Debt collection20172018 
 
 
 
 
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Chapter 3 - Fiscal and fiscal-structural policies 

The  authorities  are  currently  implementing  structural  measures  to  address  the  bottlenecks  of 
arrears  management  and  clearance  with  a  view  to  fully  clearing  arrears,  within  the  limits  of 
technical  and  legal  feasibility.  The  measures  are  based  on  the  recommendations  of  systemic  nature 
issued by the Hellenic Court of Auditors (HCA) following its audit on arrears in May 2018. Progress on 
the  implementation  of  the  action  plans  of  the  IAPR  and  the  General  Accounting  Office  (GAO)  show 
mixed results. Both the IAPR and GAO action plans are experiencing some delays On the IAPR side out 
of the  total 35 actions at least 8 have been delayed and six are foreseen to be  completed after the  mid-
2019 cut-off date  for the completion of this commitment.  For the GAO action plan, some entities have 
reported that measures with end-December 2018 deadline have not yet been implemented. The entities in 
question have identified the reasons for the delays and proposed corrective actions. Some of the actions 
have already been finalised by end-January, the remaining ones are expected to be finalised in the coming 
months  according  to  revised  deadlines.  The  overall  implementation  of  the  reforms  in  both  action  plans 
will be assessed in mid-2019 based on a follow-up audit by the HCA. 

The authorities are also taking parallel actions to ensure that remaining arrears are being cleared. 
These  include  legislative  amendments  resolving  issues  and  clarifying  processes  related  to  arrears  in 
hospitals  and  social  security  funds,  a  more  efficient  reallocation  of  financing  among  the  entities  and  a 
clearance plan for the remaining arrears in the first quarter of 2019.  

Efforts need  to continue both to strengthen the  system  for arrears clearance and to tackle the causes of 
arrears creation. The current slow progress of arrears clearance and the continuing creation of new arrears 
suggest that further measures could usefully be considered by the authorities. Discussions are ongoing to 
pinpoint further measures in addition to the ones already in the pipeline, inter alia through streamlining 
payment processes. 

31 

 
 
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(Continued on the next page) 

32 

Box 3.3: Arrears clearance measuresTackling structural problems related to general government arrears to third parties has been in focus since the inception of the first financial assistance programme in 2010. A plethora of actions have been taken as part of both the European and IMF programmes for Greece. The majority of these actions were implemented with technical support provided by the IMF and the Commission Structural Reform Support Service. Previous audits and extensive technical support have identified the sectors and entities with the largest arrears creation (namely the central State and its entities – extra-budgetary funds –, local governments, social security funds, pensions and tax refunds). According to the technical support experts, many of the operational issues have been resolved and procedures are now established for channelling the arrears. Notwithstanding, new arrears continue to be created, suggesting remaining structural bottlenecks in the system. Graph 1: Evolution of the stock of arrears 2009-2018  Data for unprocessed tax refunds and pension applications available only as of December 2014 Source: GAO The main actions to improve the functioning and monitoring of payment systems and arrears clearance implemented since 2010 are listed below. They contributed to a large extend in drawing down the total amount of government arrears and tax refunds in fiscal accounts (i.e. excluding unprocessed tax refunds and pension applications) from EUR 8.5 billion in January 2010 to EUR 3 billion in August 2018. The net stock of arrears according to the ESM programme definition(1) amounted to EUR 3.1 billion in August 2018. This has subsequently adjusted to EUR 1.7 billion according to the definition under enhanced surveillance.(2) At the beginning of the process, drawing a reliable picture of amount and sources of arrears guided the adjustment requirements. The monthly reporting of arrears was a structural fiscal measure in the first Memorandum of Understanding (MoU) in 2010.(3) Initiatives were taken in February 2011 to strengthen                                                            (1) The net stock of arrears under the ESM programme definition includes unprocessed tax refunds and pension applications, but excludes amounts that are subject to clawback and rebate.  (2) The net stock of arrears under the Enhanced Surveillance definition further excludes tax refund claims that are below 90 days, supplementary pension claims and arrears that are not immediately clearable due to technical or legal reasons. (3) European Commission, The Economic Adjustment Programme for Greece First Review – summer 2010, Occasional Papers 68, p.61. 024681012EUR bnStateLGsEBFsSSFs (excl. hospitals)HospitalsTax refundsUnprocessed pensionsUnprocessed tax refundsNet arrears ESM programme definitionNet arrears ESur definition 
 
 
 
 
 
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Chapter 3 - Fiscal and fiscal-structural policies 

Box (continued) 

33 

spending controls led to the establishment of commitment registries in line ministries and in the main general government entities, providing consistent commitment and arrears data. Training and technical support to various general government entities were also provided for all social security funds and major local authorities which are major sources of arrears production.(4) Again in 2011, in order to verify the reliability of the commitment registries at all levels of government, a parallel commitment recording system (called the e-portal) was established for all government levels. In late 2011, during the EFSF financial assistance programme, structural benchmarks were set to increase the coverage of commitment registries and ensure consistency between the arrears recorded in the commitment registries and those recorded in the e-portal. The e-portal was enlarged later (in 2013) to successfully capture all stages of the expenditure cycle. It resulted from this action a substantial progress in addressing the remaining access and coverage issues. Simultaneously, data reporting through the e-portal was made compulsory in line ministries and general government entities, enforced by sanctions and disciplinary actions.  From 2012, plans were launched to clear arrears. In November 2012, in the context of the second programme, a special plan for arrears clearance was published under which  the clearance of government entities arrears through the State budget was contingent on i) progress in setting up the commitment registry and ii) no additional accumulation of arrears by each public entity. The implementation of the plan went on until the end of 2013 and it produced a significant reduction in arrears (the total amount of government arrears and tax refunds in the fiscal accounts went down from EUR 9.4 billion to EUR 4.7 billion between November 2012 and the end of 2013).  However, from end-2014, the stock of arrears started to increase again, exacerbated by liquidity constraints, which led, at mid-2016, to the adoption of a new plan for arrears clearance with support from official ESM funding. In the new arrears clearance programme, the ESM disbursed EUR 7 billion for arrears clearance between December 2015 and June 2018, which contributed to a substantial reduction in the stock of arrears. However, full arrears clearance – an ESM programme commitment – was not achieved by the end of the programme, even though it has been reinforced by broader measures to improve public financial management aimed at addressing the structural sources of arrears. The net stock of arrears stood at EUR 1.4 billion in end-December 2018.  Further reforms to complement the control over spending took place in the second and third programmes. Budgetary ceilings per sub-sectors were introduced in 2013 together with sectoral automatic mechanisms to correct possible deviations (5). In 2014, the reforms implemented to enable Greece to meet the deadlines imposed by the EU Late Payment Directive (Directive 2011/7/EU) were directly linked to the clearance of arrears. Technical support on public financial management reforms indeed focussed on government banking arrangements, cash management operations and streamlining existing payment processes. Furthermore, under the ESM stability support programme that ran from August 2015, a major reform was initiated with technical support from the Commission and the IMF, aimed at strengthening the functions and responsibilities of the General Directorate of Financial Services, of central ministries and general government entities by making them fully responsible for all financial service functions. The reform was fully implemented at the end of 2016.  The specific commitment of the non-accumulation of new general government arrears in the post-programme is supportive to the overall goal of the gradual elimination of the remaining stock of arrears. Reforms to address the remaining structural bottlenecks of arrears management and clearance are still ongoing, and will be closely monitored under the enhanced surveillance.                                                             (4) MEFP and MoU of the third review of the first programme: European Commission, The Economic Adjustment Programme for Greece Third Review – Winter 2011, Occasional Papers 77, p.84 (MEFP) and p. 95 (MoU). (5) European Commission, The Second Economic Adjustment Programme for Greece Fourth Review – April 2014, Occasional Papers 192, Box 9 p. 36.  
 
 
 
 
4. 

SOCIAL WELFARE 

4.1. 

PENSIONS 

The authorities are making good progress in implementing the action plan for the completion of the 
setup  of  the  unified  main  pension  fund  EFKA,  which  is  a  mid-2020  commitment.  The  authorities 
have  continued  publishing  detailed  statistical  information  on  pensions  (monthly  Helios  reports)  and 
quarterly reports on pension claims. The authorities have also made available reports on the progress in 
the creation of electronic records for retirees and insured persons, which show that the vast majority of 
insurance records have already been recorded electronically. The remaining unprocessed data is estimated 
to be fully digitized within the coming months. 

The authorities have started discussions with the National Bank of Greece (NBG) concerning  the 
future  of  NBG  employees’  supplementary  pension  fund.  These  discussions  are  still  in  a  very  early 
phase, and therefore the repercussions on inter alia public pension spending cannot yet be assessed. 

4.2.  HEALTH CARE 

The  rollout  of  the  primary  health  care  system  is  progressing,  though  the  pace  is  still  slow.  The 
authorities have declared their full commitment to the implementation of this reform and to make efforts 
to overcome stakeholders’ resistance. Based on the latest reports, 112 primary health care units (TOMYs) 
were  opened  across  the  territory,  which  is  just  below  the  nominal  target  of  120  (end-2018  specific 
commitment)  and  additional  units  are  foreseen  in  the  coming  weeks;  there  are  also  different  levels  of 
staffing across sites. An additional call to recruit family doctors is envisaged to take place in March 2019. 
Meanwhile,  the  authorities  are  engaging  in  further  negotiations  with  private  family  doctors  to  be 
contracted  by  the  National  Health  Insurance  Agency,  EOPYY,  and  this  seems  to  represent  the  main 
obstacle to a swift implementation. The level of population registered with primary health care centres is 
below 2 million, which is less than one  fifth of the  total population: this nonetheless represents marked 
progress as the numbers have doubled since November 2018. Due to capacity constraint of doctors, who 
cannot be expected to effectively treat patients beyond a  given threshold, the current level of registered 
patients is thus close to the maximum capacity of the present stock of public-sector family doctors. The 
rest  of  the  population  are  currently  either  still  self-referring  to  specialists  or  visiting  private  family 
doctors,  in  the  last  case  having  to  pay  out-of  pocket.  Many  of  these  private  family  doctors  were 
previously contracted by EOPYY but refused to adhere to the new contractual arrangement,  which was 
considered  less  favourable.  The  authorities  argue  that  this  situation  has  not  translated  into  a  substantial 
increase of out-of-pocket payments for citizens, nor has it in any way constrained access. 

Centralised  procurement  in  the  area  of  health  care  has  resumed,  but  no  new  tenders  have  been 
launched  so  far.  The  authorities  in  line  with  the  end-2018  specific  commitment  have  set  up  the  main 
body  responsible  for  central  procurement  (EKAPY),  with  a  view  to  achieving  a  share  of  centralised 
procurement  in  total  hospital  expenditure  of  30%  in  mid-2020  and  40%  in  mid-2022.  While  the 
management board is still on temporary appointment, EKAPY is operational. More specifically:  

  based on available information, the authorities have achieved the first results in terms of savings by 
completing  old  tenders  from  2014,  i.e.  initiated  by  the  previous  organisation  responsible  for  central 
procurement, (EPY). However, that entity was abolished by the current government and, following a 
suspension of the procurement activities, replaced by EKAPY, intended to be an upgraded version of 
EPY. As it stands, it is not yet possible to assess whether EKAPY will improve on EPY, due to the 
rather  long  period  in  which  activities  were  interrupted  and  to  the  fact  that  EKAPY  has  not  yet 
launched genuinely new tenders.  

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Chapter 4 - Social welfare 

  The  authorities  are  currently  focusing  on  attracting  skilled  workforce,  improving  the  organisation’s 
administrative  and  operational  processes,  including  the  monitoring  and  coordination  of  other  bodies 
under  EKAPY’s  responsibility  and  on  issuing  new  centralised  tenders.  In  order  to  achieve  this,  the 
foundations  are  being  set  for  the  standardisation  of  processes  and  the  realisation  of  economies  of 
scale.  

  Regarding new tenders, the 2018 operational plan spells out the nature and budget of the new tenders 
that are to be launched during 2019 and how these relate to the 30% target, however the exact timeline 
was not set yet. There are still critical issues related to the capacity to design and launch new tenders 
with a view to reaching that target by mid-2020 given the current staff limitations, but the authorities 
made legislative amendments(11) to convert secondments into EKAPY’s permanent staff  and they are 
working  on  further  amendments  to  obtain  additional  personnel,  which  would  bring  EKAPY  to  be 
almost 40% staffed by the  first semester of 2019 to reach  70% by the second semester  of the same 
year.  Greece  is  currently  receiving  technical  support,  but  without  adequate  endowment  of  staff 
capacity, EKAPY may not be able to support planned operations.  

The authorities have revised some  measures adopted under the  ESM programme,  with uncertain 
impacts in terms of system efficiency. More specifically:  

 

the  repricing  procedure  for  pharmaceuticals  has  been  changed  into  one  single  yearly  repricing  (as 
opposed  to  bi-annual),  originally  envisaged  for  February  2019,  which  already  shifted  to  March. 
Moreover, the pricing  mechanism has been  modified to take as reference the two cheapest prices in 
the euro area (instead of in the whole EU), which is expected to increase prices. One positive aspect of 
the new methodology would be the harmonisation of the prices of generics which would all have the 
same price by category and be priced at no more than 32.5% of their originator. While the authorities 
argue  that  the  new  system  will  yield  savings  due  to  the  fact  that  it  will  limit  withdrawals  of  well-
established and cost-effective drugs that would otherwise be replaced by newer and more expensive 
alternatives, simulations suggest that the overall effect  of these changes so far was an increase in the 
pharmaceutical price level by 1% (as opposed to the decrease that would have been generated by the 
old system).  

  The implementation of the  full offsetting and collection of the clawback by June every  year for the 
previous calendar year is ongoing, but the authorities passed an amendment to extend the maximum 
allowed period for repayment schemes of excess  spending  in the area of outpatient pharmaceuticals 
for the past years. The amendment raises concerns on the capacity to collect the past clawback, thus 
worsening the liquidity of EOPYY. Meanwhile, the  discontinuity in the presidency of  EOPYY may 
translate into delays affecting the June 2019 deadline, though this cannot be assessed yet.  

4.3. 

SAFETY NETS 

The comprehensive reform of the Greek welfare system is being continued with the introduction of 
a  new  housing  benefit.  The  scheme,  which  was  originally  destined  to  low-income  households  either 
renting or servicing a mortgage on their main residence, will consist in a means-tested subsidy for renters 
only. The amount of the monthly benefit is between EUR 70 and EUR 210, depending on the household 
size. This corresponds to 30-50% of average rental costs in Greece. The relevant secondary legislation has 
been finalised later than expected and it is now scheduled to be adopted by the end of February 2019 (but 
the benefit will be granted retroactively as of 1 January 2019). Part of the original budget allocation (EUR 
100 million out of 400 million) will be destined to a separate scheme dedicated to mortgage-holders (see 
also Section 5.2). Although its design has not yet been specified, from preliminary discussions it seems 
that the scheme for mortgage-holders would target only non-performing mortgages. If this were to be the 
case,  this  would  penalise  low-income  households  who  still  manage  to  service  their  mortgage,  possibly 
creating disincentives  for regular loan servicing. Besides the exclusion of  mortgage-holders, the cost of 

(11)  Ministerial Decision (4.10.2018) Γ 1180/17.10.2018 and Ministerial Decision (18.12.2018) Γ 1572/31.12.2018. 

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the housing benefit for renters has also been revised downward due to a revision of the expected take-up 
rate based on more precise estimates.  

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 processes to certify disability status for claiming benefits. These new procedures have been 
piloted in three provinces and are now to be gradually introduced in the rest of the country. In parallel, a 
new  approach  for  determining  the  degree  of  disability  is  being  developed  with  technical  support.  This 
new approach integrates the current purely medical assessment of disability with a functional assessment. 
New disability determination standards and protocols should be defined on the basis of the results of the 
initial  pilot,  and  applied  consistently  to  all  disability  benefits.  However,  some  initial  bottlenecks  in  the 
new  procedure  slowed  down  the  data  collection  phase,  which  in  turn  delayed  the  pilot  evaluation 
(originally expected by end-2018). A first assessment based on preliminary data has become available in  
February 2019. 

The Social Solidarity Income (SSI) scheme is reaching its maturity, with progress being made in the 
implementation of its social inclusion and labour market (re-)integration elements, to be achieved 
by  end-2019  (specific  commitment).  The  SSI  scheme  guarantees  a  minimum  level  of  income  to 
households  confronted  with  extreme  poverty  and  has  become  a  well-established  element  of  the  Greek 
social  welfare  system.  The  scheme  reaches  about  300 000  households  (corresponding  to  more  than 
600 000 individuals), for annual expenditure of around EUR 750 million. Since its inception, the scheme 
has been designed around three pillars: (i) income support; (ii) social inclusion; and, (iii) labour market 
(re-)integration. With respect to the second pillar, a network of Community Centres has been established 
throughout the country with the support of the European Social Fund, expanding the provision of social 
services at local level in a coordinated way. The third pillar relies on the provision of active labour market 
services to help SSI recipients (re-)enter the labour market. For its successful implementation, the reform 
of  the  system  of  active  labour  market  policies  needs  to  be  completed,  with  the  shift  to  a  new  delivery 
model  to  allow  the  provision  of  individualised  services  to  jobseekers  based  on  their  needs,  as  well  as 
better  job  matching  services  to  employers.  This  new  system  is  currently  being  tested  in  a  pilot  project 
launched in June 2018 in one local office of the public employment service covering three municipalities 
(with a population of about 10 000 registered unemployed), and it should be gradually expanded to the 
entire country by the end of 2019. 

The  authorities  committed  to  review  the  system  of  subsidies  for  local  public  transport  (specific 
commitment  end-2019).  Different  categories  of  people  such  as  students,  the  over-65,  the  unemployed, 
the  disabled  and  members  of  large  families,  currently  benefit  from  subsidised  fares  for  local  public 
transport.  Thanks  to  the  recent  introduction  of  electronic  ticketing  on  the  public  transport  network  of 
Athens, data on actual transport usage by each category of beneficiaries has become available, allowing a 
more precise costing of these policies. 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. 

37 

 
5. 

FINANCIAL SECTOR 

5.1. 

FINANCIAL SECTOR DEVELOPMENTS 

5.1.1.  Financial sector overview and financial stability assessment 

Despite the progress made in the context of the financial assistance programmes and the improving 
liquidity situation of Greek banks, the financial system in Greece is still characterised by a number 
of challenges, in particular the very high levels of non-performing loans (NPLs). The sovereign-bank 
nexus  remains  strong,  including  through  high  levels  of  deferred  tax  credits  (DTCs)  on  bank  balance 
sheets.  Recently, also banks’ profitability has weakened. Capital controls have been gradually relaxed in 
line with the roadmap (end-2018 specific commitment), but some restrictions still remain in place.(12) 

The capital position of the banking system as a whole is broadly adequate but it remains challenged by 
low profitability and poor asset quality. During the  first  nine  months of 2018, operating profit declined 
and  the  proportion  taken  up  by  provisions  reached  95%.  The  decline  in  operating  profit  is  giving  the 
banks  less  room  for  manoeuvre  to  meet  their  NPL  targets  and  to  comply  with  the  forthcoming 
provisioning  calendar  without  incurring  net  losses.  As  of  the  third  quarter  of  2018,  the  Greek  banking 
system  had  a  Common  Equity  Tier  1  (CET1)  of  15.7%  in  comparison  with  an  EU  average  of  15.1%. 
However, the high level of deferred tax credits, which are not deducted from capital, are still a source of 
concern in terms of capital quality and their contribution to the strong sovereign-bank nexus in Greece. In 
addition, in line with the EU banking regulatory framework, Greek banks, like all EU banks, do not only 
have  to  meet  capital  requirements  but  will  also  have  to  issue  bail-inable  debt  in  the  following  years  in 
order to meet the minimum requirement for own funds and eligible liabilities (MREL).( 13)  

Banks’  private  sector  deposits  have  been  stable  and  reliance  on  central  bank  funding  has 
decreased.  All  four  systemic  banks  have  repaid  their  emergency  liquidity  assistance  entirely.  Private 
sector  deposits  have  increased  slightly  towards  the  end  of  2018,  as  compared  with  the  immediate 
aftermath  of  ESM  programme  (see  Graph  5.1).  The  improved  liquidity  situation  of  Greek  banks  and 
increased confidence of depositors gave room for a further loosening of capital controls as of 1 October 
2018,  which  allowed  for  unlimited  cash  withdrawals  from  credit  institutions  in  Greece  and  further 
mitigated the adverse impact from capital controls on Greek businesses. 

