COMMUNICATION FROM THE COMMISSION Enhanced Surveillance update – Greece, June 2019
Date: 2019-06-05
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, 5.6.2019  COM(2019) 540 final  COMMUNICATION FROM THE COMMISSION Enhanced Surveillance update – Greece, June 2019  {SWD(2019) 540 final}  
 
 
BACKGROUND 

Economic developments and policies in Greece are monitored under the European Semester for economic 
policy  co-ordination  and  under  the  enhanced  surveillance  framework  according  to  Regulation  (EU)  No 
472/2013 (1). The activation of enhanced surveillance for Greece (2) 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 robust and sustainable economic growth.  

Enhanced surveillance provides a comprehensive framework for monitoring economic developments and 
the pursuit of policies needed to ensure a sustainable economic recovery. It provides for a regular assessment 
of  recent  economic  and  financial  developments  in  Greece,  as  well  as  for  monitoring  sovereign  financing 
conditions  and  updates  of  the  debt  sustainability  analysis.  Enhanced  surveillance  also  provides  the  basis  for 
assessing the general commitment given by Greece to the Eurogroup of 22 June 2018 to continue and complete 
reforms adopted under the European Stability Mechanism (ESM) programme and to ensure that the objectives of 
the  important  reforms  adopted  under  the  financial  assistance  programmes  are  safeguarded.  Greece  reiterated 
these  commitments  in  the  Eurogroup  statement  of  5  April  2019 (3).  In  that  context,  enhanced  surveillance 
provides  the  basis  for  monitoring  the  implementation  of  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 (4).  Fifteen  specific  commitments  have  a 
deadline of mid-2019, progress on which is assessed in this report.  

This is the third enhanced surveillance report for Greece. It is issued alongside the assessment of Greece’s 
Stability  Programme  and  the  Commission  Recommendation  for  country-specific  recommendations  to  Greece 
under the European Semester. This report is based on the findings of a mission to Athens between 6 and 8 May 
2019 conducted by the Commission in liaison with the ECB (5). The IMF participated in the context of its 2019 
Article IV surveillance cycle, 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.  

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  will  be  made  available  to 
Greece  subject  to  compliance  with  its  commitments  on  reform  continuity  and  completion,  based  on  positive 
reports  under  enhanced  surveillance,  in  semi-annual  tranches  up  to  mid-2022.  Following  the  Eurogroup  on  5 
April 2019, the first tranche of policy-contingent debt measures was released, taking into account the assessment 
of  the  implementation  of  Greece’s  commitments  for  end-2018  in  an  updated  enhanced  surveillance  report 
adopted by the Commission on 3 April 2019 (6).  

(1)  Regulation (EU) No 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and 
budgetary  surveillance  of  Member  States  in  the  euro  area  experiencing  or  threatened  with  serious  difficulties  with  respect  to  their 
financial stability, OJ L 140, 27.5.2013, p. 1. 

(2)  Commission Implementing Decision (EU) 2018/1192 of 11 July 2018 on the activation of enhanced surveillance for Greece, OJ L 211, 
22.8.2018, p. 1, and Commission Implementing Decision (EU) 2019/338 of 20 February 2019 on the extension of enhanced surveillance 
for Greece. 

(3)  https://www.consilium.europa.eu/en/press/press-releases/2019/04/05/eurogroup-statement-on-greece-of-5-april-2019/ 
(4)  https://www.consilium.europa.eu/media/35749/z-councils-council-configurations-ecofin-eurogroup-2018-180621-specific-

commitments-to-ensure-the-continuity-and-completion-of-reforms-adopted-under-the-esm-programme_2.pdf 

(5)  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.  The  review  mission  was 
preceded by a technical mission from 1 to 4 April. 

(6)  Given that half of last year’s and the full amount of this year’s instalments of the interest step-up margin were eligible for a waiver, the 
policy-contingent  debt  measures  exceptionally  amounted  to  some  EUR  970  million.  https://www.esm.europa.eu/press-releases/efsf-
approves-reimbursement-and-reduction-step-interest-margin-greece  

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ECONOMIC OUTLOOK 

Greece’s  economic  recovery  is  expected  to  continue  in  2019.  Following  an  annual  growth  rate  of  1.9%  in 
2018,  real  GDP  growth  is  forecast  to  reach  2.2%  in  both  2019  and  2020,  supported  primarily  by  domestic 
demand. Private consumption has been a steady contributor to the recovery and is forecast to perform well again 
in 2019. Public consumption may support growth this year according to budgetary plans, though Greece’s track 
record  of  underspending  implies  a  downside  risk.  The  same  holds  for  public  investment,  while  a  rebound  in 
residential investment suggests that the  housing  market is on a normalisation path against headwinds  from the 
still  shrinking  supply  of  bank  credit  in  this  market  segment.  Buoyant  export  performance  was  a  key  growth 
driver  in  2018,  but  is  expected  to  moderate  in  2019  amid  a  slowdown  of  the  external  environment.  However, 
exports of goods and services are still forecast to increase by close to 5% in 2019 and close to 4% in 2020 in real 
terms. 

The labour market shows further improvements, although the decline in unemployment halted in October 
2018  at  18.6%,  hovering  around  that  level  until  February  2019.  Employment  still  showed  year-on-year 
growth of 2.4% in February, though this reflects earlier gains in employment rather than recent improvements. 
Detailed  monitoring  is  foreseen  to  assess  the  impact  of  the  recent  increase  of  the  minimum  wage  and  the 
abolition  of  the  sub-minimum  wage  on  the  pace  of  the  recovery  in  the  labour  market.  Inflation  is  expected  to 
remain muted throughout 2019, and to pick up only beyond 2020 as the output gap closes. 