(12)  From  a  broader  perspective,  recent  financial  sector  developments  are  also  discussed  in  the  2019  Country  Report  for  Greece 

under the European Semester. 

(13)  MREL targets are going to be established on a bank-by-bank basis at a sufficiently prudent level to allow the two  following 
components:  (i)  a  default  loss-absorbing  amount  (LAA),  which  reflects  the  losses  that  the  bank  would  incur  in  a  potential 
resolution,  and  (ii)  a  recapitalisation  amount  (RCA),  which  would  reflect  the  capital  needed  to  meet  ongoing  prudential 
requirements  after  resolution.  The  latter  component  is  complemented  by  a  market  confidence  charge  (MCC),  necessary  to 
ensure market confidence post-resolution. 

39 

 
                                                           
Graph 5.1: 

Bank deposits (left panel) and total borrowing from the Eurosystem (right panel) 

Commission Staff Working Document -  

Chapter 5 - Financial sector 

Source: Bank of Greece 

NPL  resolution  remains  the  most  important  challenge  for  the  banking  sector  in  Greece.  NPL 
reduction is essential to ensure the stability of the Greek banking sector. The pace of NPL reduction so far 
is in line with supervisory targets,  but an acceleration in the reduction path, which is constrained by weak 
profitability, is needed to meet the NPL targets for 2019 and future years. Efforts should continue in the 
various  important  reforms  related  to  the  insolvency  framework  for  households  and  corporations,  the 
enforceability of collateral through electronic online auctions, the out-of-court debt workout mechanism, 
as  well  as  the  activation  of  a  secondary  market  for  non-performing  loans.  Moreover,  the  high  level  of 
non-performing  loans  makes  it  advisable  to  accelerate  the  speed  of  cleaning-up  the  balance  sheets  and 
requires  major  efforts  in  the  immediate  post-programme  period  also  in  view  of  application  of  the 
prudential backstop in the coming years.(14) A more ambitious pace of NPL reduction would allow Greek 
banks to fulfil their mission of providing credit to the real economy more promptly and may better enable 
the banks to attract equity investors.  

Further efforts to address the challenges related to NPLs 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. In this respect, 
providing a comprehensive workable scheme to assist NPL resolution would benefit both the banks and 
the sovereign.  

The  low  processing  rate  of  called  State  guarantees  related  to  bank  loans  is  in  urgent  need  of 
improvement,  and  the  authorities  need  to  take  effective  corrective  measures.  Over  the  last  seven 
years,  a  backlog  in  payment  by  the  General  Accounting  Office  (GAO)  of  claims  made  by  banks  under 
State-guaranteed  loans  has  accumulated,  which  totals  approximately  EUR  1.5  billion.  Most  of  the 
underlying  loans  were  granted  to  private  companies  and  individuals,  some  of  them  by  virtue  of 
Ministerial Decisions issued after the occurrence of natural disasters or similar circumstances. However, 
statistics show that in some segments the processing rate of called guarantees is very low, which puts a 
significant  burden  on  banks  due  to  the  non-payment  of  primary  obligors  and  the  guarantor.  The 
authorities have adopted legislative amendments to remove uncertainty which was worsened by an earlier 
legislative  amendment  in  mid-2018,  as  regards  the  enforceability  of  guarantees  and  have  submitted  an 
action plan which is currently under assessment. The legal provision is currently under assessment. These 
actions are essential in order to yield results, e.g. in the form of a significantly increased processing rate 
still in 2019. 

(14)  On  18  December  2018,  the  Council  Presidency  and  the  European  Parliament  reached  a  provisional  political  agreement  on  a 
prudential backstop to cover losses caused by future loans that turn non-performing. Based on the proposal initially put forward 
by the Commission in March 2018, the prudential backstop aims at creating appropriate incentives to address NPLs at an early 
stage  by  requiring  a  prudential  framework  for  banks  to  deal  with  new  NPLs  (i.e.  deductions  from  own  funds  will  apply  for 
banks not meeting the applicable minimum level of loss coverage).  

40 

05010015020025030020142015201620172018MFIsHouseholdsNFCCentral Governmentbn EUR01020304050050100150200200720082009201020112012201320142015201620172018Borrowing from the EurosystemEurosystem liquidity as % of liabilities (rhs.)bn EUR% 
 
                                                           
Commission Staff Working Document -  

Chapter 5 - Financial sector 

Table 5.1: 

Financial stability indicators 

(1) Annualized data. 
Source: ECB 

5.1.2.  Financing of the economy 

Bank lending remains subdued, with a gradual improvement for companies during the second half 
of  2018.  Since  2016,  the  annual  growth  rate  of  loans  extended  to  non-financial  corporations  had  been 
negative, but close to zero (Graph 5.2). During the second half of 2018, a gradual recovery in lending to 
non-financial corporations was observed. The growth rate  for loans to households has been very slowly 
recovering  since  July  2016,  but  as  of  the  end  of  2018  remained  in  clearly  negative  territory.  This  was 
mainly driven by subdued mortgage developments, although banks reported improved housing prospects 
and stronger demand for housing loans (Graph  5.2). Growth in consumer loans remained close  to zero, 
with  a  slight  shift  from  credit  card  and  overdraft  credit  to  longer-term  loans  for  consumer  durables. 
Factors that supported new credit to the private sector include the recent moderate recovery in economic 
activity and a slight reduction in lending rates, notably for companies. On the downside, the burden of a 
high NPL stock has been inhibiting new lending by banks. In 2018, credit standards for new loans have 
not been eased overall.  

Graph 5.2: 

Bank credit to non-financial corporations and households 

Source: Bank of Greece 

Lending  rates  to  non-financial  corporations  are  decreasing,  while  interest  rates  on  mortgage  and 
consumer  loans  are  increasing  (Graph  5.3).  Lending  spreads  remain  elevated.  The  gradual  decline  in 
lending rates to non-financial corporations 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  Development,  the  European  Bank  for  Reconstruction  and  Development  and  the 
European  Investment  Bank  Group).  By  contrast,  as  of  the  end  of  2018  lending  rates  to  households 
continued to follow the upward trend of the past 4 years, mainly reflecting credit risk developments, as 
the  NPL  ratio  for  consumer  loans  is  particularly  high  and  the  NPL  ratio  for  mortgage  loans  has  been 
deteriorating recently as compared to other loan categories. 

41 

2014Q42015Q42016Q22016Q32016Q42017Q12017Q22017Q32017Q42018Q12018Q22018Q3Non-performing loans39.746.847.247.446.346.646.946.745.045.444.943.5o/w NFC & HH sectors41.849.550.150.350.450.350.650.449.449.248.447.3o/w NFC sector44.752.553.253.953.953.453.352.651.451.149.447.9o/w HH sector38.545.946.546.246.346.847.547.947.147.047.346.6Coverage ratio43.548.548.148.248.248.147.447.246.749.549.047.8Return on equity(1)-10.6-24.2-15.8-9.9-7.51.3-0.4-0.3-1.30.7-2.4-0.8Return on assets(1)-1.0-2.8-1.9-1.2-0.90.1-0.10.0-0.20.1-0.3-0.1Total capital ratio14.116.518.018.217.016.817.217.217.116.416.416.3CET 1 ratio13.816.317.818.116.916.717.117.217.015.815.815.7Tier 1 ratio13.816.317.818.116.916.717.117.217.015.815.815.7Loan to deposit ratio79.172.374.575.575.977.278.281.883.578.878.476.0Jan.2014: -5.3%Dec. 2018: 0.3%Dec. 2018: -2.2%-7-6-5-4-3-2-10123%Νοn-financial corporationsHouseholdsDec.2018:-2.8%Dec.2018:-0.8%-7-6-5-4-3-2-10123%Housing loansConsumer loans 
 
 
 
 
Graph 5.3: 

Bank interest rates on new loans 

Commission Staff Working Document -  

Chapter 5 - Financial sector 

Source: Bank of Greece 

Small and medium-size enterprises in Greece continue to be adversely affected by the very limited 
access to finance. Small firm size and weak performance are important limiting factors in firms’ access 
to  credit.  Export-oriented  firms  and  relatively  younger  firms  seem  to  be  overall  less  likely  to  report 
constraints. Macroeconomic conditions and bank balance sheet strength remain important factors for the 
severity of constraints encountered by SMEs. The demand for external financing in Greece continued to 
be  the  strongest  in  the  euro  area.  Surveys  show  that  there  are  signs  of  a  slight  improvement  in  the 
willingness of banks to provide credit in Greece since the beginning of 2017, but overall SMEs continued 
to be disproportionately affected by the lack of access to bank financing.  

5.2. 

FINANCIAL SECTOR POLICIES 

The significant drop in the share prices of Greek banks since the end of the ESM programme by around 
40%  underlines  the  importance  to  make  swift  further  progress  on  the  repair  of  their  balance  sheets, 
supported by appropriate financial sector policies in an environment conducive to NPL reduction. At the 
same time, the reform momentum has abated and efforts to improve the effectiveness of major legislative 
frameworks  have  stalled.  It  is  important  that  legislative  actions  do  not  lead  to  a  deterioration  of  the 
payment culture. 

Non-performing loans and insolvency legislation 

At the June 2018 Eurogroup, the Greek authorities committed to “continue to implement reforms 
aimed  at  restoring  the  health  of  the  banking  system,  including  non-performing  loans  (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.” This assessment covers the various dimensions of the NPL resolution 
strategy. 

The  stock  of  NPLs  has  been  gradually  decreasing,  but  at  a  slow  pace  and  remains  elevated  and 
according to the latest available data amounted to EUR 84.7 billion or 46.7% of total exposures in 
September  2018.  This  is  almost  1 pp.  lower  than  the  previous  quarter  and  2  pps.  lower  than  one  year 
before. This compared with an EU average NPL ratio of 3.4% at the end of September 2018(15). The pace 
of reduction of NPLs continued to accelerate, driven by sales and also due to e-auctions, although both 
face some difficulties in practice.  

(15)  The EU average is based on ECB data, which slightly differs from Bank of Greece data. The broader denominator used in the 
ECB data (total debt instruments and not only total loans) has a lowering effect on the NPL ratio. Therefore, according to ECB 
data the NPL ratio in Greece in 2018Q3 is 43.5% vs. an EU average of 3.4%.  

42 

Dec.2018:3.7%Dec. 2018:5.4%012345678%Loans to non-financial corporationsLoans to households 
 
                                                           
Commission Staff Working Document -  

Chapter 5 - Financial sector 

By typology of loans, the NPL reduction in the third quarter was driven by consumer loans and, to 
a lesser extent, by business loans. In contrast to the general trend the NPL ratio in residential loans, far 
from being reduced, continues on an increasing trend since September 2016 having reached in September 
2018  a  NPL  ratio  of  44.7%  (the  highest  for  this  segment  since  the  beginning  of  the  crisis).  This  is 
explained by the subdued performance of the mortgage book. In that context, it is important to note that 
the  amount  of  NPLs  under  the  legal  protection  of  the  household  insolvency  law  remains  significant  at 
approximately  EUR  17  billion,  corresponding  to  a  backlog  of  pending  court  cases  of  around  135 000. 
Diverging trends in the NPL ratio of these loans from the general trend suggest that the protection, in its 
current form, creates adverse incentives that have severely damaged the payment culture by households 
during the crisis.  

The  Greek  authorities  are  exploring  additional  initiatives  to  support  NPL  reduction  efforts. 
Technical work is being undertaken by the authorities on a possible asset protection scheme based on the 
initiative and preparations of the HFSF. In addition, the Bank of Greece has proposed a different scheme, 
which  would include the transfer of denounced loans currently held by Greek banks along  with part of 
their  deferred  tax  credits  to  an  Asset  Management  Company,  where  the  loans  would  be  serviced  by 
external  specialist  firms.  Such  initiatives  could  be  helpful  elements  in  the  toolkit  for  NPL  resolution, 
provided  they  are  based  on  thorough  technical  preparation,  inter  alia  on  scope,  governance,  funding, 
compatibility with EU competition and State aid rules and impact on bank and sovereign balance sheets, 
based  on  a  comprehensive  analysis  of  relevant  indicators.  The  analysis  could  provide  a  basis  for  a 
comparative  assessment  of  the  cost-effectiveness  of  the  various  proposals,  thus  assisting  the  decision-
making  by  the  authorities.  In  January  2019,  the  Ministry  of  Finance  announced  that  it  established  a 
working group with the Bank of Greece and the HFSF, which may support the coordinated assessment of 
the  respective  schemes,  including  through  improved  cooperation  and  consultations  with  relevant 
European stakeholders (e.g. regarding State aid aspects). It will be important that the preparations of the 
respective schemes progress in an expedited manner, in order to allow for the swift implementation of the 
schemes,  which  may  benefit  from  elements  of  State  support  subject  to  State  aid  and  other  regulatory 
approval and taking into account relevant supervisory considerations.   

Household insolvency law and other debtor protection schemes 

The  Greek  authorities  shared  with  the  institutions  their  proposals  and  plans  for  the  adoption  of 
legislation  on  a  new  scheme  for  the  protection  of  primary  residences,  but  a  large  number  of 
important  open  issues  remain.  The  protection  of  primary  residences  under  the  household  insolvency 
framework  was  agreed  to  be  a  temporary  crisis  measure  due  to  expire  by  end-2018.  However,  the 
protection  was  unilaterally  extended  in  December  2018  by  two  months,  during  which  the  authorities 
presented a new protection scheme that would apply after the expiration of protection under the Katseli 
Law, would require banks to accept debt restructurings for a large group of eligible borrowers and would 
offer them a limited State subsidy component. 

More  specifically,  the  scheme  would  offer  a  restructuring  to  debtors  fulfilling  the  requisite  eligibility 
criteria (related to the value of the primary residence, the outstanding amount of the loan, annual income 
and wealth, personal and professional status). Applications under the new scheme would be submitted via 
an  online  platform.  The  eligibility  control  would  be  automatic,  conducted  through  the  platform.  The 
scheme would allow for the agreement between banks and eligible debtors on case-by-case restructuring 
solutions. A haircut would be applicable on the outstanding amount of eligible loans in excess of 120% of 
the value of the primary residence. Eligible debtors would stand to receive a State subsidy of the monthly 
instalment,  depending  on  individual  assessment  of  their  repayment  capacity,  provided  the  restructured 
principal  amount  payable  would  not  exceed  120%  of  the  market  value  of  the  primary  residence.  The 
subsidy level would be reassessed periodically and the debtor would receive the subsidy for the duration 
of the restructuring plan (fixed at 25 years, with an age limit of the debtor of 80 years). Provisional relief 
(stay  of  enforcement  and  liquidation  measures)  would  be  statutory  and/or  ordered  by  the  court  (in  the 
event of a judicial continuation of the proceedings  following  failure at reaching a consensual solution); 
rescheduling agreements would be subject to judicial confirmation. As for the proposed cut-off date for 
the implementation of the new framework, it would be 31 December 2018.  

43 

 
Commission Staff Working Document -  

Chapter 5 - Financial sector 

Based on a preliminary assessment of its principal features, the proposal raises serious concerns regarding 
its  impact  on  the  payment  culture  and  bank  balance  sheets;  its  overall  design  could  enable  strategic 
default: 

1. 

2. 

3. 

4. 

in terms of scope and perimeter, it would cover not only household loans but would also extend to 
business loans secured by a mortgage on the primary residence);  

it  would  create  an  additional  protection  scheme  that  would  apply  in  parallel  to  existing  loan 
rescheduling mechanism such as the household insolvency law; 

the replacement scheme would require banks to accept mandatory pre-defined debt restructurings for 
a large group of eligible borrowers irrespective of their individual financial circumstances and actual 
repayment capacity; 

the  proposal is not  sufficiently targeted to the  most  vulnerable debtors; the proposed thresholds  for 
income and wealth criteria need to be carefully calibrated and frequently updated and debtors should 
be  assessed  on  an  annual  basis  as  to  their  ongoing  eligibility.  Furthermore,  the  proposal  would 
interact directly with several other proceedings, namely the ones under the insolvency code, special 
administration, OCW, and NPL sales and securitisations laws; 

5. 

it  risks  creating  further  delays  for  debtors  with  pending  applications  under  the  existing  protection 
scheme  who  would  choose  to  apply  under  the  new  scheme,  as  all  pending  proceedings  would  be 
suspended until the new restructuring procedure is completed;  

6.  no impact assessment of the proposal has been provided, for example on the potential impact on the 

capital base of banks; 

7. 

the wide scope puts the authorities’ commitment to eliminate the backlog of all household insolvency 
applications by end 2021 at risk; 

8.  new stays on enforcement introduced by the proposal would be expected to affect future auctioning 

and foreclosure proceedings; 

9.  additional clarity on the fiscal aspects of the proposal is required. 

Discussions with the institutions are ongoing with a view to address the open issues. The authorities will 
also need to formally consult the ECB on their legal proposal, and any new scheme will require state-aid 
approval by the Commission. 

The expected expiry of primary residence protection under the household insolvency law at the end 
of  December  2018  and  the  speculation  on  possible  new  debtor  protection  schemes,  led  to  a  sharp 
increase  of  new  filings  of  applications  in  the  fourth  quarter  of  2018, which  is  bound  to  adversely 
affect the processing of pending cases by courts, thus creating a potential need for adjustments to 
the authorities’ current action plan. More specifically, new applications increased by 112% during the 
fourth  quarter  of  2018  based  on  preliminary  data  compared  with  the  previous  quarter  (i.e.  11 455  new 
cases in the fourth quarter of 2018 against 5412 in the third quarter). The extension of the protection to 28 
February 2019, which took place despite the institutions’ scepticism about its potential impact, is likely to 
trigger  additional  applications  during  the  first  quarter  2019.  An  increase  of  24%  in  completed/resolved 
cases to some 12,400 was reported in the fourth quarter of 2018 as compared to the third quarter 2018. 
Nevertheless, the surge in incoming cases led to the result that the backlog has not diminished materially 
in net terms in the fourth quarter. For the first three quarters of 2018, the Ministry of Justice had reported 
an  improvement  in  the  relevant  KPIs.  Specifically,  completed  cases  increased  by  30%  and  the  backlog 
was reduced by 15%, with 137 901 pending cases remaining at the end of Q4. This figure was tentatively 
revised by the authorities, to 100 319 on the strength of updated Q4 data collected in the context of the 

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Commission Staff Working Document -  

Chapter 5 - Financial sector 

recently completed first phase of the OSDDY-PP project(16). This reduction is due to the elimination of 
double-counting  of  pending  cases,  made  possible  by  the  increase  in  granularity  of  data  input.  The 
clearance rate  was reported at 207% for the first three quarters of 2018 against 160% for the first three 
quarters  of  2017,  mainly  because  of  the  discontinuation  of  the  lawyers’  strike  during  the  judicial  year 
2015-2016. It remains highly uncertain whether the large stock of pending cases could be processed with 
the  view  to  eliminate  the  backlog  by  the  end  of  2021,  and  a  concrete  action  plan,  which  links  the 
envisaged actions to a  well-defined reduction trajectory of court cases, is still pending. The Minister of 
Justice has not yet communicated its expectation as regards the pace of reduction of cases in the period 
ahead.  In  this  context  it  should  be  noted  that  a  concrete  action  plan  will  be  largely  contingent  on  the 
finalization  and  implementation  of  the  new  framework  for  the  protection  of  the  first  residence  of  bank 
debtors, given that its features and relation with currently pending cases will have a direct bearing on the 
volume of the backlog. 

Some progress has been recorded with respect to enhancing the case-processing capacity of courts 
through new staff appointments and training of judges on financial topics (the latter also being a 
specific end-2018 commitment). Regarding the appointment of clerical court staff, 138 candidates from 
an  ASEP  competition  reserve  list  were  appointed  recently(17).  The  authorities  are  proceeding  to 
appointments of  successful candidates of recently completed ASEP competitions(18) and are processing 
the  results  of  another  ASEP  competition  for  the  appointment  of  further  staff.  Although  these  measures 
will contribute to addressing operating shortcomings in terms of human resources, the assessment of their 
impact on reducing backlogs is challenging, both in terms of timing (as their effect can be expected to be 
observable in several months’ time), and in terms of efficiency (given that increasing the number of staff 
only  partly  addresses  the  processing  capacity  problem,  due  to  the  serious  infrastructure  deficiencies 
afflicting the court system; moreover, backlogs are also the result of litigants’ behaviour and tactics).  As 
for  the  number  of  serving  magistrates,  there  are  currently  no  vacant  posts  for  magistrates  and  no 
vacancies are expected until end-2020. Steps were also taken for the future provision of financial training 
to judges; more specifically: (a) the legal framework  for magistrate judges will be revised to provide for 
their  enrolment  in  the  National  School  of  Judges  (NSJ),  where  the  syllabus  will  include  courses  on 
financial and accounting matters and on the methodology of judicial work; (b) all judges will be obliged 
to attend at least two seminars yearly(19), with a special focus on financial and accounting matters; at least 
six such seminars per year would be held across the territory of Greece by courts in collaboration with the 
NSJ; a contract for the provision of seminars, by the NSJ in cooperation with the Economic Chamber of 
Greece,  on  macro-  and  microeconomics,  finance  and  banking  was  executed  in  February.  A  training 
meeting for new magistrates courts judges, organized by the Judges’ and Prosecutors’ Union, took place 
in November 2018 in Athens, focusing on household insolvency cases; the teaching material is available 
online at the Union’s website. 

The authorities have established and  made publicly accessible a codified version of the household 
insolvency law, as it stood in force up to end-2018, by uploading the codification onto the website of the 
Special Secretariat for the Management of Private Debt.(20) 

Corporate insolvency law 

The recent  major revision of the insolvency code  introduced under the ESM programme and the 
creation of the profession of insolvency administrator have not yet contributed to an increased use 
of the new framework by stakeholders.  Following the enactment of said revision, 35 new cases were 
filed with the relevant division of the first instance court of Athens (the largest in Greece, dealing with the 
majority of corporate insolvency cases) in the first semester of 2018. An explanation for the low uptake 

(16)  The  updated  data  were  collected  from  18  (out  of  19)  magistrate  courts  covered  by  the  first  phase  of  the  project,  which  are 
dealing with 63.6% of the total Katseli law backlog; the findings were then extrapolated to the remaining 136 magistrate courts. 
Further verification will be necessary based on future date input from a larger sample of magistrate courts in the context of the 
next phase of the project. 

(17)  OJ 1579 C/2018 and 68 C/2019) 
(18)  OJ 1579 C/2018, OJ 68 C/2019) 
(19)  Articles 25 and 26 of law 4587/2018 (OJ 218/A/24.12.2018) 
(20)  http://www.keyd.gov.gr/wp-content/uploads/2019/01/Κωδικοποιημένος_Ν.3869.2010.pdf 

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Chapter 5 - Financial sector 

may  be  the  availability  of  alternative  debt  resolution  mechanisms  such  as  the  out-of-court  workout 
mechanism of law 4469/2017 and the special administration procedure of law 4307/2014. Scope for an 
accelerated  uptake  remains  as  the  numerous  improvements  and  procedural  streamlining  unfold  their 
impact,  enabling  bona  fide  individual  debtors  to  obtain  discharge  three  years  after  the  declaration  of 
bankruptcy and further simplifying and accelerating insolvency proceedings regarding small and medium-
size  enterprises.  Progress  has  been  recorded  in  the  second  round  of  the  accreditation  process  for  the 
enrolment  of  insolvency  administrators,  which  was  completed  in  November  2018;  the  relevant  registry 
was accordingly updated in January 2019. 

Out-of-court workout 

The uptake of the out-of-court workout (OCW) mechanism is showing some progress, though more 
in bilateral and markedly less in multilateral restructurings, while infrastructure is being upgraded 
to  ensure  an  unhindered  and  increasingly  automated  operation.  The  latest  data  provided  by  the 
authorities confirm a continuous increase in the number of submitted applications to more than 6000 in 
December 2018; however, the number of successfully resolved cases remains small: approximately 91% 
of multilateral negotiations are reported as pending, 4% successfully resolved and the rest rejected. The 
situation is more favourable regarding bilateral negotiations, with 57% pending, 22% successful and 21% 
rejected. As for the technical aspect, the electronic platform was repeatedly updated and upgraded in the 
fourth quarter of 2018, in order to acquire the ability to better collect data and monitor statistics regarding 
public  and  private  creditors,  including  the  tax  authority,  social  security  institutions  and  financial 
institutions. 

Graph 5.4: 

Submitted out-of-cour workout applications 

Source: Special Secretariat for Private Debt Management Ministry of Justice 

A number of statutory amendments to the OCW law were introduced in December 2018(21), some 
of which raise concern. The main elements include (a) a temporal extension of the OCW law by a year 
until end-2019, (b) a decrease of the amount of debts considered small and thus exempted from the OCW 
mechanism,  (c)  an  increase  of  the  current  EUR  50 000  ceiling  to  EUR  300 000  for  debts  that  can  be 
settled through a simplified procedure, (d) the introduction of the possibility for creditors to exclude non-
business-related claims from the settlement, (e) the possibility of extending the stay of enforcement and 
liquidation  measures  against  petitioners  beyond  the  expiry  of  the  statutory  term,  provided  that  the 
extension of the proceedings is due to a request by the State as a creditor and (f) the suspension of penal 
pursuits pending OCW proceedings. Some of these amendments raise concerns. In particular, amendment 
(c)  above  is  unlikely  to  raise  the  chances  of  more  multilateral  restructurings,  given  that  banks  have  a 
stated  preference  for  assessing  petitions  on  their  individual  merits  and  refrain  from  participating  in 
standardized  proceedings.  Also,  amendment  (e)  will  accommodate  a  problematic  situation  rather  than 
remedying it. The rationale of the introduction of the amendment put forward by the authorities, namely 
that  public  sector  entities  (tax  authorities,  social  security  funds)  cannot  respond  in  time  to  their 

(21)  Article 45 of law 4587/2018 (OJ 218/A/24.12.2018) 

46 

01000200030004000500060007000BusinessesSelf-employedFarmers 
 
                                                           
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obligations  under  the  OCW  law,  should  lead  to  the  adoption  of  measures  to  ensure  timely  compliance 
with such duties rather than extending the length of the proceedings. Otherwise, this measure would risk 
reproducing  a  key  deficiency  of  the  household  insolvency  law,  by  providing  an  unwarranted  shelter  to 
strategic  defaulters.  Any  further  changes  to  the  OCW  should  be  preceded  by  a  consultation  with 
stakeholders in order to achieve consensus as a de facto stultification of the OCW mechanism would be 
detrimental  to  the  NPL  reduction  process,  all  the  more  so  given  the  lack  of  other  credible  private  debt 
restructuring mechanisms in Greece. 

E-auctions 

E-auctions were conducted as foreseen in the fourth quarter of 2018 and are on the rise according 
to  the  latest  set  of  data  submitted  in  January  2019  by  the  Ministry  of  Justice;  however,  certain 
impediments have been identified and should be appropriately addressed. In brief: 

Graph 5.5:  Cumulative number of e-auctions conducted since 29 November 2017 

(1) According to stakeholders’ reports, 70-80% of the auctioned properties are repossessed by banks. 
Source: Ministry of Justice, Transparency and Human Rights Ministry of Justice (Greece) 

  The number of auctions that took place in the fourth quarter actually exceeded the estimate stated in 
the previous first enhanced surveillance report (7183 actual auctions in the fourth quarter against an 
estimate of 5600 for the period covering the fourth quarter of 2018 and January 2019). Overall, a total 
of 17 223 properties have been sold through e-auctions conducted from the introduction of the system 
in November 2017 to end-2018. As for the recent trend, 2741 successful auctions were conducted in 
December  2018,  the  highest  monthly  average  during  2018,  while  a  further  4681  auctions  were 
scheduled to take place in January 2019.  

  Coverage of the territory is almost complete, with only the Corfu Notaries Association continuing to 

abstain.  

  As  for  the  number  of  properties  actually  transferred,  it  should  be  noted  that  unsuccessful  auctions 
accounted for about half of the auctions conducted in the fourth quarter of 2018. The reasons for the 
high  failure  rate  are  not  straightforward  to  assess,  though  they  arguably  include  lack  of  third-party 
interest, and too high offer prices. Moreover, more than seven out of ten successful auctions lead to 
the purchase of the asset by the bank that launched the auction. This situation is unsatisfactory from 
the point of view of NPL clearance and measures should be taken to increase third-party interest, e.g. 
by  making  the  e-auctions  platform  more  user-friendly  (e.g.  through  the  inclusion  of  pictures  of  the 
property  as  well  as  less  legal  jargon  in    descriptions  and  the  provision  of  information  on  the  actual 
state of the property.  

47 

 05 00010 00015 00020 00025 000Properties where scheduled auction was cancelled/suspendedProperties where auction took place but was unsuccessful (lack of bids)Successful auctions (1) 
 
 
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The Hellenic Bank Association has flagged two issues of a legal nature that are disturbing the unimpeded 
impediments to the flow of e-auctions that have become apparent in recent months, namely (a) the "last-
moment" filing of a Katseli law application shortly before the auction, which triggers an automatic stay of 
enforcement measures irrespective of the borrower’s eligibility and may resulting in postponements of e-
auctions for periods up to or even exceeding two years; and (b) the filing of application for a reassessment 
of the reserve price that frequently lead to upwards revisions based on non-expert testimonies, which lead 
to auctions without bid (due to too high prices) and thus significant delays in the auctioning process as the 
auction is suspended on average for another 12 months until the court issues the final say on the matter. It 
would  be  warranted  for  the  authorities  to  further  swiftly  investigate  these  impediments  and  implement 
mitigating  action,  including  through  legal  amendments,  with  a  view  to  effectively  ensure  the 
determination  of  reserve  prices  so  as  to  reduce  the  number  of  unsuccessful  auctions  and  to  deter 
opportunistic behaviour by debtors which could lead to a high number of cancellations of auctions. More 
generally, the authorities should deepen their analysis on the possible reasons for the high failure rate of 
e-auctions and take appropriate remedial action. They need to engage in such investigation becomes even 
stronger  given  that  voluntary  sales  of  real  estate  property  also  do  not  constitute  a  viable  alternative  to 
auctions for a number of reasons, mainly relating to tax certification requirements for the on-sale, costs 
incurred by the  holding bank  in order to rectify building permit irregularities before on-selling, and the 
tax treatment regarding the levy of sale- and possession taxes until the on-sale. 

Sales and securitisations of NPLs 

Improved  legal  clarity  regarding  the  basis  for  the  sale  and  securitisation  of  NPLs  could  facilitate 
wider  take-up  of  these  tools.  The  main  two  options  available  to  sell  or  securitise  NPLs  are  the 
securitisation  law  3156/2003  and  the  NPL  sales  law  4354/2015.  Part  of  the  legal  and  banking  market 
seems  uncertain  as  to  whether  certain  requirements  imposed  on  the  NPLs  seller  under  law  4354 
(including the obligation to offer an “appropriate restructuring” to the debtor as a condition precedent to 
the  sale,  and  the  obligation  to  notify  each  debtor  individually  of  the  sale  instead  of  registering  the  sale 
with a public record) are also applicable to NPL  securitisations done under law 3156. Legal (including 
litigation and compliance) risks arising out of this  uncertainty  may be detrimental to the validity of the 
sales and are reflected on the low sale prices; in addition, the above mentioned obligations seem to have 
very little value added in practice as the response by debtors to such offers so far has been minimal but on 
the  other  hand  seem  to  have  possible  contamination  risks  and  moral  hazard  implications.  Given  the 
importance of NPL sales and securitisations in the efforts of banks to accelerate NPL reduction, it would 
be  warranted  for  the  authorities  to  further  investigate  the  issue  and,  more  generally,  to  deepen  their 
analysis  on  the  possible  ways  to  remove  legal  uncertainty  or  ambiguities  related  to  NPL  sales  and 
securitisations. 

Evaluation of the implementation record of the reformed Code of Civil Procedure 

The  authorities  are  monitoring  the  results  of  the  reform  of  the  Greek  Code  of  Civil  Procedure 
adopted  under  the  ESM  programme.  An  evaluation  report  is  expected  by  end-March  2019  based on 
information and the feedback to questionnaires submitted by Justice stakeholders (judges, members of the 
legal professions etc.) on the implementation of the reformed  Code since the beginning of 2016 and on 
the quantification of its impact. In preparation, the authorities dispatched questionnaires to all courts and 
stakeholders in December 2018. A committee was formed in February 2019 to study the feedback and to 
formulate a proposal for potentially needed legislative amendments.  

5.3.  HELLENIC FINANCIAL STABILITY FUND  

In line with Greece's Eurogroup commitments, the status of the Hellenic Financial Stability Fund 
(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.  The  restructuring  plans 
implemented by the four systemic banks may necessitate certain changes in the operational framework of 
the  HFSF  and  the  systemic  banks,  including  through  amendments  in  both  the  HFSF  Law  and  the 

48 

 
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Relationship  Framework  Agreements(22)  (RFAs)  that  will  be  discussed  between  the  HFSF  and  the 
respective banks in the coming months.  

The HFSF General Council has approved a divestment strategy (specific commitment end-2018) in 
November 2018 and submitted it to the Ministry of Finance. The divestment strategy is based on three 
phases (stewardship, preparation and execution phase), which are not time-bound but rather conditions-
based,  and  should  ultimately  lead  to  the  execution  of  divestment  transactions  regarding  the  respective 
bank  shares  held  by  the  HFSF.  The  document  makes  clear  that  the  strategy,  design,  structure  and 
execution  of  sale  transactions  regarding  HFSF  stakes  in  Greek  banks  are  the  sole  responsibility  of  the 
HFSF as an independent institution, the potential involvement of the authorities in the final stage of the 
divestment is still subject to consideration.  

The  authorities  have  clarified  that,  in  their  view,  the  mandate  of  the  HFSF  Selection  Panel  as  a 
body was in alignment with the recently extended mandate of the HFSF (specific commitment end-
2018).  This clarification is subject to confirmation by the Legal Council of State. In addition, in line with 
the HFSF law, the Minister of Finance should complete the appointment of the Deputy CEO of the HFSF 
and the vacant General Council position on the basis of the shortlist produced by the Selection Panel. 

The HFSF has made a number of governance recommendations to the four systemic  banks in the 
context  of  its  second  bank  governance  review  in  September  2017,  with  the  aim  of  deepening  and 
embedding the new governance culture. In particular, these recommendations contained – among others – 
that the banks need to take additional actions in the areas of risk culture, compliance and internal control 
framework. The implementation of the recommendations is ongoing: as of December 2018, out of the 175 
recommendations,  106  (61%,  compared  to  35%  in  May  2018)  were  closed  and  62  (35%,  compared  to 
53% in May 2018) were in progress. 

(22)  The RFAs are mandatorily concluded bilateral agreements between the HFSF and each of the four systemic banks that received 
State aid, regulating – among others – the significant obligations and the monitoring of the implementation of the restructuring 
plans and the HFSF's consent rights.  

49 

 
 
 
                                                           
6. 

LABOUR AND PRODUCT MARKETS 

6.1. 

LABOUR MARKET 

Major  reforms of labour  market institutions and the wage bargaining framework in recent  years 
have  helped  Greece  regain  cost  competitiveness  and  contributed  to  increasing  employment  rates 
and falling levels of unemployment. These reforms have helped restore Greece's wage competitiveness 
compared to euro area partners and have fostered employment creation in recent years which has led to 
unemployment falling from 27.5% in 2013 to 18.5% by end 2018. The implementation of these reforms 
over  the  long  run  is  critical  to  Greece  achieving  sustainable  economic  growth.  The  functioning  of  the 
labour  market  is  being  supported  by  the  implementation  of  an  action  plan  on  undeclared  work  and 
ongoing efforts to strengthen active labour market policies. The most immediate policy challenges arise in 
the  area  of  wage  formation.  In  particular,  the  suspensions  applied  to  extensions  and  the  'favourability' 
principle in collective bargaining were lifted upon the expiry of the ESM programme in autumn 2018, and 
social  partners  have  started  to  negotiate  new  collective  agreements  under  this  framework.  In  addition, 
Greece committed to safeguard competitiveness through an annual update of the minimum wage in line 
with the provisions of Law 4172/2013. While this can be seen as a welcome normalisation of the wage 
setting process, actual outcomes will have to be carefully monitored. 

Graph 6.1: 

Evolution of competitiveness and employment indicators 

Source: Eurostat 

The government increased the statutory minimum wage by 10.9%, effective as of 1 February 2019. 
The  monthly  minimum  wage  for  white-collar  employees  increases  from  EUR  586.08  to  EUR  650  (14 
annual payments), while the daily rate for blue-collar workers increases from EUR 26.18 to EUR 29.04. 
This is the first increase in the minimum wage since 2012, when its level was lowered by 22% and kept 
frozen  until  the  end  of  the  ESM  stability  support  programme.  The  issuance  of  the  Ministerial  Decision 
setting the new levels of the minimum wage is the last step of a process that was initiated in September 
2018. The authorities broadly followed the procedure laid down in Article 103 of Law 4172/2013 which 
consists in the gathering of analysis by different institutions, a consultation with the social partners, and 
the  publication  of  a  report  with  recommendations  by  a  committee  of  independent  experts  specifically 
appointed for this purpose. It should be noted that the increase decided by the government is higher than 
what was recommended by the committee of experts (that is, an increase in the range of 5%-10%). As the 
calendar of the procedure was exceptionally advanced for this year in light of Greece’s exit from financial 
assistance programmes, these new levels are expected to remain in place until the end of June 2020, when 
the following annual revision of the minimum wage will be due. 

51 

8090100110120130140150160200020012002200320042005200620072008200920102011201220132014201520162017EL  labour productivityEA labour productivityEL nominal ULCEA nominal ULCIndex 2000=10005101520253001020304050607080200720082009201020112012201320142015201620172018EL employmentEA employmentEL unemploymentEA unemployment%% 
 
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The  new  level  of  the  minimum  wage  applies  to  all  workers  irrespective  of  age,  determining  an 
increase of about 27% for workers under 25 years of age who were previously subject to a lower 
minimum. With this revision, the lower minimum wage of EUR 510.95 per month that was applicable to 
workers younger than 25, which was in force since 2012, has effectively been abolished. Therefore, also 
young workers are subject to the new standard rate of EUR 650 per month. This sizable increase is only 
partly mitigated by the recently introduced subsidy reducing the employers’ social security contributions 
(by 6.7 percentage points) for workers under 25 years of age: the resulting increase in the labour costs for 
a  young  worker  previously  employed  at  the  sub-minimum  wage  is  above  20%.  In  this  respect,  the 
authorities  did  not  carry  out  an  in-depth  assessment  of  the  possible  impact  of  such  an  increase  on  the 
labour market situation of the under-25 prior to the decision. 

The existing seniority-based top-ups to the minimum wage were maintained; however, their accrual 
remains  suspended.  Workers  with  work  experience  accrued  before  2012  continue  to  be  entitled  to  a 
higher  minimum  wage:  the  basic  minimum  wage  is  topped  up  by  10%  for  every  3  years  of  work 
experience (5% for blue-collar  workers) up to a  maximum  of 30%. This  means that for workers  with a 
long tenure, the applicable minimum wage can go up to EUR 845 per month. The accumulation of these 
seniority top-ups was “frozen” in 2012: the seniority top-ups already accrued were safeguarded, while the 
accrual  of  new  entitlements  (from  2012  onwards)  was  suspended  as  long  as  the  unemployment  rate 
remains above 10%. An amendment to Law 4172/2013 adopted in 2014 had introduced the requirement 
for  the  new  statutory  minimum  wage  to  be  set  as  a  “unique  reference  value”.  In  principle,  this  should 
have implied the abolition of the seniority top-ups. However, the legal interpretation of this provision is 
not straightforward, and the Greek authorities have clarified with a ministerial circular that such mention 
of a “unique reference value” rules out the possibility of differentiating the minimum wage on the basis of 
age  (e.g.  regarding  younger  workers)  but  does  not  abolish  the  seniority  top-ups.  At  the  same  time,  the 
circular  confirmed  that  the  suspension  of  the  accrual  of  seniority  top-ups  as  long  as  unemployment  is 
above 10% continues to be in force. Such a wage scale structure with seniority top-ups (accumulated until 
2012) can negatively affect the employability of low-skilled older workers. 

While  the  legal  procedure  for  the  revision  of  the  minimum  wage  was  formally  respected,  some 
lessons can be learned for its application in the future. Since the procedure was being applied for the 
first time, there were no established practices to be followed. Feedback received from the authorities and 
the social partners point to a less-than-optimal consultation phase. Specific aspects which could be subject 
to  improvement  include:  i)  the  availability  of  information  and  data  for  all  the  institutions  requested  to 
provide their analysis of the economy and labour market, in view of an adjustment of the minimum wage; 
ii) a more structured discussion on substance, following the circulation of the different analytical inputs, 
with  a  view  to  reaching  a  shared  assessment  of  the  economic  situation;  iii)  a  more  structured  political 
consultation  with  the  national  social  partners,  with  a  view  to  building  consensus  on  the  possible  future 
increase;  iv)  clearer  guidelines  to  the  committee  of  experts  for  the  drafting  of  the  final  report,  which 
should  provide  a  synthesis  of  the  analysis  produced  in  the  first  phase  of  the  process;  and,  v)  some 
justification from the side of the government in case its final decision deviates from the recommendation 
issued by the committee of experts. On a positive note, the authorities made a real effort to improve the 
quality  and  availability  of  administrative  data,  which  allowed  measuring  for  the  first  time  the  actual 
incidence of the minimum wage across the economy.  

While it is not possible to make clear predictions on the effect that such an increase in the minimum 
wage will have on the economy and the labour market, a double-digit increase represents a sizable 
shock  to  a  still  slack  and  fragile  labour  market  and  raises  significant  concerns  about  the  longer-
term implications for growth and competiveness in Greece. Even prior to the increase, the level of the 
minimum wage in Greece, both in gross terms and as a proportion of the median wage was already at the 
levels  seen  in  many  euro  area  countries  (see  Graph  6.2):  the  very  large  increase  will  have  a  material 
impact  upon the relative competitiveness position of  Greece compared to euro area countries and other 
peer countries.  

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Graph 6.2:  Minimum wage levels in euro area countries and relative competitiveness position of Greece 

Source: Eurostat, AMECO 

In reflecting upon the economic consequences of the increase in the minimum wage, the following 
considerations could be borne in mind: 

  The magnitude of the increase, combined with the fact that a relatively large share of workers 
earn  the  minimum  wage  in  Greece,  increases  the  risk  of  negative  employment  effects.  While 
there  is  little  consensus  in  the  economic  literature  on  the  effects  of  minimum  wage  increases  on 
employment, a majority of empirical studies have found negative effects on specific groups, such as 
the  young  and  low-skilled  workers.  For  instance,  assuming  an  employment  elasticity  between  -0.1 
and -0.2 for the young (in line with conservative estimates from the academic literature), the increase 
in  labour  costs  by  20%  would  imply  a  reduction  in  youth  employment  between  2%  and  4%,  which 
would put a halt to the recent decline in youth unemployment (currently still at 38.5%, the highest in 
the EU). Moreover, the impact of a minimum wage increase is larger when it is more ‘binding’, that 
is,  when  its  level  is  high  relative  to  the  median/average  wage  and  when  a  large  proportion  of  the 
workforce is directly affected. This is indeed the case for Greece, where in 2018 the minimum wage 
was about 50% of the median wage and the share of minimum wage earners in the private sector was 
around  22%  in  total  (to  compare,  in  most  euro-area  Member  States  the  share  of  minimum  wage 
workers is  much smaller, below 10%).  Notably, in Greece  this share of  minimum  wage  workers is 
markedly higher in very small firms (with 10 employees or less), and it reaches 57% among workers 
under 25 years of age. The magnitude of the increase could be even more important considering that 
the effects of the minimum wage are likely to be non-linear. This is due to the binary nature of hiring 
and  firing  decisions,  as  well  as  to  the  skewedness  of  the  wage  distribution  (with  a  larger  share  of 
workers concentrated at the bottom of the wage distribution), implying that the negative employment 
effects would be stronger the larger the magnitude of the increase. In this respect, the increase that has 
been  decided  for  Greece  is  far  from  negligible,  both  in  relative  and  absolute  terms  (especially  for 
workers under 25 years of age).  

  Whilst  the  increase  in  the  minimum  wage  may  not  have  an  immediate  direct  consequence  on 
wages above the  minimum,  spill-over effects  may  materialise if the 10.9% increase  is taken as 
reference  in  collective  bargaining  negotiations.  The  sectoral  collective  agreements  currently  in 
force, and which have been extended to apply to the entire sector, all have salary grids starting above 
the  level of the new  minimum  wage, so these are  not directly affected by the increase.  At the same 
time, the increase in the minimum wage may propagate to the broader wage distribution if it is taken 
as benchmark for wage negotiations leading to new collective agreements. This point is also relevant 
for external competitiveness. Although the economic sectors most directly concerned by the minimum 
wage increase (i.e. the sectors with the highest incidence of minimum wage workers) are mainly in the 

53 

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non-tradable  sector.  The  latter,  however,  includes  also  sub-sectors  such  as  hotels  and  restaurants 
which are key for the export of tourism-related services. In addition, the effects on the tradable sector 
will be more significant if the high minimum wage increase spills over to the rest of the economy. In 
this respect, the still high unemployment and the relatively flexible labour market would suggest spill-
overs to be limited. Yet, the reinstatement of the favourability principle following the end of the ESM 
programme  combined  with  the  possibility  of  unilateral  recourse  to  arbitration  for  the  resolution  of 
collective bargaining disputes may increase the extent of such spill-overs, especially if the minimum 
wage  increase  is  taken  as  reference  in  arbitration  decisions.  It  is  therefore  important  that  the 
authorities monitor and analyse the impact of the revision in the minimum wage in the context of the 
broader wage formation process, assessing the direct impact of the minimum wage increase, as well as 
the broader evolution of collectively bargained wages (determined either through the sector collective 
agreements, or by arbitration decisions). In particular, the outcomes of arbitration decisions should be 
monitored  and  assessed  during  2019,  so  as  to  inform  future  decisions  to  revise  the  minimum  wage 
from 2020 onwards. 

  Regarding the possible macroeconomic general-equilibrium effects, the possible positive effects 
in  terms  of  increased  disposable  income  and  consumption  may  be  short-lived.  The  results  of 
model  simulations  by  the  Bank  of  Greece  show  that  the  increase  in  the  minimum  wage  can  have 
positive  short-term  effects  on  the  economy  through  increased  disposable  income  and  consumption. 
However,  the  same  analysis  suggests  that  these  are  not  sustainable  if  the  overall  increase  in  wages 
exceeds the growth of labour productivity, leading to negative effects on employment, investment and 
GDP over the medium-term.  The increase in the standard minimum wage of 10.9% should be seen 
against the background of the Commission's current projection for unit  labour cost growth of 1.4%, 
stagnating labour productivity and nominal GDP growth of 3.4% in 2019. Other euro area countries 
which  had  received  financial  assistance  during  the  crisis  have  adopted  a  more  prudent  and  gradual 
approach  towards  minimum  wage  setting  in  the  post-programme  period.  (23)  Whilst  the  Greek 
legislation does provide broad freedom in the revision of the level of minimum wage every year, such 
annual  decisions  could  be  usefully  guided  by  medium-term  considerations  on  competitiveness  and 
living standards,  which  would help steer expectations  with respect to the trajectory of the  minimum 
wage in the medium term. 

  The  increase  in  the  minimum  wage  is  likely  to  raise  the  incidence  of  undeclared  and  under-
declared  work,  which  is  still  considered  to  be  widespread  in  Greece.  In  particular,  there  is 
anecdotal  evidence  that  some  companies  reduce  labour  costs  by  declaring  their  employees  to  be 
working part-time rather than full-time, thereby avoiding to pay taxes and social security contributions 
on part of the salary. Since a higher minimum wage increases the contributory minima, it can increase 
the  proportion  of  the  wage  that  is  actually  declared.  At  the  same  time,  however,  it  provides  an 
incentive to further reduce the number of hours worked that are formally declared. 

In light of the above, it is important that the authorities keep up progress with the implementation 
of  the  action  plan  to  tackle  undeclared  work.  The  action  plan  was  adopted  in  2017,  and  its 
implementation  (to  be  concluded  by  end-2019)  has  been  running  smoothly.  The  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. Although it is difficult to measure the effects of the adopted measures (given 
the very nature of the phenomenon), data from inspections point to an accelerated decline in the number 
of uninsured  workers found in high-risk sectors  since  the  end of 2017 (see Graph  6.3),  which could be 
attributed to the progressive implementation of measures in the action plan. The authorities are currently 
shifting  the  focus  on  improving  the  capacity  of  the  labour  inspectorate  to  detect  the  phenomenon  of 

(23)  For  example,  Portugal  had  a  series  of  sustained  annual  increases  of  some  4.5%-5%  each  year  between  2015  and  2018:  the 
monthly minimum wage in Portugal reached EUR 580 in 2018 (14 payments), i.e. almost the same level that Greece has had 
since 2012, before the latest increase of 10.9%. The minimum wage in Portugal has been further increased in 2019 to EUR 600 
per  month  (+3.45%,  a  smaller  increase  compared  to  the  previous  ones),  and  so  the  new  level  in  Greece  will  be  EUR  650  a 
month,  or  9%,  higher  than  that  of  Portugal.  The  Labour  market  conditions  are  very  different  as  the  unemployment  rate  in 
Portugal is currently at 6.6%, which compares with more than 18% in Greece, and with youth unemployment still close to 40%. 

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under-declared work. Thanks to recent measures adopted (including legislative changes and technological 
innovations), labour inspectors should be able to better verify the correspondence between the presence of 
workers  at  the  workplace  and  the  hours  of  work  actually  declared.  It  remains  to  be  seen,  however, 
whether these measures will be effective.  

Graph 6.3: 

Share of uninsured workers found in high-risk sectors 

Source: Greek labour inspectorate 

By  improving  the  productivity  of  the  labour  force,  an  effective  system  of  active  labour  market 
policies  can  contribute  to  the  sustainability  of  wage  increases.  The  system  of  active  labour  market 
policies is being deeply  reformed to improve its efficiency and effectiveness. A new delivery model  is 
currently being piloted in one local office of the public employment service covering three municipalities 
and  will be extended to the rest of country  in  the course  of 2019. This  model should enable the public 
employment service to provide a more tailored offer of services to jobseekers. In particular, participation 
to  specific  active  labour  market  programmes  (such  as  counselling,  training,  work  experience,  public 
works) would be offered on the basis of a proper assessment of the jobseekers’ needs, according to their 
profiling.  In  parallel,  the  design  of  the  different  labour  market  programmes  is  also  being  reviewed,  in 
order to improve their relevance and effectiveness. 

Education 

The  OECD  published  a  comprehensive  review  of  the  Greek  educational  system  in  April  2018 
pointing  to  a  series  of  shortcomings.  These  include  an  inadequate  allocation  of  resources,  low 
autonomy, skill miss-matches, declining average student performance in the Programme for International 
Students  Assessment  (PISA),  and  weaknesses  in  the  governance  of  higher  education  institutions.  The 
report includes specific recommendations to improve on the efficiency of the system. Implementing the 
OECD’s recommendations would move the sector forward, but no specific steps have been taken so far. 
On the contrary, some measures taken in the recent months go opposite to the spirit of reforms made in 
past  years.  Mergers  between  technical  education  institutions  (TEIs),  which  focus  on  applied  sciences, 
technology and art and universities have commenced in 2018. Rationalising the higher education system 
which  consisted  of  36  independent  institutions  before  the  mergers,  is  in  principle  a  step  in  the  right 
direction.  However,  the  current  policy  which  integrates  the  TEIs  into  the  existing  universities,  keeps 
expanding  the  system  by  founding  new  departments,  and  maintains  their  regional  fragmentation  across 
different cities. Given the lack of a strategic plan or a comprehensive prior evaluation, it is unclear how 
the  upgrading  of  TEIs  will  serve  to  improve  the  fragmented  higher  education  landscape  or  the  need  to 
make tertiary education more relevant for the labour market. 

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6.2. 

PRODUCT MARKET AND COMPETITIVENESS 

6.2.1.  Business environment  

Since the last enhanced surveillance report, overall progress has been observed on product market 
reforms  linked  to  post-programme  commitments.  However,  there  is  a  varying  level  of  commitment 
across governmental entities to continue and expand the reforms that started during the ESM programme, 
which is causing delays, while limiting the scope of their application and deepening. Occasional reversal 
of individual pieces of legislation on the principles and practices of investment licensing reforms has been 
observed and tackled in the previous months, but increased ownership from the entire government and the 
creation  of  an  adequate  institutional  mechanism  to  ensure  a  sustainable  future  safeguard  of  past 
achievements would be advisable. 

Under  the  investment  licencing  reform,  the  enabling  legislation  on  installation  and  operation 
licensing  procedures  for  environmental  infrastructures  has  been  adopted  with  the  issuance  of  a 
joint ministerial decision (JMD) (end-2018 specific commitment). This important and urgent piece of 
legislation activates Article 78 of law 4549/2018 defining in clear terms the licensing procedures needed 
to  undertake  waste  management  activities.  The  gravity  of  the  situation  at  the  time  of  issuance  of  this 
JMD, which is described in the "Environment" subsection of Section 3.4.2 of the Country Report, resulted 
in two costly infringement procedures for non-compliance with EU law on illegal landfills and hazardous 
waste management. The new framework should allow private and public investments to be directed into 
this sector and implement advanced technological solutions for waste management to close the gap with 
EU best practices. 

The  authorities  have  also  made  progress  on  specific  investment  licensing  commitments  with 
deadlines for the outer years. In particular: 

  With a view to finalising the tendering procedures for the relevant ICT system (ILIMS) by end-2019, 
progress has been observed in line with the agreed action plan. Six valid offers have been received by 
bidder in response to the public procurement  tender. They  are currently being evaluated  in terms of 
technical specification and financial aspects. 

  Work on the implementation of the inspections framework law has proceeded in accordance with the 
agreed  action  plan  with  the  objective  to  finalise  the  inspection  legislation  by  mid-2020.    Relevant 
horizontal and sector-specific actions included in the plan have been finalised. 

  Regarding  the  simplification,  by  mid-2020,  of  investment  licencing  procedure  in  the  24  sectors 
identified  by  the  authorities  in  June  2018,  preparatory  work  has  started  for  the  first  set  of  sectors, 
focusing on primary production. A first assessment of licensing procedures and draft reform proposals 
will  be  delivered  before  the  next  enhanced  surveillance  report,  with  a  view  to  passing  primary  and 
secondary legislation by June 2019. 

  A detailed action plan for the revision of the nuisance classification, to be completed at the latest by 
mid-2021, has been finalised. The objective is to rationalise the current system, where two imperfectly 
overlapping classifications (nuisance and environmental) coexist within the same investment licensing 
process, bringing it in line with standard practices.  Work on the definition of the new classification 
will be facilitated by technical support and heavily involve private stakeholders and experts, who will 
analyse  and  discuss  the  interactions  between  the  two  classifications  and  their  implications  for 
investors and spatial planners. The action plan includes the key commitments by the end of February 
(i) to issue a Ministerial Decision setting up a Steering Committee for the project and (ii) to emanate a 
Secretary  General  Decision  defining  the  composition  and  functions  of  the  corresponding  Working 
Group. 

The  authorities  have  progressed  with  the  implementation  of  measures  to  reduce  administrative 
burden through the simplification of business registration procedures. Thanks to the simplification in 

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business registration procedures achieved though One-Stop-Shops (OSS) and electronic One-Stop-Shops 
(eOSS),  the  average  time  for  the  completion  of  the  business  registration  process  has  been  dramatically 
reduced compared to the past. For example, in the 5 months preceding the publication of this report, over 
50%  of  a  total  of  5214  start-up  registrations  was  finalised  within  90  minutes  and  70%  within  180,  as 
opposed to 28%  within 90 minutes and 47%  within 180 under the previous system (Graph  6.4). As for 
online  registrations  through  the  eOSS,  the  Greek  authorities  report  that  1,178  private  company  (IKE) 
registrations  have  been  completed,  with  an  average  time  for  the  finalisation  of  the  process  of  about  18 
hours, and a minimum of 8 minutes. 

Graph 6.4: 

Time required to register private companies 

The histogram show the time (in minutes) required to register a start-up in the five months since the Electronic One-Stop-Shops 
for businesses have been active, as compared to a similar sample of registration under the previous system. Data include 
business registrations that took place both online and offline. The number of IKE registrations under the new and old system 
(blue bars, censored at180 minutes) is reported on the left-hand side, the corresponding cumulative distributions (yellow lines) 
are measured on the right-hand side. 
Source: European Commission based on data from the Greek Ministry of Economy and Development 

Little,  if  any,  progress  has  been  observed  as  regards  actions  for  supporting  exports.  Two  export-
enhancing action plans had been drawn and followed by the Greek authorities during the ESM stability 
support  programme:  one  focused  on  providing  information  to  firms  on  export  markets,  called  Export 
Promotion  Action  Plan;  the  other,  focused  on  the  rationalisation,  simplification  and  digitisation  of 
customs procedures, called Trade Facilitation Action Plan. In particular: 

  The Export Promotion  Action Plan suffered from a  lack of strategic coordination  with other actions 
and projects in overlapping domains. While the current action plan ended at the end of 2018, there is 
no  clear  commitment  from  the  authorities  towards  a  new  action  plan  or  a  defined  timeline  for 
performing an impact assessment of the actions undertaken in the course of the past and future action 
plans. Such an exercise is needed in order to identify the added value of this project and to measure its 
effectiveness in terms of increasing the propensity to export of the Greek economy as a whole; 

  The Trade Facilitation Action Plan aimed at supporting import and export activities through a number 
of  actions,  including  the  reduction  of  export  fees,  the  review  of  risk  assessment  techniques,  the 
coordination  of  inspection  procedures  with  other  government  agencies  and  the  creation  of  an 
integrated  ICT  system  to  speed  up  procedures  for  traders  and  customs  officers.  The  targeted  key 
beneficiaries  of  the  project  were  exporters  to  extra-EU  countries,  who  need  to  provide  product-
specific  documentation  to  be  retrieved  from  different  government  agencies  in  a  variety  of  different 
formats and supports. Efforts to realise such an integrated system have not been successful yet and a 
new action plan will be proposed in the following weeks in order for the Single Window ICT system 
to become operational by the end of 2020.  

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The authorities committed to complete the cadastre project by mid-2021 and as intermediate steps 
to  complete  the  remaining  forest  maps  by  mid-2019  and  fully  establish  the  cadastral  agency  and 
complete  45%  of  the  cadastral  mapping  by  mid-2020  (specific  commitments).  Progress  of  the 
implementation  of  the  project  has  been  mixed  in  recent  months.  The  Greek  authorities  have  adopted  a 
comprehensive  road  map  with  the  objective  to  complete  the  reform  of  the  cadastre  agency  (Hellenic 
Cadastre) by mid- 2020 and the cadastral mapping by mid-2021. 

Progress  with  the  cadastral  mapping  and  the  forest  maps  preparation  and  ratification  is 
satisfactory and broadly on time. The Commission has taken the decision to co-finance with structural 
funds the last bunch of contracts (about EUR 84 million). A new two-year technical support contract has 
also been signed between the Commission and the World Bank in November 2018 and the World Bank 
team  has  started  providing  technical  support  on  the  ground. The  staffing  of  the  agency  allocated  to  the 
management  of  the  contracts  is  satisfactory.  A  custom-made  monitoring  tool  (Project  Management 
Information System) is operational. The declaration of properties for 62% of property rights around the 
country  (phase  IV)  is  underway.  Hellenic  Cadastre  has  launched  an  electronic  application  for  property 
declaration and payment. In addition, 42 cadastral offices are operating throughout the country to serve 
the persons that are unable to declare their properties electronically. A major cadastral office (3,000 sq. 
m)  will  remain  open  in  Athens  during  the  whole  declaration  period  to  facilitate  the  citizens  as  a  large 
number of inhabitants of Athens greater area possess properties around the country. 

The  preparation  and  ratification  of  the  forest  maps  is  proceeding  according  to  plan.  As  of  31 
January 2019, 41% of the country is covered by definitive maps, 11 % of the country has finalised maps 
in the process of ratification and 46% of the country maps are being processed by external consultants. 
The remaining 2% of the country's forest maps still needs to be contracted. 

By  contrast,  substantial  delays  are  observed  in  the  administrative  part  of  the  reform  concerning 
mainly  the  management  of  the  new  Hellenic  Cadastre  agency,  and  the  integration  of  mortgage 
offices into it. The appointment of the new management team and board of directors is severely delayed. 
A  transitional  management  very  committed  to  the  reform  was  appointed  a  year  ago.  However,  the 
transformation  of  the  former  cadastre  company  to  a  new  entity  that  integrates  the  cadastre  and  the 
mortgage offices is a major and complex operation and requires strong management and decision making 
capacity.  A  migration  team  was  appointed  to  carry  out  this  task,  but  it  remains  weak  and  so  far  no 
mortgage  offices  have  been  integrated  in  the  new  structure  as  opposed  to  the  10-15  offices  that  were 
planned to be integrated by December 2018 according to the road map. Delays are also observed in the 
preparation of the business plan and corporate strategy, the manual of procedures and the interoperability 
of the cadastre with the taxation database. The risk is that, while the cadastre is indeed completed by mid-
2021, the Hellenic Cadastre entity might not be fully operational nor function as planned. Against these 
delays, the government has decided to adopt a detailed timetable for the appointment of the management 
team and the board, to take immediate actions to strengthen the migration team with sufficient full-time 
dedicated  staff  and  to  prepare  a  detailed  plan  for  the  integration  of  the  mortgage  offices  to  meet  the 
deadlines set. The World Bank provides technical support to both actions. The next three months will be 
critical for these actions. 

On  spatial  planning  most  of  the  secondary  legislation  necessary  for  the  application  of  the  spatial 
planning law is completed. There is no pending legislation that would prevent the completion of spatial 
planning  in  Greece,  but  the  adoption  of  remaining  legislation  (Presidential  Decree  to  harmonise  older 
legislation  with  Law  4447/2016,  and  Ministerial  Decision  with  the  technical  specifications  for  town 
plans) needs to be accelerated. More specifically:  

  Regarding  the  Special  Spatial  Frameworks  (sectoral  strategic  documents),  the  tourism  framework  is 
on-going; the one on mineral resources is in the tendering phase, the one on renewables is ready to be 
tendered; the Special Spatial Framework on industry is in the tender preparation phase and is expected 
to be tendered by mid-2019. Finally a Special Spatial Framework for aquaculture is planned for 2020. 

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  Twelve Regional Plans are completed. The relevant ministerial decisions for six plans were adopted in 
December 2018. The adopted plans are the following seven: Attica, Crete, Thessaly, Central Greece, 
East  Macedonia-Thrace,  Epirus,  Ionian  Islands.  Another  five  ministerial  decisions  are  under 
preparation  and  will  be  completed  by  end-February  2019.  These  are:  Central  Macedonia,  Western 
Macedonia,  Northern  Aegean,  Western  Greece,  and  Peloponnese.  The  regional  plan  for  the  South 
Aegean was delayed due to financing problems.  

  By contrast, there is not much progress on the Local Spatial Plans (LSP). Currently, no Local Spatial 
Plan is completed, two are underway and 353 remain to be executed. A joint ministerial decision for 
the financing the LPS by a European Investment Bank loan is in the process of receiving signatures 
and an algorithm for the calculation of the cost of studies has been produced.  

  A  very  important  complement  of  the  spatial  plan  law  is  the  possibility  to  modify  the  Local  Spatial 
Plans  by  Special  Spatial  Plans  (SSP).  These  may  cover  one  or  more  municipalities;  they  are  at  the 
same hierarchical level with the local plans and are particularly useful for investments in the absence 
of LSPs. Since November 2018, four Special Spatial Plans were submitted for approval, two of which 
received pre-approval (Tritsis Park and a tourism development in Rhodes). Two other need to be re-
submitted  after  revision.  These  are  a  casino  in  the  town  of  Maroussi  and  a  medical  park  in  the 
Municipality of Peania.  

Finally,  a  study  is  being  launched  with  technical  support  through  the  Commission  for  the 
systematisation of environmental legislation. This is a complementary action to the cadastre and spatial 
planning aiming at facilitating citizens and investors to access and understand environmental legislation.  

6.2.2.  Network industries (energy, water, transport and logistics) 

Energy  

Since the last report, some progress has been made with the energy-related specific commitments, 
but generally this has been slow. Specifically, commitments cover the divestment of the Public Power 
Corporation’s  (PPC)  lignite-fired  generation  capacity  by  end-2018;  the  launch  of  the  Target  Model  by 
mid-2019 and the implementation of agreed measures on the NOME auction system by end-2019. 

The divestiture by PPC of some lignite fired generation capacity as part of a state-aid remedy with 
COMP (end-2018 specific commitment) has not been completed. This is despite the fact that original 
deadline of 17 October 2018,  was postponed to 8 February 2019 after four extension requests  from the 
Greek  authorities  and  the  setting  of  the  terms  of  the  Sale  and  Purchase  Agreement  (SPA)  were  set  in 
December. It is noted that many efforts were made by the investors to submit positive offers that would 
be acceptable by PPC. Efforts were also made to find ways to reduce variable costs; these included i.a. the 
abolition of the supplier surcharge and lignite fee and most recently the extension of the SPA to include 
the terms of a voluntary retirement scheme. Despite significant negotiations, PPC did not take up to the 
main proposals formulated by the potential investors to facilitate the valuation of the plants and to allow 
for  positive  offers.  At  the  same  time,  PPC’s  own  proposals  and  measures,  in  particular  the  voluntary 
retirement  scheme,  came  late  in  the  process.  Following  the  submissions  of  the  bids  by  two  potential 
investors on 6 February 2019, PPC’s Board of Directors did not identify any preferred offer meeting the 
valuation,  and  therefore  decided  not  to  sign-off  the  SPAs  and  the  related  contracts  with  any  of  the 
investors. As the divestiture has not happened within the prescribed time, alternative ways to complete it 
are now under discussion between the Greek authorities, PPC and the Commission to find an acceptable 
remedy to the antitrust case in line with the requirements of EU law. The Greek authorities have signalled 
their intention is to submit a new proposal by early March 2019. The Commission invites the authorities 
to ensure that this new proposal is sufficiently detailed so as to enable an informed assessment to be made 
as  to  whether  adequate  progress  is  being  made  towards  complying  with  the  antitrust  remedies  and  the 
end-2018 specific commitment. 

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The lignite divestiture was considered at the core of all energy reforms, to open up the markets and 
attract further investment, and underpin other developments such as the Target Model. Reforms to 
energy markets were recognised for many years in the ESM and earlier financial assistance programmes 
as being fundamental to driving growth across the economy. The divestiture also constituted the antitrust 
commitment  offered  by  Greece  (and  made  binding  by  the  Commission’s  decision  C(2018)2104  of  17 
April 2018). In brief, this a major setback in the delivery of a key structural reform, and solutions to this 
key  structural  challenge  are  inevitably  being  pushed  into  late  2019.  Regardless  of  future  progress,  the 
current  status  of  reform  in  this  area  could  invite  consideration  of  alternative  actions,  as  well  as 
considering reinstating the full NOME quantities from the correction system, given that the PPC market 
shares  are  still  far  above  the  50%  targets  outlined  in  earlier  agreements.  Under  the  foreseen  NOME 
review,  the  potential  need  for  alternative  policy  or  structural  measures  will  be  considered  in  this 
context.(24) 

As regards the implementation of the Target Model for electricity (specific commitment mid-2019), 
Greece made important first steps with the publication in the Government Gazette of the spot (day-
ahead  and  intraday) and  balancing  market  rulebooks.  The  forthcoming  translation  of  the  rulebooks 
into  English  would  be  encouraging  step  towards  opening  the  Greek  market  to  other  European  market 
participants. The spot market’s clearing rulebook is still due for approval. The Greek Exchange has joined 
the Price Coupling of Regions (PCR) initiative, which is an important step for the future coupling of the 
day-ahead market. However, large delays have been seen compared to original plans agreed in June 2018. 
It now looks like the Target Model should go live in September 2019, with the full launch of the intra-
day,  day-ahead  and  balancing  market.  Such  delays  are  somehow  to  be  expected  given  the  scale  of  the 
project,  but  further  delays  will  lose  valuable  time  for  the  market  to  develop.  As  well  as  this,  there  has 
been very little progress regarding the development of a forward market and it is of importance that the 
next  reporting  period  will  see  concrete  progress  as  concerns  submission  and  public  consultation  of  the 
forward market rulebook. The implementation of the Target Model is a key step towards the integration 
with the European electricity markets and the increase of competition in the retail markets within Greece, 
so it is vital that it is well-designed and in line with the European regulations regarding elements such as 
the rules on price caps. Early assessments of rulebooks raise questions about price caps and progress to 
portfolio bidding. As the Target Model gears up for the dry-runs, it will be critical that market participants 
be  better  informed  about  the  latest  progress.  Progress  is  being  made  towards  coupling  with  the  Italian 
market but for it to be completely operational, more effort should be put in increasing the availability of 
the interconnector between the two countries. 

The last three months saw the NOME auctions continue, though this period still saw PPC’s market 
share  actually  increase  (in  December  2018  the  retail  share  of  PPC  stood  at  80.29%  compared  to 
78.63% in November).   In June 2018 a correction mechanism  was implemented to put additional PPC 
quantities  into  the  auction,  should  the  progressive  market  share  targets  not  be  reached,  with  this 
mechanism  being  gradually  reduced  then  eliminated  as  the  lignite  divestiture  progressed  according  to 
certain  key  steps  being  made.  The  authorities  stuck  to  the  agreed  timing  for  changes  to  the  NOME 
auctions. Given the delays with the lignite divestiture and that the second key step (the signing of SPA) 
had  not  yet  been  made  by  the  time  of  the  first  auction,  RAE  duly  proceeded  to  add  the  quantities 
originating  from  the  correction  mechanism  to  the  auctions  in  2019  in  accordance  with  the  existing 
framework. Regarding a separate concern, the fact that a growing amount of NOME quantities are put up 
for export rather than for opening the domestic market (the main intention of the system), RAE amended 
the  code,  being  careful  that  single  market  rules  were  followed.  The  envisaged  joint  assessment  of  the 
NOME auction system should start soon, with the future of the auctions system looked at in light of the 
divestiture  and  development  of  the  forward  market  within  the  Target  Model.  The  implementation  of 
measures agreed as part of the joint assessment of NOME is an end-2019 specific commitment.   

(24)  ‘Supplemental  Memorandum  of  Understanding,  4th  Review  of  ESM  Pogramme’ 

June  2018,  page  27: 

https://ec.europa.eu/info/sites/info/files/economy-finance/draft_smou_4th_review_to_eg_2018.06.20.pdf 

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Graph 6.5: 

Evolution of retail market share compared to targets 

Source: Hellenic Energy Exchange 

As  far  as  developments  in  the  gas  markets  are  concerned,  real  progress  was  seen  with  the 
restructuring of the Public Gas Corporation of Greece (DEPA). The DEPA restructuring law is due to 
be adopted in late February, setting the framework breaking up the main gas provision company into two 
specific entities, one covering commercial activities and another covering infrastructure (with this part to 
be further split between international projects and distribution), in line with unbundling rules. 

A crucial element to consider in energy reforms is the continued financial problems of PPC and the 
related  effects  this  has  across  different  parts  of  the  market.  The  collection  of  customers’  arrears  to 
PPC increased: monthly bills, e-billing and disconnection orders for customers who change suppliers are 
new steps currently being taken to improve this situation. Standard and Poor upgraded PPC’s debt rating, 
in a positive step, and the European Investment Bank prepared a loan for the improvement of distribution 
networks.  The  absorption  of  PPC  Renewables  into  PPC  provided  both  a  cashflow  boost  and  an 
opportunity  to  shift  its  strategy  towards  renewables,  though  it  is  yet  to  be  seen  how  this  will  play  out. 
Despite  these  positive  steps,  great  concerns  remain  about  PPC’s  financial  situation  in  the  longer  term, 
particularly with regards to be able to make investments in environmental improvements and renewable 
technologies. 

As  the  market  is  still  characterised  at  retail  and  wholesale  level  by  PPC’s  presence  as  a 
monopolistic market player, constraints on competition still exist, with the knock-on effect this has 
on pricing. The authorities removed certain charges (such as the supplier surcharge and lignite levy), and 
PPC  recently  announced  that  retail  prices  would  have  to  rise  in  order  to  reflect  higher  EU  Emission 
Trading System CO2 prices. On an industrial level, PPC is discussing with Larco, the State-owned nickel 
company,  about  making  a  deal  on  fixing  electricity  supply  under  certain  conditions.  At  the  same  time, 
Greece  needs  to  prove  that  the  EUR  135.8  million  that  was  seen  as  illegal  State  aid  to  Larco  has  been 
returned. 

The  Renewable  Energy  Sources  (RES)  account  has  maintained  a  strong  surplus,  helped  by 
sustained high Emission Trading Scheme carbon prices. Greece has committed to increasing the share 
that from 60% to 65% the amount of total ETS revenues that  will contribute towards the RES account. 
However, there are concerns expressed by many stakeholders in the renewables business that despite the 
accounting surplus, there are cashflow issues,  which  had resulted in  some production not being paid in 
time. The authorities’ efforts to clear previous years’ accounts is a very important step and it is advised 
that  no  adjustments  to  the  consumer  charge  (ETMEAR)  are  made  before  this  clearing  is  finalised.  The 
authorities  could  consider  that  suppliers  should  not  receive  returns  if  they  have  arrears  in  the  system. 
Given  the  cashflow  concerns,  it  is  recommended  that  a  cash  statement  be  made  as  part  of  DAPEEP’s 
(RES Market Operator- Διαχειριστή Ανανεώσιμες Πηγές Ενέργειας & Εγγυήσεων Προέλευσης) reporting 
on the RES account. With the transfer of responsibility for the account from ADMIE (Independent Power 

61 

80%20%62%49%38%51%0%20%40%60%80%100%Jan 17Jan 18Jan 19Dec 19PPC's market shareAlternative suppliers market sharePPC's NOME market share targetsAlternative suppliers' NOME market share targets 
 
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Chapter 6 - Labour and product markets 

Transmission Operator- Ανεξάρτητος Διαχειριστής Μεταφοράς Ηλεκτρικής Ενέργειας) to DAPEEP is it 
important to ensure that the staffing of vacant positions is completed in order for DAPEEP to have full 
capacity and to be provided with needed tools to ensure timely collection of revenues. The second RES 
auction took place in December 2018. This led to significant quantities being sold, at a lower price than 
the first auction. However, concerns remain about the ability of the auctions to help established projects. 

The  development  of  RES  energy  also  depends  on  generation  and  connection  on  the  islands.  The 
Energy in Islands Initiative will be a useful forum for discussing RES generation on islands and effective 
networks.  A  major project,  connecting Crete  with  mainland Greece, potentially as part  of the EuroAsia 
project,  is  still  clouded  by  uncertainty  as  to  its  PCI  status.  Higher  prices  on  islands  are  compensated 
through the Public Service Obligation 

Looking  further  forward,  in  January,  Greece  submitted  its  draft  National  Energy  and  Climate 
Plan.  Greece  sets  ambitious  targets  for  carbon  emission  reduction  and  growth  of  renewable  energy, 
particularly  in  electricity  generation.  This  will  take  large  investments  and  an  eventual  scaling  down  of 
lignite. Such promises come in the  context of lignite plants running towards the limits of their allowed 
operating lifetime under the Industrial Emissions Directive framework regarding air pollution,  with still 
no  clear  solution  in  sight.  Short-term  issues  like  that  will  need  to  be  tackled  in  order  to  move  on.  The 
phasing  out  of  lignite  would  have  large  socio-economic  implications  which  need  to  be  carefully 
considered. 

Greece  still  has  great  potential  to  be  a  regional  energy  hub,  and  a  number  of  ongoing  projects 
related  to  gas  and  electricity  are  under  consideration.  An  encouraging  step  forward  was  the 
inauguration in November of extra storage capacity at the liquefied natural gas plant in the Revithoussa 
terminal.  Greece  could  make  best  use  of  this  with  faster  progress  towards  coupling  markets  and 
expanding  its  RES  capacity.  The  next  few  months  is  an  important  period  for  Greece  to  complete  key 
reforms that  will be the foundation for further progress as regards the economy as  well as environment 
and climate. 

Water 

In  the  water  sector,  an  information  system  has  been  set  up  in  January  2019  to  monitor  the 
performance  of  water  companies  throughout  the  country  through  the  regular  collection  of 
information.  The  functioning  and  objective  of  the  system  is  to  ensure  the  sustainability,  quality  and 
affordability  of  water  provision  in  Greece,  which  is  currently  suffering  from  a  lack  transparency, 
accountability  and  coordination  across  different  actors  in  the  sector.  The  Special  Secretariat  for  Water 
(SSW) has dedicated staff to support this system of data collection and analysis. Once the system is up 
and  running,  all  water  service  providers  will  fill  in  the  required  information.  Initial  statistics  on  the 
performance of the system will be available by the end of March 2019, covering information for the year 
2017.  The  system  will  include  information  on  cost  recovery,  infrastructural  investments  and  planned 
human  resources,  drinking  water  quality  across  the  country,  among  others.  The  SSW  will  finalise  a 
strategic and operational plan by the end of February to streamline its supervisory activities. 

Transport and Logistics 

A  Strategic  Transport  Master  Plan  for  Greece  to  identify  future  policies  and  investments  in  the 
transport sector is under preparation by the Ministry of Transport. The plan is covering all transport 
modes  for  the  years  2027  and  2037,  the  necessary  supporting  planning  tools  as  well  as  accompanying 
capacity building activities. A major problem is that contracts for new projects are delayed (Athens metro, 
Patra-Pyrgos  motorway,  Amvrakia  –  Aktio  highway).  Among  the  reasons  of  the  delays  are  the 
abnormally low prices and the lack of capacity of contractors. Greece also urgently needs to start with the 
elaboration  of  sustainable  urban  mobility  plans  as  these  will  be  the  condition  for  investment  in  urban 
transport. 

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Chapter 6 - Labour and product markets 

On  logistics,  little  progress  has  been  made  in  the  "Thriasio  logistics  complex"  which  remains 
unutilised. Once fully operational, this investment – co-financed with EU funds – could give a big boost 
to  rail  freight  and  the  overall  competitiveness  of  the  country.  However,  the  concession  contract  for  the 
private freight centre has not been activated and the tender for the exploitation and operation of the park 
of 1450 hectares is severely delayed. 

The  absence  of  a  business  plan  with  cost  containment  measures  for  the  transport  company  of 
Thessaloniki, OASTH, is still a source of concern. The government nationalised the company in 2017, 
in order to undertake a substantial restructuring and generate savings on an expensive private concession. 
Preliminary  balance-sheet  information  on  2018  operations,  which  will  be  validated  by  the  general 
accounting office in March, shows positive signs, with an increase in revenues, a reduction in operation 
costs and public transfers. Yet, it is not possible to assess the sustainability of the progress and the nature 
of  the  measures  undertaken  in  the  absence  of  a  business  plan  or  guidelines  defining  the  medium-  and 
long-term strategy. The authorities have expressed the intention to liquidate the company and replace it 
with a new entity by the end of 2019, but no action has been taken so far. 

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7.  HELLENIC CORPORATION OF ASSETS AND 

PARTICIPATIONS (HCAP) AND PRIVATISATION 

7.1.  HCAP  

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 structure for managing 
public  assets  in  the  form  of  a  holding  company,  sets  the  framework  for  stronger  governance  and 
professional management of public assets.  

Greece made important commitments to European partners in June 2018 to continue and complete 
the important  work of HCAP. More  specifically,  the Eurogroup statement of June 2018 foresees that 
the  strategic  plan  of  HCAP  will  be  implemented  on  a  continuous  basis.  In  addition,  the  authorities 
committed to complete the transfer of the Olympic Centre (OAKA) to HCAP as well as the restructuring 
of the real-estate subsidiary (ETAD) by end-2018. Overall, the implementation of the strategic plan and 
the restructuring of ETAD have proceeded as planned, but the transfer of OAKA will be delayed due to 
practical complexities. Since the publication of the first enhanced surveillance report in November 2018, 
progress  has  also  been  made  in  various  other  areas:  namely  in  (a)  improving  corporate  governance  in 
direct subsidiaries (i.e. the asset development fund (TAIPED), and ETAD) and preparatory  work being 
done for the other subsidiaries (State-owned enterprises, SOEs); (b) the review and replacement of SOE 
boards (a mid-2019 commitment) and (c) the preparatory work for the implementation of the coordination 
mechanism  that  will  govern  the  interaction  between  the  authorities  and  HCAP  regarding  the  mandates 
and objectives of the SOEs under HCAP.  

HCAP  is  continuing  with  the  implementation  of  the  strategic  plan  of  HCAP  (continuous  specific 
commitment monitored end-2018), which incorporates its overall approach for better management 
and  use  of  the  assets  of  the  Greek  State  that  became  part  of  its  portfolio.  HCAP  proceeded  in 
December  2018  to  the  preparation  of  its  business  plan  for  the  period  2019-2021,  implementing  the 
strategic  plan  and  setting  quantitative  and  qualitative  key  performance  indicators  (KPIs)  for  its  direct 
subsidiaries and  the non-listed other subsidiaries. The KPIs  which have  been set,  include the  following 
areas:  enhancement  of  economic  and  public  value  and  financial  performance,  corporate  governance, 
improvement  of  the  quality  of  services  and  operational  efficiency  and  innovation.  HCAP  has  also 
elaborated the framework for monitoring the KPIs. 

HCAP’s  real  estate  portfolio  is  managed  by  ETAD,  which  was  restructured  during  2018  with  a 
view  to  significantly  increasing  its  effectiveness  in  the  management  of  real  estate  assets.  The 
organisational  restructuring  process,  elaborated  with  the  assistance  of  external  advisors,  included  the 
formulation of a new organigram and a process for staffing internally and (partially for senior level posts) 
externally  the  positions  in  the  new  organigram  as  well  as  reorganisation  of  procedures  and  functions 
within  the  company  and  the  appointment  of  new  business  unit  managers.  The  company  structure  now 
reflects the key stages of asset management that are considered necessary to develop the full potential of 
the  real estate portfolio: identifying, registering and  maturing the significant proportion of the portfolio 
which is unvalued and unused, and development and utilisation or disposal of recognised assets.    

The  specific  commitment  for  end-2018  on  the  restructuring  of  ETAD  by  the  end-2018  has  been 
accomplished.  Given  the  importance  of  the  real  estate  portfolio,  ETAD  will  have  a  thorough  set  of 
performance  targets  in  2019  in  order  to  consolidate  and  test  the  effectiveness  of  the  restructuring.  The 
completion of the restructuring, the arrival of new management personnel, and clearer guidance on short 
and medium-term objectives, is expected to deliver improving operational performance at ETAD in 2019, 

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and to lay the ground for significant value creation in the medium term. Achieving the full potential of the 
real  estate  portfolio  will  remain  a  key  challenge  for  HCAP  and  should  be  a  primary  source  of  value 
creation.  

HCAP  continues  its  work  on  SOE  governance,  in  particular  regarding  the  review  (and 
replacement, if needed) of the boards of the SOEs (mid-2019 specific commitment), and improving 
internal  and  external  audit  capabilities.  The  process  for  assessing  the  Board  of  the  Athens  public 
transport company OASA was completed in June 2018 and new  Board Members have been selected for 
staffing the vacant positions; however the search is still ongoing for the key executive position. The effort 
for  identifying  suitable  candidates  has  been  more  lengthy  that  initially  expected,  partly  due  to  the  low 
remuneration provided for a position with such responsibilities and skills requirements. The HCAP Board 
also selected the candidates for the posts of CEO, Chair and three non-executive members in GAIAOSE, 
an SOE active in the fields of railway property and rolling stock. The General Assembly of GAIAOSE 
appointed those candidates on 7 February 2019. Further, in the case of the Corinth Canal, the candidates 
selected  by  the  HCAP  Board  of  Directors  (BoD)  for  three  vacant  posts  (non-executive  members)  were 
appointed by the General Assembly of the Corinth Canal on 20 December 2018, including the Chair of 
the Audit Committee. The BoD candidates nominated by HCAP for two vacant posts at the Public Power 
Corporation PPC (chair of the Audit  Committee  and a second  member)  were appointed by the General 
Assembly of PPC on 17 December 2018. The BoD candidates selected by HCAP for two vacant posts in 
the water company EYATH – head of Audit Committee of EYATH and a second non-executive member 
– were appointed by the General Assembly on 21 February 2019. Candidates for the post of Chair of the 
Audit Committee have been selected for all SOEs and on-boarding  will gradually take place in parallel 
with  the  process  of  assessing  and  staffing  the  new  BoDs  as  a  whole.  HCAP  has  also  focused  on 
improving compliance functions, and it is implementing a standardised method for monitoring reporting 
financial  information  within  the  SOE  group  with  the  purpose  of  preparing  the  consolidated  financial 
statements as well as performance on the specific KPIs set by HCAP. 

However,  appointing  professional  members  in  the  Boards  of  Directors  (BoD)  in  the  bigger  non-
listed  SOEs  -  in  particular  executive  members  -  continues  to  be  challenging  for  HCAP  due  to 
legislative caps on the remuneration of SOE board members. The caps limit the remuneration that can 
be  offered  to  prospective  members  of  SOE  boards  to  uncompetitive  levels,  considering  the  level  of 
responsibility  and  the  business  activity  of  some  of  the  SOEs.  To  date,  this  has  been  a  serious  issue 
affecting  HCAP’s  ability  to  sustainably  attract  new  BoD  members  for  SOEs,  with  implications  for  the 
improvement  of  SOEs’  operations  and  performance,  as  manifest  for  example  e.g.  in  the  difficulties  to 
renew the board of OASA described above. The authorities have agreed to address the legislative cap on 
the remuneration of SOE board members through the adoption of a legislative amendment in time for the 
third enhanced surveillance report. 

In  addition  to  the  extensive  work  on  governance,  HCAP  is  increasing  its  focus  on  operational 
improvements at SOEs following the development of new business plans in 2018. A key  upcoming 
challenge  will  be  to  effectively  address  significant  operational  and  financial  issues  in  Hellenic  Post 
(ELTA),  which  faces  a  number  of  challenges  common  to  postal  service  operators  in  many  European 
countries.  A  restructuring  plan  has  been  prepared  by  ELTA's  new  management  and  it  is  under 
consultation. 

HCAP  has  undertaken  significant  preparatory  work  for  the  implementation  of  the  Coordination 
Mechanism, which will be a key focus area and challenge in 2019. The Coordination Mechanism 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 
objectives and financing of any special obligations required by the State.  

Effective  implementation of the Coordination Mechanism requires the cooperative engagement of 
the authorities across all parts of the government. The Greek authorities have agreed to establish the 

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Cabinet  Committee  provided  for  in  the  Coordination  Mechanism  and  HCAP  law,  and  to  operationalise 
the  mechanism.  Representatives  of  the  Cabinet  Committee  of  the  Ministry  of  Finance  and  of  HCAP 
agreed on the agenda, the time schedule and the prioritisation for dealing with the SOEs for the prompt 
implementation of the Coordination Mechanism. The implementation of the Coordination mechanism has 
been launched with the meeting of the Cabinet Committee with HCAP, on 21 February 2019, discussing 
issues related to the SOEs under the surveillance of the Ministry of Economy and Development.  

Recent  legislation  in  certain  sectors  appears  to  potentially  overlap  with  the  function  of  the 
coordination mechanism, or to affect the HCAP's rights in respect of certain assets transferred to it. 
Any inconsistencies would need to be addressed. The Greek authorities have agreed to avoid such actions 
in  the  future.  Possible  overlaps  may  also  emerge  more  clearly  in  the  process  of  implementing  the 
Coordination Mechanism. Overlaps  would need to be removed, in order to give  effect to the intent and 
balance of the coordination mechanism, along with acts that impinged on the exercise of rights transferred 
to  the  HCAP.  Taking  into  account  recent  secondary  legislation  for  the  23  regional  airports,  overlaps 
should be avoided in the phase of implementation of any exploitation plans and actions for these airports, 
since the rights for utilisation and concession were transferred to HCAP on the basis of article 198 of the 
Law 4389/2016. 

The transfer of the Olympic Athletic Centre OAKA, which is an end-2018 specific commitment, has 
proven  very  complex  involving  multiple  stakeholders  as  well  as  a  series  of  administrative  and 
procurement  steps.  These  include  procurement  in  relation  to  the  repair  or  overhaul  of  significant 
facilities, in order to ensure that the  asset is provided in a satisfactory condition. It is encouraging, that 
after delays, the project is now receiving concerted  high-level attention.  A  high level  meeting has been 
convened  by  the  Minister  of  Finance  in  order  to  commence  the  initial  technical  work  that  is  needed  to 
assess the conditions and necessary refurbishments of the  sports complex, and  to prepare a new spatial 
plan  that  will  allow  for  development  of  the  site,  including  commercial  development  that  would 
complement  its  athletics  character.  The  authorities  have  sent  a  status  report  to  the  institutions  with  a 
proposed  timeline  of  several  steps, leading  to  a  transfer  to  HCAP  by  the  end  of  2020;  given  the 
complexities and involvement of third parties, this adjusted timetable appears reasonable and the timing 
for the specific commitment should be adjusted to reflect the main stages of the proposed process. 

7.2. 

IMPLEMENTATION OF THE ASSET DEVELOPMENT PLAN 

Implementation of the Asset Development Plan (ADP) of the Hellenic Republic Asset Development 
Fund (TAIPED) is key to stimulate private investment, increase efficiency, and provide financing to 
the State. In June 2018, the authorities made specific commitment to Eurogroup partners in June 2018 to 
implement the ADP, which will be updated every six months, on a continuous basis, and to complete the 
transactions on the Athens International Airport (AIA) concession, the former airport site Hellinikon, and 
the Natural Gas Transmissions System Operator (DESFA) by end-2018. The commitments for mid-2019 
concern  the  financial  closing  of  the  transaction  on  HELPE  and  the  marina  of  Alimos.  Further 
commitments were taken for the subsequent years.  

Overall, there has been good progress as regards the transactions due to be completed by the end of 
2018,  and  the  ADP  was  updated  by  TAIPED  in  December  2018  and  endorsed  by  KYSOIP  on  15 
February 2019 (FEK 461, 15 February 2019). More specifically, on the end-2018 commitments the state 
of play is as follows:  

  Natural  Gas  Transmission  System  Operator  (DESFA,  end-2018  specific  commitment):  In 
December  2018,  the  last  steps  for  concluding  the  transaction  for  the  acquisition  of  66%  of  DESFA 
(31% TAIPED, 35% Hellenic Petroleum - HELPE) were undertaken. Specifically, the 60-day creditor 
objection period required by law as part of the “in-kind” reduction of DEPA’s share capital in DESFA 
lapsed  on  9  December,  and  on  19  December  the  energy  regulator  RAE  issued  DESFA’s  final 
certification.  The  the  inclusion  of  certain  issues  in  the  final  certification  decision  has  resulted  in 
extended discussions with the investors and it is important that these issues are addressed in a timely 

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manner and in accordance with EU law and practices. The completion of all corporate acts related to 
the  transfer of shares and the actual transfer of shares to the  preferred investor versus payment of a 
financial consideration of EUR 535 million (for the 31% share disposed by TAIPED, this corresponds 
to  EUR  251  million),  took  place  on  20  December  2018,  signalling  the  financial  closing  of  the 
transaction.  

  Athens  International  Airport  (AIA,  end-2018  specific  commitment):  The  required  approvals  for 
the transaction, namely from the European Investment Bank and the competent European authorities 
were given in December 2018 (the  decision  was issued by the Commission on 12 December 2018). 
The  extension  of  the  concession  agreement  was  approved  by  KYSOIP  on  21  January  2019  and  the 
Minister of Finance signed the extension agreement on behalf of the Hellenic Republic on 24 January 
2019. The AIA extension agreement was ratified by the Greek Parliament on 14 February 2019 and 
the  payment  of  the  financial  consideration  of  EUR  1115  million  plus  an  annual  rate  of  10.3%  paid 
proportionally by AIA from 1 January 2019 until closing date, was done on 22 February, closing the 
transaction.  

  Hellinikon (development of the site of the former Athens International airport, end-2018 specific 
commitment):  The  authorities  have  continued  the  efforts  to  complete  the  conditions  precedent  to 
allow the transfer of shares to the developer, Lamda. Whilst overall progress is satisfactory, there are 
some  delays  concerning  the  award  of  the  casino  licence  and  the  urban  planning  and  environmental 
approvals. The main reason for the observed delays is the complexity of the project. More specifically, 
in the case of the casino licence, the delays were to be attributed (a) to the need for the amendment of 
the legislation on the casinos, which would make possible the tendering process for the award of the 
casino  licence  in  Hellinikon  and  (b)  the  need  to  finalise  the  commercial  policy  of  Lamda  (i.e.  the 
annual  rent  to  be  paid  to  Lamda  by  the  casino  investor).  The  amendment  of  the  legislation  on  the 
casinos  was  enacted in  December  2018.  On  the  issue  of  the  commercial  policy,  continuous 
deliberations  took  place  between  the  Greek  authorities  and  the  investor  and  the  issue  has  been 
resolved. The request for proposal for the award of the casino licence was forwarded on 19 February 
to the simap@publications.europa.eu so as to be uploaded on the EU site (TED- SIMAP). There were 
also  delays  in  the  case  of  the  approval  of  certain  urban  planning  and  environmental  studies,  which 
mainly result from the need for adaptation of the studies to be submitted by the investors. Continuous 
deliberations took place between the Greek authorities and the investors to resolve the pending issues. 
Finally, the studies on the urban planning zone, the development zone, and the park were submitted by 
the  investors  to  the  Greek  authorities,  on  6  February  2019,  whereas  the  Integrated  Environmental 
Impact  Assessment  study  followed  on  18  February,  opening  the  way  for  the  urban  planning  and 
environmental  approvals.  If  the  authorities  continue  the  strong  efforts,  financial  closing  could  be 
expected by the end of the first half of 2019.  

  Rolling-Stock  Maintenance  Company  (ROSCO):  TRAINOSE  (a  fully-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.  In  mid  November  2018,  TRAINOSE  notified  the  acquisition  of  ROSCO  to  the 
Hellenic Competition Commission (HCC) in order to receive merger clearance. The HCC's decision is 
expected  by  the  end  of  February  and  the  completion  of  the  transaction  is  foreseen  to  take  place  by 
mid-March 2019). 

Progress on other transactions in the Asset Development Plan which are due be completed in 2019 
is more mixed, with progress on some projects being offset by delays and setbacks elsewhere. Many 
of  these  were  reported  on  in  the  1st  enhanced  surveillance  report.  Since  then,  and  on  a  positive  note, 
challenges related to regional ports have been resolved. In contrast, the transaction on Egnatia continues 
to be a source of concern. The state of play can be summarised as follows: 

  Marina  of  Alimos  (mid-2019  specific  commitment):  the  marina  of  Alimos  is  one  of  the  largest 
marinas  in  the  South-Eastern  Mediterranean,  located  on  the  South-Eastern  waterfront  of  Athens. 
Satisfactory  progress  is  being  made  in  the  tender  for  the  long-term  concession  of  the  marina  of 

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Alimos. Binding offers have been submitted on 14 February 2019. Currently, TAIPED is undertaking 
a due diligence of the documentation submitted by the bidders.  

  Hellenic  Petroleum  (HELPE,  a  mid-2019  specific  commitment):  Agreement  between  HELPE  and 
the Greek authorities on the issue of the Exploration Company was reached in late November 2018. 
According  to  the  agreement  reached,  the  Greek  State  will  gain  control  of  51%  of  the  company. 
Further, the two remaining bidders have proceeded to setting up consortia, i.e. Glencore-Carlyle and 
Vitol-Sonatrach. They are expected to submit their binding offer in early March 2019.  

Despite the progress made, it  will be challenging for the financial closing of the above two transactions 
scheduled to be completed by the target date of mid-2019.  

  Regional  Ports:  There  is  significant  investor  interest  to  operate  specific  and/or  combined  port 
activities/services  by  means  of  sub-concession  agreements  in  the  ports  of  Alexandroupolis,  Kavala, 
(end-2019  specific  commitments)  Igoumenitsa  and  Kerkyra  (mid-2021  specific  commitments). 
Following  a  lengthy  process,  an  agreement  on  the  final  text  of  the  required  legislative  changes  was 
reached  on  21  January  2019.  The  agreed  legal  amendments  were  enacted  on  21  February.  Thus, 
TAIPED can now proceed with subconcession transactions for the regional ports.  

The authorities are in the process of taking steps to overcome numerous obstacles on the Egnatia 
motorway  concession  project  (end-2019  specific  commitment):  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  has  been  characterised  by  systematic  delays  and 
problems,  whereas  in  the  period  from  November  2018  to  mid-January  2019  the  transaction  was 
effectively  blocked.  During  the  mission  in  January  there  were  extensive  discussions  on  the  transaction 
and  the  authorities  have  implemented  the  following  actions  which  should  enable  the  transaction  to 
proceed:  

  A  Coordination  Committee  composed  of  representatives  of  the  Ministry  of  infrastructure  and 
Transport, TAIPED and Egnatia S.A. was set up with the task to clarify pending matters and reach a 
common  understanding  with  regard  to  matters  related  to  the  current  status  of  the  licencing  of  toll 
stations  and  tunnels,  the  budget  needs  of  Egnatia  SA  and  sources  of  financing  operational, 
construction  and  maintenance  needs.  The  Committee  will  convene  on  a  regular  basis.  The  first 
Coordination Committee meeting took place 5 February 2019.  

  Adequate  personnel,  both  in  terms  of  level  and  skills,  will  remain  in  Egnatia  S.A.  so  that  the 
concession  tender,  the  operation  and  the  maintenance  of  the  road  are  safeguarded.  To  this  end,  the 
Board of Egnatia S.A., which is the competent body, has specified the level of personnel as well as the 
specific persons that are required to remain in Egnatia S.A. It is noted, however, that TAIPED cannot 
confirm  the  adequacy  of  the  level  of  personnel  required  to  remain  in  Egnatia  S.A.  as  proposed  and 
decided by the Egnatia S.A. BoD, as there were vast divergent views within the Board of Egnatia S.A. 
The remaining personnel will be transferred to the Ministry of Infrastructure or other public entities 
according  to  the  Expression  of  Interest  issued  by  the  Ministry  on  27  December  2018.  A  letter 
clarifying this needs  to be sent to Egnatia S.A. by the Ministry of Infrastructure. 

  The  Ministry  of  Infrastructure  and  Transport  has  provided  the  technical  specifications  on  the 

Ministry's e-toll system and associated arrangements to TAIPED on 4 February 2019.   

  The  environmental  terms  approving  decision  for  the  Kavala  toll  station  was  issued  on  8  February 

2019, enabling the launching of its construction. 

  The construction works of the Strymoniko toll station continue; it is due to be completed by the end of 

March 2019. 

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A number of actions needed to put the Egnatia concession back on track remain to be completed. In 
particular:  

  Some progress has been made on tunnel licensing, but more needs to be done. The Tunnel Licencing 
Authority (TLA) provided on 22 February 2019, a revised more ambitious timetable  on the 24 files 
already  submitted  by  Egnatia  S.A.    For  five  tunnels  the  position  of  the  TLA  should  be  given  by  5 
March  2019,  whereas  for  the  remaining  there  should  be  strict  adherence  to  the  revised  timetable. 
Egnatia S.A. should  submit the files with full documentation for the remaining 9 tunnels by the end of 
February.  

  The  Ministry  of  Infrastructure  needs  to  approve  the  Egnatia  budget  for  2019  (as  to  be approved  by 
Egnatia S.A.) as without this they cannot proceed to the launching of the construction of all remaining 
toll stations as well as to the maintenance works required from the perspective of the safety in the use 
of the road.  

  On the toll pricing policy of Egnatia, and with a view to providing to the Commission all clarifications 
required, so that the Commission can proceed to its approval in the coming two months, a meeting is 
scheduled to take place on 5 March 2019 with the participation of all stakeholders. Further, all future 
communication with the Commission will be jointly agreed between the Ministry and TAIPED. The 
Ministry's response to the Commission until recently aimed at shifting the Commission’s approval of 
the toll pricing policy on Egnatia, and thus its implementation, to a latter point in time.  

  The completion of the processes agreed with regard to the CEO and the Board  of Egnatia S.A. It is 

noted that:  

  Concerning  replacement  of  the  CEO,  the  CEO  candidate  provided  by  the  Greek  authorities  will  be 
subject  to  an  external  assessment,  before  being  proposed  to  the  parliamentary  Committee.  TAIPED 
has launched the process of assessment; The assessment is expected to be completed in the first week 
of March. 

  As  far  as  the  chairman  and  the  BoD  of  Egnatia  S.A.  are  concerned,  they  will  all  be  subject  to  an 
assessment  by  external  consultants,  as  the  terms  of  office  of  the  current  BoD  expires  by  the  end  of 
February. TAIPED needs to launch the process of assessment. 

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8. 

PUBLIC ADMINISTRATION AND JUSTICE 

8.1. 

PUBLIC ADMINISTRATION 

In  the  period  since  the  first  enhanced  surveillance  report,  progress  with  advancing  public 
administration  reforms  has  been  mixed.  The  end-2018  specific  commitment  to  complete  the 
appointments of the senior management has been subject to significant delays, as no appointment of an 
Administrative Secretary has been made to date, though the appointment cycle for Director-Generals has 
been  completed.  By  contrast,  another  potentially  significant  step  towards  modernising  the  public 
administration  was  taken  with  the  recent  adoption  of  a  law  to  introduce  more  long-term  recruitment 
planning and to closely link it with the medium-term fiscal strategy (MTFS). In addition, the authorities 
have  committed  to  a  'road  map'  to  a  significant  reform  that  aims  to  streamline  the  existing  and  highly 
scattered job qualification system ('klados') with the functions that are part of the job descriptions. Good 
progress continued to be made as concerns legal codification, but it is essential that an approval decision 
to  launch  the  flagship  project  to  establish  a  'National  Gateway  for  Codification  and  Reform  of  Greek 
Legislation' is taken as announced before end of February 2019. In terms of the size of the public sector, 
although  the  hiring  target  for  permanent  staff  was  not  fully  respected,  the  most  worrying  development 
during  2018  has  been  the  rather  sharp  increase  of  temporary  staff  recruitments.  Finally,  intense 
discussions are ongoing with the authorities in terms of progressing with an important human resources 
(HR)  reform  relating  to  the  public  revenue  administration.  If  the  law  amendment  under  discussion  is 
adopted  by  early  March  2019,  it  will  allow  the  Independent  Authority  for  Public  Revenues  (IAPR)  to 
proceed with a first step that will establish a specific grading system to be linked to job descriptions. This 
is  then  expected  to  be  completed  through  the  adoption  of  a  supplementary  wage  grid  by  end  of  2019. 
Once the HR reform for IAPR has been completed, it could act as a pilot for a wider public administration 
reform. 

8.1.1.  Appointments of senior management positions 

A  key reform adopted as part of the ESM programme was the establishment of an objective and 
transparent  selection  process to allow for  the  most competent persons, including candidates from 
the  private  sector,  for  the  most  senior  positions  to  be  selected.  This  is  an  important  step  for 
depoliticising  the  public  administration,  which  would  contribute  to  modernising  it  and  making  it  more 
efficient. A specific commitment was the completion of all appointments of Administrative Secretaries(25) 
(69 in total) by the end of 2018. The process has been subject to significant delays, which the authorities 
attribute to several reasons, including the importance and high visibility of this appointment cycle, which 
is carried out for the first time. Another reason is due to the heavy workload of the Supreme Council for 
Civil  Personnel  Selection  (ASEP)  that  is  providing  secretarial  support  to  the  assigned  selection  panels 
(nine  members  in  each  panel  out  of  which  three  are  ASEP  members).  Besides  running  parallel 
recruitment processes the selection panels have also been assigned with the responsibility of carrying out 
the  appointments  of  other  senior  posts  across  the  public  administration  (e.g.  board  members  at  state-
owned companies). According to the last update provided by the authorities, three shortlists (each with up 
to three candidates per position) from the selection panel have been finalised and will be passed on to the 
respective  Ministers  to  take  the  final  appointment  decision.  Another  three  calls  have  completed  their 
respective structural interviews. According to the authorities, the two  selection panels should from now 
on be able to complete up to five shortlists per month, which means that all shortlists should be completed 
by end-2019.  

Given the importance of this reform and considering the significant delays incurred, the authorities 
have  committed  to  carry  out  an  independent  assessment  and  to  follow-up  on  complementary 
measures. The assessment will allow to take stock of the selection process that is being carried out for the 

(25)  This category covers besides  Administrative Secretaries (17  in total), Deputy Administrative Secretaries (2 in total), Sectoral 

Secretaries (34 in total), Special Secretaries (15 in total) and Secretary General (1 post in total). 

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first time and to identify scope for improvements. The authorities have requested technical support from 
the Commission and agreed on the modality to undertake the independent assessment. This should allow 
for the assessment to be completed by mid-2019. Subsequently, recommendations suggested as part of the 
assessment should be adopted by September 2019. 

In contrast, the process for appointing the Director-Generals (90 posts in total) has been completed. 
As concerns the selection process for Directors (390 posts), to date 47 appointments have been completed 
and  the  authorities  estimate  that  this  appointment  cycle  will  be  completed  by  March  2019.  The 
appointment of Heads of Division (approximately 1,000 posts) is also delayed compared to original plans 
with the launch of the first calls expected during March 2019. 

8.1.2.  Improving the human resource management in the public administration 

Continued  solid  progress  has  been  made  towards  establishing  an  integrated  Human  Resource 
Management  System  (HRMS),  which  is  a  specific  commitment  for  end-2019.  More  specifically, 
512(26)  general  government  entities  (approximately  one  third  of  the  total)  have  completed  their  digital 
organigrams  with  over  113 000  job  descriptions  completed.  Once  the  integrated  HRMS  has  been 
completed  it  will  allow  for  each  job  holder  to  have  a  position  and  specific  job  description  assigned  to 
her/him as well as setting out the entity/unit the job holder currently works for. However, it is observed 
that there  is currently a discrepancy for a  number of entities in terms of the number of  actual positions 
(i.e. posts currently  held by public officials and vacant posts) compared to the  number job descriptions 
prepared. The  authorities  have  acknowledged  this  shortcoming  and  are  following  up  on  it,  for  example 
through issuing circulars to inform the entities to fully complete this exercise,  in order for each post to 
have a job description assigned. In the meantime, and in order to ensure proper and regular monitoring, 
the authorities are encouraged to add the actual number of positions for each entity in the monitoring tool 
used to track progress made in completing the digital organigrams and job descriptions. 

Linked  to  the  reform  to  assign  job  descriptions  to  each  post  is  the  review  of  the  existing  job 
classification  system  ('klados'),  where  the  authorities  have  committed  to  a  specific  road  map  to 
proceed  with  its  streamlining,  in  order  to  align  it  to  the  functions  (24  in  total)  referred  to  in  the 
generic  job  descriptions.  This  would  contribute  to  a  more  efficient  recruitment  process  as  well  as 
facilitating  mobility  across  the  public  administration.  However,  given  that  the  current  system  is 
fragmented and the need to apply a gradual approach, it is expected that the process will need a number of 
years to be completed. However, in order for this reform to be successfully implemented, the authorities 
need to ensure inter-ministerial collaboration as well as embracing the change management tools provided 
through the ongoing technical support in this area. Key steps for the short term include (i) linking the job 
qualifications  ('klados')  with  functional  domains  (expected  to  be  completed  during  the  next  reporting 
period);  and  (ii)  working  group  established  to  select  Ministries  to  be  part  of  a  pilot  collaboration, 
including to update/validate the work carried out under point (i) (expected to be completed by mid-2019).  

The implementation of the mobility scheme is progressing. The pace of completing all transfers of the 
first  cycle,  launched  in  November  2017,  has  picked  up  during  this  reporting  period  (163  out  of  around 
200). Encouragingly, the transfers of the  second cycle, launched in April 2018, seem to be going faster 
compared to the first cycle (88 out of 149).(27) Further, the third cycle was launched in August 2018 and 
is expected to be completed by mid-2019 (specific commitment). For this cycle some 5440 vacant posts 
(out of which 4754 concerning transfers) were published originating from 165 entities and attracting 5333 
applications. The next, i.e. the fourth mobility cycle, is expected to be launched by end of February 2019. 
Given the steady increase of entities that can participate (i.e. have completed their digital organigram and 
job descriptions) the trend of increasing number of vacancies posted and applications received is expected 
to continue. Finally, it is observed that a law amendment adopted (FEK A 212/2018, Art. 89) once again 

(26)  These are the general government entities that have completed both their digital organigrams and job descriptions in accordance 
to data provided by the authorities. In addition, 153 other entities have completed their digital organigram, but not yet the job 
descriptions. 

(27)  149 refers to the number of posts for which selections have been completed. Out of these posts, until today 89 transfers have 

actually been done. Number of selections expected to increase to reflect actual number of vacant positions.  

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extended  the  duration  (until  28  June  2019)  of  the  secondments  made  prior  to  the  enforcement  of  the 
mobility scheme. According to the authorities this is the last extension granted.  

Finally, the next round of performance assessments (covering 2018) is expected to be launched by 
March  2019.  The  reason  for  the  slight  delay  is  due  to  a  need  to  upgrade  the  online  platform.  The 
authorities have also indicated that compared to the previous year it is expected that the HR departments 
of  each  Ministry  will  be  allocated  additional  time  to  ensure  that  all  staff  that  should  take  part  in  the 
performance assessment is properly registered. The authorities have also presented a tentative timeplan on 
the  introduction  of  the  so  called  e-goal  setting,  with  a  pilot  application  expected  to  be  initiated  within 
2019. According to the authorities the initial goal setting will take place at division/unit level. 

8.1.3.  Better regulation and coordination 

Continued good progress has been made in terms of legal codification, including the preparation of 
four  thematic  codifications  covering  (i)  process  simplification,  (ii)  disciplinary  law,  (iii)  mobility, 
and (iv) e-government. Further, the approval decision is expected to be taken by end-February 2019 for 
the 'National Gateway for Codification and Reform of Greek Legislation'. This will allow for the tender 
of this flagship project (EU-funded  with an estimated budget of around EUR 2  million) to be launched 
during the next reporting period. As per the updated implementation plan provided by the authorities it is 
expected that the project will be completed in two years' time. Next key steps will include in particular 
the adoption of specific legal provisions for the 'Central Codification Committee' that are expected to be 
submitted to the Parliament by early March 2019. Given the significance of this reform that is expected to 
go beyond mapping out all relevant legislation in a  given sector, but to also proceed to consolidate and 
where  appropriate  annul  existing  legislation,  it  would  be  useful  for  the  authorities  to  consult  with  key 
stakeholders (e.g. social partners)  when it comes to prioritising the  sectors (e.g. environment,  taxation). 
As concerns inter-ministerial coordination, the authorities are encouraged to provide an update in time for 
the next enhanced surveillance report on progress in implementing the inter-ministerial manual adopted in 
June 2018. 

The process for completing the codification of the body of labour law by mid-2020 is on-going. The 
authorities are expected to define in the coming weeks a clear timeline for the unified Labour Law Code 
and the Code of Labour Regulatory Provisions for adoption by the Parliament.  

8.1.4.  Strengthening  recruitment  planning  and  the 

internal  capacity  of  the  Ministry  for 

Administrative Reconstruction 

New  legislation  passed  by  Parliament  includes  specific  provisions  to  introduce  a  more  strategic 
recruitment planning (incl. strengthening the capacity of ASEP) and establishing new structures at 
the  Ministry  of  Administrative  Reconstruction  (MAR).  The  law  (adopted  on  30  January  2019,  Law 
4590/2019, FEK A 17/2019) foresees four-year recruitment plans that will be coupled with the MTFS and 
the budget allocated for new hirings, while updated annual plans will also be consolidated and submitted 
by  MAR  each  year.  It  will  be  important  to  ensure  that  the  four-year  as  well  as  annual  hiring  plans  are 
submitted in time for the MTFS and draft annual budgets to incorporate these accordingly. The law also 
establishes a special secretariat at MAR that will allow for a comprehensive monitoring and evaluation of 
the  effectiveness  of  reforms  as  well  as  providing  targeted  technical  support  to  general  government 
entities,  in  order  to  ensure  that  the  reforms  are  implemented  appropriately  across  the  public 
administration.  Further,  the  new  structure  is  expected  to  facilitate  the  implementation  of  public 
administration  reforms  that  are  part  of  the  Growth  Strategy,  such  as  the  process  registry  and  internal 
control  function.  In  this  regard  it  will  be  important  to  avoid  a  duplication  of  mandates,  for  example 
regarding the allocation of responsibility between departments to oversee projects carried out under the 
EU-funded operational programme on public sector reform. In summary, the adopted law is an important 
step in the right direction towards continuing the process of modernising the public administration. 

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8.1.5.  Controlling the size and cost of the public sector 

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, which was gradually eased. For 2018 the attrition rule was set to 1:3 (i.e. one entry for each 
three exits). Similarly, a significant restriction was placed on temporary personnel of general government 
entities (excluding legal entities of private law), which the authorities committed to maintain at the 2016 
level (i.e. 47,584) for the period 2016-2018. 

Table 8.1: 

Evolution of public sector staff and wage bill (2009-2018) 

(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) and for 2018 
the figure is the  Jan-Oct average       
(2) The temporary staff of General Government entities (excl. legal entities of private law) is subject to a ceiling       
(3) 2014 figures are not comparable because data on personnel of legal entities of private law (permanent & temporary) are 
not available in census database       
(4) 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 

The  number  of  public  servants  slightly  increased  in  2018,  driven  mainly  by  a  sharp  increase  of 
temporary  staff  (see  Table  8.1).  Permanent  staff  has  remained  broadly  stable  since  2015.  However, 
according to the latest updates from the authorities, the actual hirings in 2018 exceeded the attrition rule 
by 1,075 persons, also reflecting the lower than expected exits mainly due to a reduction of retirements. 
This  excess  recruitment  will,  according  to  the  authorities,  be  offset  in  2019.  The  number  of  total 
temporary  staff  has  significantly  increased  in  2018.  While  this  is  largely  driven  by  temporary  staff 
employed  at  legal  entities  of  private  law  (see  next  paragraph),  census  data  for  2018  also  show  that  the 
temporary personnel of general government entities (excluding legal entities of private law), i.e. covered 
by the ceiling applied(28), exceeded the set ceiling by close to 1,550 persons.  

The category of temporary staff employed at legal entities of private law, which is not part of the 
ceiling for temporary staff, has seen an increase by about 50% over the last two years. According to 
the authorities this increase was largely explained by an extension of the perimeter of the Single Payment 
Authority (SPA) to staff for which the expenditure is covered by the Public Investment Budget (PIB)(29). 
As a consequence, and in order for the SPA to execute the payment, the staff concerned had to be also 
registered  in  the  census  ('apografi')  database.  Although  the  adopted  legal  provision  is  in  principle  a 
positive measure, as it extends the SPA's mandate to also cover this category, the fact that the census had 
omitted in the past a rather large number of public sector employees raises potential concerns. In order to 
ensure that the census provides an accurate and complete overview of the number as well as flows and the 
financing source, the authorities have confirmed that they will take action to ensure that all public sector 
employees  will  be  registered  in  the  census  and  to  make  the  necessary  adjustments  to  the  reporting 
framework of the census during the next reporting period. 

(28)  Average number of temporary staff for 2016 (i.e. 47584) should be seen as the ceiling for 2017 and 2018. 
(29)  FEK B 4936/2018 

74 

Permanent staffTemporary staff burdening the budget (1)of which temporary staff of General Government (excl. legal entities of private law)   (2)Elected staffOther categoriesTotal2009730 234153 087148 63421 2863 366907 9732010700 962109 968105 96121 2863 262835 4782011674 01257 85354 59012 1133 088747 0662012654 78141 86938 80712 0313 053711 7342013618 57222 62620 31613 2523 103657 5532014 (3)576 85612 833 (4)12 833 (4)6 1882 891585 9352015600 48456 38549 8007 1494 773668 7912016598 87058 05347 5848 0574 851669 8312017602 90859 73147 4338 2485 728676 6152018601 10364 91149 1268 8876 027680 928 
 
 
 
                                                           
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Recent  hiring  announcements  by  the  authorities  raise  concerns  regarding  the  achievement  of  the 
authorities’ staffing and wage bill targets for 2019. The Medium-Term Fiscal Strategy (MTFS, 2019-
2022) has set an attrition rule of 1:1 for permanent staff, and the wage bill projections implicitly build on 
a  stable  number  of  temporary  employees  (see  Table  8.2).  The  respective  ceilings  cater  for  the  planned 
conversion of temporary to permanent contracts  for 4,500 teachers and 3,257 employees for the  'Home 
Assistance'  Programme  as  per  the  authorities'  announcements.  In  addition  to  these  conversions,  the 
authorities  have  set  out  plans  to  hire  9,030  permanent  staff  during  2019.  If  these  hirings  were  to  be 
realised, the ceiling for permanent staff as set by the attrition rule would be exceeded by more than 1,800 
(including  the  offsetting  of  excess  hirings  for  2018).  Moreover,  the  increasing  trend  of  temporary  staff 
recruitment seen in 2018 also raises significant doubts as to whether the temporary staff ceiling, which, 
following the conversion, foresees a reduction by 14% in 2019, will be achieved, in line with the MTFS 
wage  bill  targets.  It  will  therefore  be  key  for  the  authorities  to  continue  paying  close  attention  to  the 
evolution of the public sector headcount,  keeping within the replacement rule (1:1 from 2019 onwards) 
for  permanent  hiring  but  also  reining  in  the  trend  of  increasing  temporary  staff.  The  Commission  will 
continue to pay close attention to the evolution of the public sector as to avoid a return to the pre-crisis 
excessive number of public servants. 

Table 8.2: 

Hiring limits of permanent personnel and indicative ceilings for temporary personnel to be monitored in the 
Enhanced Surveillance Reports (2018-2022) 

(1) 2019 figures include corresponding reductions of 7757 persons due to the hirings of 4500 teachers and 3257 persons in 
"Home assistance" program. 
(2) 2018 figures are based on the latest updates from authorities. Note, November and December 2018 data not yet made 
publicly available through 'apografi'2018 figures are based on the latest update from authorities. 
Source: European Commission 

Finally, as highlighted in the first enhanced surveillance report (November 2018), concerns remain 
related to policies which risk undermining the uniform wage grid. For a more detailed description of 
the possible implications and the associated fiscal risk (see Section 3.1). 

8.2. 

JUSTICE  

The  first  phase  of  the  Integrated  Judicial  Case  Management  System  (OSDDY/PP),  an  end-2018 
specific commitment, was completed on time and the activation of the second phase has begun. The 
objective of the 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 the ability to monitor online the progress of any case pending in the participating courts. The 
scope  of  the  first  phase  covered  41  courts,  covering  the  major  metropolitan  areas  and  all  degrees  of 
jurisdiction  up  to  the  Supreme  Court.  The  results  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, to be finalised by mid-2020 will cover the rest of Greece, 
also building on the experience acquired during the roll-out of the first phase. The project was extensively 
redesigned  and  upgraded  as  compared  to  its  initial  layout  and  its  initial  budget  was  doubled,  reaching 
EUR 24 million. Its timetable was commensurately extended.  

Based on the progress achieved so far, it is critical to ensure that efforts be deployed towards the 
speedy and thorough implementation of all actions of the project, and more broadly, of the ongoing 
three-year strategic plan for Justice. The acceleration of judicial proceedings, the  upgrading of court 

75 

2018 (2)2019202020212022Permanentstaff-newhirings(asperHiringPlaninMTFS):compliancewithattritionrule(1:3for2018and1:1 for 2019-2022) (1)6 04814 9087 9838 7028 597Ceilingoftemporarystaffburdeningthebudget-total number of staff contracted (1)64 91157 15457 15457 15457 154  of which    Temporary staff of General Government entities49 12641 36941 36941 36941 369    Temporary staff of public entities of private law15 78515 78515 78515 78515 785 
 
 
 
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functions  and  services,  the  securing  of  accurate  and  complete  data  in  a  homogeneous  and  standardized 
form,  allowing  for  the  effective  monitoring  and  problem  resolution,  the  adoption  of  a  number  of 
legislative  texts  of  major  institutional  significance  in  the  form  of  newly  elaborated  codes  (Penal  Code, 
Code of Penal Procedure, Code on the  Organisation of Courts of Justice, Code on Judicial Employees) 
and the completion of  long-standing initiatives (revision of the judicial map, adoption of provisions on 
legal  aid)  are  of  decisive  importance  in  the  context  of  the  contribution  of  Justice  to  strengthening  the 
business environment and attracting investment in the aftermath of the crisis. 

Setbacks  to  the  operation  of  the  new  framework  of  out-of-court  mediation,  an  important  reform 
adopted  under  the  ESM  programme,  need  to  be  remedied  as  soon  as  possible.  As  detailed  in  the 
previous enhanced surveillance report, the authorities adopted a postponement of the entry into force of 
the provisions on mandatory mediation, from mid-October 2018 to mid-September 2019, in deference to 
a  Greek  Supreme  Court  opinion  to  the  effect  that  the  provisions  in  question  are  unconstitutional  and 
incompatible with Union law in certain respects, mainly related to the financial burden on the parties and 
to the professional qualifications of mediators.  Given the limited scope of the Supreme Court's findings, 
the issues identified should be addressed without delay. It is important that the concerns of the Supreme 
Court be addressed in the shortest possible time through the adoption of the required amendments to the 
law on mediation so as to ensure the availability of the full spectrum of mediation options to the public, 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 
monitor developments in relation to the legal proceedings against the members of the Committee of 
Experts  (CoEx)  of  TAIPED  and  the  former  President  and  senior  staff  of  the  Hellenic  Statistical 
Authority,  ELSTAT.  Regarding  the  CoEx,  the  Supreme  Court  Council  admitted  the  appeal  against  a 
ruling referring the case to a  public trial, and referred it back to the council of the  Court of  Appeal; in 
January  2019,  the  latter’s  prosecutor  submitted  his  proposal  to  the  council,  concluding  in  favour  of  a 
dismissal of the charges against the defendants. The case is currently pending before the Court of Appeal. 
In the case against former ELSTAT President A. Georgiou related to fiscal statistics, there have been no 
further developments  to those described in the  previous enhanced  surveillance report.  The  Commission 
will  continue  to  closely  monitor  developments  in  both  procedures  to  report  back  in  the  context  of 
enhanced surveillance. 

In  the  area  of  anti-corruption,  the  authorities  have  continued  their  efforts,  led  by  the  General 
Secretariat  for  Anti-corruption  (GSAC),  on  a  number  of  areas  included  in  the  National  Anti-
corruption  Action  Plan  (NACAP)  for  2018-2021.  Most  notably,  GSAC  is  currently  finalising  three 
legislative initiatives that should be ready to be submitted to the Parliament during the next three months, 
concerning  (i)  whistleblowing  (will  be  aligned  with  the  EU  Directive  currently  being  finalised);  (ii) 
internal  auditing  across  the  public  administration;  and  (iii)  an  update  of  GSAC's  mandate,  including 
establishment  of  its  organigram.  Further,  following  the  good  progress  over  the  last  years  in  the  area  of 
political  party  financing,  this  year's  election  cycle(30)  will  be  the  first  time  the  new  legislation  is 
implemented/enforced.  Regarding  actions  that  are  part  of  the  NACAP,  the  setting  up  of  a  coordination 
mechanism  for  corruption  cases  will  warrant  particular  attention  in  the  coming  months.  The  authorities 
are  also  encouraged  to  complement  their  bi-annual  progress  reporting  on  the  implementation  of  the 
NACAP by (i) integrating recommendations provided by international institutions and organisations (e.g. 
GRECO and OECD); and (ii)  following  up on specific policy advice  provided by the technical support 
provided through the Commission. Finally, as concerns the  action relating to the role and operations of 
the  anti-fraud  coordination  service  (AFCOS)  aiming  to  ensure  cooperation  between  the  legislative, 
administrative  and  investigative  branches  of  the  public  administration  relating  to  the  protection  of  the 
EU’s financial interests, discussions are ongoing with the Commission on the steps needed to be taken to 
allow for this action to be closed by the time the next enhanced surveillance report is issued. 

(30)  Regional and local elections to take place in two rounds on 19 and 26 May (the 2nd round taking place at the same date as the 

elections to the European Parliament). National elections will need to take place by October 2019. 

76 

 
                                                           
9. 

SOVEREIGN FINANCING AND CAPACITY TO REPAY 

9.1. 

SOVEREIGN FINANCING 

Greece  raised  EUR  2.5  billion  by  issuing  a  5-year  government  bond  at  the  end  of  January  2019. 
This was the first bond issuance by Greece since February 2018, i.e. the first issuance after the end of the 
ESM programme. The transaction attracted demand over four times in excess of the issued amount. This 
allowed  the  yield  to  be  3.6%,  lower  than  the  originally  planned  range  of  3.75-3.85%,  although  still 
elevated. The coupon rate of the bond is 3.45%, and it matures in April 2024. The new benchmark rallied 
after the  syndication and  was traded at about 3.2% end-January. Although there  was  no imminent need 
for the Greek government to raise funds to cover its financing needs, introducing new benchmark bonds is 
indeed helpful in rebuilding the Greek yield curve and creating a more liquid government bond market. 
At  the  same  time,  the  impact  of  the  still  elevated  yields  on  debt  sustainability  should  continue  to  be 
carefully considered. 

Graph 9.1: 

5-year government bond yield spreads to the Bund 

Source: Macrobond 

State  liquidity,  is  sufficient  to  cover  the  financing  needs  for  at  least  two  years  even  without  new 
issuances. According to data provided by the authorities, the financial buffer provided by State deposits 
stood at EUR 26.8 billion at  the end of 2018 and driven by amortizations  it is projected to reach EUR 
16.1 billion  by  the  end  of  2019  even  without  new  issuances.(31)  The  debt  servicing  needs  for  2020  are 
estimated at EUR 10 billion, thus the estimated cash buffer would cover the State debt-financing needs 
well into 2021. 

(31)  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.   

77 

0123456%5year government bond spreads to the BundPortugalIrelandGreeceItaly 
 
                                                           
 
Commission Staff Working Document -  

Chapter 9 - Sovereign financing and capacity to repay 

Table 9.1: 

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

Estimates assuming no further market issuances for medium or long-term debt and no medium term debt measures 
Source: European Commission 

Greece’  sovereign  financing  profile  remains  favourable  in  the  medium  term.  There  have  been  no 
significant changes in the roll-over risks of Greece’s public debt since the  enhanced surveillance report 
published in November. Greece still benefits from a debt structure with extremely long average maturity 
and favourable interest rates.  Graph  9.2 shows the  medium and long-term amortizations  of the existing 
loans  and  bonds.  Even  if  the  actual  amortizations  are  expected  to  be  higher  due  to  the  interim  bond 
issuances,  financing  needs  are  expected  to  remain  relatively  contained  in  the  short  and  medium  term. 
Also,  the  ample  cash  buffer  built  at  the  end  of  the  ESM  program  will  contain  roll-over  risks  in  case 
market access is hindered.  

Graph 9.2:  Medium and long-term amortisations 

Source: PDMA, IMF, ESM, European Commission  

Despite  the  successful  exit  from  the  program  in  August,  Greece’s  yield  spreads  remain  elevated. 
The  spreads  of  ten-year  government  bonds  compared  to  German  Bunds  have  widened  further  since 
October  2018  by  around  20 bp  and  averaged  around  4%  in  January  2019.  Spreads  had  spiked  in  early 
January at about 4.2%, but receded by to around 3.75% in the wake of the successful bond issuance at the 
end of January, which corresponds to the yield dropping from 4.4% to 3.9%. While Greek spreads were 
affected by adverse developments in Italy from mid-2018, underscoring Greece’s vulnerability to external 
shocks, they remained elevated later in the year while Italian spreads started to moderate. This suggests 
that  some of the risk premia  embedded in Greek  yields are  related to domestic  factors, and  may  signal 
investor concerns over weaknesses in the banking sector as well as the commitment to reform continuity.  

78 

EUR billion20182019Funding requirementState cash balance  ('-' = surplus) 3.54.7Amortisation (excl. short-term)4.611.7  of which IMF1.72.1  of which Eurosystem1.95.8Other (including funding for arrears outlfows)2.00.0Total requirements10.116.4Funding sourcesMarket financing ( medium-/long-term + repos)12.93.7Official financing21.70.0Other (including privatisation)1.32.0State deposit financing-25.910.8Total sources10.116.4Financial buffer26.816.101234567% of GDPExisting other loans and bondsSMP+ANFAEFSFGLFIMF 
 
 
 
 
Commission Staff Working Document -  

Chapter 9 - Sovereign financing and capacity to repay 

Graph 9.3:  Greek spread of 10-year government bond yield over Italy 

Source: Macrobond 

9.2.  DEBT SUSTAINABILITY 

A  technical  update(32)  of  the  debt  sustainability  analysis  shows  that  the  assessment  of  the 
sustainability  of  Greece's  debt  is  broadly  unchanged.  Changes  since  the  last  technical  update 
undertaken in November 2018 are due to the updated  macroeconomic projections and  interest payment 
forecast updates.  Assuming full implementation of all medium-term measures politically agreed in June 
2018,(33)  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 debt (EDP definition), which results in a hike of 
public debt. After 2033, debt declines further but remains above 100% of GDP until 2050. 

Graph 9.4:  Main results of the debt sustainability analysis 

Source: European Commission 

(32)  The technical update includes: updated GDP data and macroeconomic scenarios, updated assumption on risk free rates, updated 
interest and amortization payments on Greek Loan Facility as well as other, non-official loans, and an updated arrears clearance 
schedule. 

(33)  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. 

79 

01234Oct 2017Nov 2017Dec 2017Jan 2018Feb 2018Mar 2018Apr 2018May 2018Jun 2018Jul 2018Aug 2018Sep 2018Oct 2018Nov 2018Dec 2018Jan 2019Feb 2019%Greece vs Italy spread 5Y040801201602002018202020222024202620282030203220342036203820402042204420462048205020522054205620582060%Gross government debtBaseline scenarioAdverse scenario05101520253035402018202020222024202620282030203220342036203820402042204420462048205020522054205620582060%Gross financing needsBaseline scenarioAdverse scenariosustainability 
 
 
                                                           
Commission Staff Working Document -  

Chapter 9 - Sovereign financing and capacity to repay 

Greece’s gross financing needs (GFN) will hover around 10% of GDP until 2032. Later, GFN starts 
to increase slowly, but is projected to remain 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 2037 onwards. Under that scenario, GFN reaches 20% in the late 
2030's and then remains constantly above it. 

Table 9.2: 

Main results of the DSA calculations assuming full implementation of the medium term measures, and the main 
underlying assumptions 

Source: European Commission 

80 

201820192030204020502060Average2019-60Debt (% of GDP)Baseline182.8172.2115.8112.4100.087.6Adverse181.9171.1125.2136.3146.2171.4GFN (% of GDP)Baseline23.310.910.215.016.817.7Adverse23.210.912.220.427.637.6Primary surplus (% of GDP)Baseline3.73.52.22.22.22.22.4Adverse3.73.51.51.51.51.51.7Nominal growth (%)Baseline2.53.23.03.03.03.03.1Adverse3.03.42.82.82.82.82.9Re-financing rates (%)Baseline3.85.14.74.34.04.6Adverse3.75.45.45.66.05.4 
 
 
 
 
 
 
ANNEX 

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Commission Staff Working Document -  

Chapter  - Annex 

Progress with the implementation of mid-2019 specific commitments commitments to the Eurogroup (Eurogroup annex 22 June 2018) 

Commitment 

Mid-2019 

State of play and next steps 

Tax policy ENFIA. Greece will undertake, by mid-
2019,  a  nationwide  valuation  exercise  of  property 
tax value based on market values. 

The legal framework for the new system of property valuation has been established, a Property Tax Valuation Unit has been 
set up, and two key IT projects have been initiated to map electronically zonal boundaries and to systemise the collection of 
real estate data. 

Public 
financial  management:  Greece  will 
continue to implement reforms in the area of public 
financial management, avoiding the accumulation of 
new  arrears  and  will,  by  mid-2019,  complete  the 
implementation of reforms identified by the Hellenic 
Court of Auditors (HCA). 

Work  is  ongoing  although  some  measures  are  lagging  behind.  Discussions  are  ongoing  to  pinpoint  further  measures  in 
addition to the ones already in the pipeline, inter alia through streamlining payment processes. 

Health  care  –  Clawbacks:  Complete  the  full 
offsetting  and  collection  of  the  clawback  by  June 
every year for the previous calendar year.  

The  calculation  of  the  clawback  for  hospital  pharmaceuticals  2018  is  expected  to  be  finalised  by  February  2019.  For 
outpatient  pharmaceuticals,  by  April  2019  EOPYY  should  be  able  to  start  the  2018  offsetting.  The  clawback  for  health 
services providers for 2018 has been calculated  and should be published in the March 2019.  

Social safety nets. Greece will complete the reform 
of social safety nets launched under the programme; 
to this end it will apply to all disability benefits the 
new  approach  for  disability  determination  based  on 
both  medical  and  functional  assessment  by  mid-
2019. 

The pilot project testing the new procedures for disability assessment is progressing, and these should be extended gradually 
to the rest of the country by June 2019. There is a risk of delays with the definition of the new methodology for a functional 
assessment of disability, due to the slow collection of data from the pilot. 

Cadastre.  Greece  will  complete  the  drawing  of  the 
remaining forest maps by mid-2019 

The reform of the cadastre is progressing, with currently 41% of the country covered by definitive maps; and 11 % of the 
country  has  finalised  maps  in  the  process  of  ratification.  A  further  46%  of  the  country  maps  are  being  processed  by 
consultants and 2% of the country delayed due to tender failure. 

Energy. The Target Model will be fully launched by  Prior steps, such as setting up Henex Clear and preparing some of the rulebooks (for the spot markets- Intra-Day and Day-

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Chapter  - Annex 

Commitment 

mid-2019 

State of play and next steps 

Ahead and for the balancing markets) have been achieved. There has been very little progress regarding the development of a 
forward  market,  which  is  planned  to  open  after  the  spot  markets  and  balancing  markets  open.  A  full  launch  is  currently 
expected by October 2019; however, there are concerns that this could be even further delayed, perhaps into to 2020. 

HCAP.  The  review/replacement  of  all  SOE  boards 
will be completed by mid-2019 

Review / replacement of ELTA and GAIAOSE board of directors (BoD) completed. Appointing professional members in the 
BoDs  in  the  bigger  non-listed  SOEs  (in  particular  executive  members)  continues  to  be  challenging.  The  authorities  have 
agreed  to  address  the  legislative  cap  on  the  remuneration  of  SOE  board  members  that  leads  to  obstacles  in  attracting 
applicants through the adoption of a legislative amendment in time for the 3rd enhanced surveillance report.  

Tenders.  The  transactions  on  HELPE  (including 
transfer  of  remaining  shares  to  HCAP)  and  Marina 
of Alimos will be completed by mid-2019 

HELPE: The two remaining bidders have proceeded to setting up consortia Glencore-Carlyle and Vitol-Sonatrach. They are 
expected  to  submit  their  binding  offer  in  early  March.  The  fact  that  there  are  only  two  bidders  in  the  final  phase  is  not 
positive for the outcome of the process. 

  Marina of Alimos: Submission of  binding offers by the interested Investors on 14 February.. Currently, TAIPED is 

undertaking a due diligence of the submitted by the bidders documentation.  

Public  Administration  -  Appointments.  Greece 
will  complete 
this 
process, including follow-up measures 

independent  assessment  of 

The authorities have requested the support of Commission services to carry out this independent assessment. Agreement in 
principle  as  concerns  how  this  assessment  will  be  carried  out.  Assessment  expected  to  be  initiated  shortly  and  to  be 
completed  by  mid-2019.  Recommendations  and  expected  follow-up  by  the  authorities  (incl.  legal  revisions)  should  be 
completed by September 2019. 

83