Downside  risks  dominate  the  forecast  in  the  short  and  medium  term.  The  forecast  is  heavily  reliant  on 
technical assumptions regarding the full execution of the budget ceilings for investment and ordinary spending. 
Vulnerabilities in the banking sector and increasing wage costs might pose further challenges for the recovery of 
domestic  demand  and  in  particular  of  investment.  In  case  of  a  stronger-than-expected  deterioration  in  the 
external environment, or a higher pass-through to Greece, the recovery may prove to be more sluggish. 

FISCAL POLICIES AND OUTLOOK 

Greece over-achieved the agreed primary surplus target of 3.5% of GDP in 2018, largely due to continued 
under-execution  of  spending  ceilings,  notably  on  public  investment.  The  general  government  headline 
balance recorded a surplus (1.1% of GDP) for the third year in a row, while the primary surplus monitored under 
enhanced  surveillance  reached  4.3%  of  GDP,  well  above  target.  The  primary  surplus  would  have  been  even 
larger, but the emerging fiscal space allowed the authorities to clear unforeseen liabilities following from a Court 
decision and pay a means-tested benefit to households at the end of 2018. For the most part, the under-execution 
of expenditure arises due to setting budget ceilings above the actual spending capacity of budgetary  units and 
underlines the need for proper assessments of the state of play on major spending projects and realistic estimates 
of costs of new policies. These issues have occurred for a number of past years. The European institutions are 
supporting the authorities to address the reasons of the systematic underspending in order to improve budgetary 
practices and to fully utilise the resources available for public investment from both the EU and national sources 
to support growth. 

The Commission 2019 spring forecast, published  before the adoption of new fiscal  measures on 15 May 
2019, indicated that the primary surplus would reach 3.6% of GDP in 2019, which is considerably lower (by 
0.5% of GDP) than the projection of the  Greek authorities in their Stability Programme. The difference in the 
forecasts mainly arises due to the authorities’ more favourable macroeconomic scenario and their approach to the 
allocation  of  the  public  investment  budget  between  entities  outside  and  inside  general  government.  More 
specifically, this involves a re-assignment of part of the expenditure previously foreseen for investment to grants 
to  state-owned  enterprises,  without  the  grants  being  used  for  additional  spending  by  their  recipients.  This 
accounting operation has a balance-improving effect in the projection of the authorities (0.3% of GDP in 2019 
and 0.2% of GDP in 2020). In the absence of adequate information on the nature or the specific recipients of the 
additional  grants,  this  re-assignment  of  expenditure  is  not  reflected  in  the  projections  of  the  European 
institutions. In contrast, the fiscal projections prepared by the European institutions assume full execution of the 
ceilings in line with standard practice. 

In their Stability Programme, the Greek authorities announced their intention not to implement the pre-
legislated  income  tax  credit  package,  which  was  set  to  enter  into  force  in  January  2020.  This  means  not 

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proceeding with measures that broaden the tax base and create fiscal space of 1% of GDP for growth-enhancing 
reforms of the tax system.  

On  15  May  2019,  and  thus  after  the  submission  of  the  Stability  Programme,  the  authorities  adopted  a 
package of permanent fiscal measures which the European institutions estimate will have a fiscal cost of 
more than 1% of GDP in 2019 and beyond. The measures include new instalment schemes for debts on taxes 
and  to  social  security  funds  and  municipalities,  reductions  in  selected  VAT  rates,  the  introduction  of  a  13th 
pension, and a reversal of an earlier reform of survivors’ pensions. Projections by the European institutions show 
that the adoption of the fiscal measures on 15 May 2019 poses a risk for the achievement of the agreed primary 
surplus  target  of  3.5%  of  GDP  in  2019  and  beyond.  The  magnitude  will  depend  on  the  take  up  of  the  new 
instalment schemes and their impact on existing ones. Moreover, and as outlined in the assessment of the Greek 
Stability  Programme,  the  measures  also  raise  concerns  on  the  achievement  of  the  medium-term  budgetary 
objective  (MTO)  in  structural  terms  in  2020.  A  re-assessment  of  compliance  with  the  requirements  of  the 
preventive arm of the Stability and Growth Pact will be carried out in autumn 2019, including a revision of the 
applicable benchmark for net expenditure growth in 2020.  

The  quality  of  the  fiscal  measures  adopted  on  15  May  2019  is  of  concern  given  the  objective  to  make 
public finances more growth-friendly and to direct a higher share of social spending towards groups who 
face the highest incidence of poverty.  For example, the duration of the new instalment schemes is very long 
(120  monthly  payments),  and  the  schemes  contain  only  limited  provisions  to  assess  the  ability  to  pay;  it  is 
recalled  that  a  key  reform  enacted  in  2013  replaced  all  former  settlement  schemes  by  a  single  ‘basic’  scheme 
accessible  under  strict  eligibility  criteria.  Lower  VAT  rates  for  food  products,  restaurants  and  food  services, 
electricity and gas contrast with an important measure adopted in July 2015, while leaving in place the very high 
24% standard rate and further increase the VAT gap, which is already the 2nd highest in the EU. Furthermore, the 
introduction of a permanent 13th pension and relaxation of the eligibility criteria for survivors’ pensions partially 
alter measures adopted in 2012 and 2016 respectively. These reforms will increase public spending on pensions, 
which is already the highest  as a  share  of GDP in the  EU, and is  in contrast to  measures adopted in the  2019 
budget which directs a higher share of spending on social benefits towards the young people and working-age 
population  who  face  much  higher  risks  of  poverty.  Overall,  the  adopted  measures  on  pensions  and  VAT  are 
targeted at consumption and will absorb a considerable amount of fiscal space that was envisaged in legislation 
adopted in 2017 for growth-enhancing reductions in labour and corporate tax rates. 

The Greek authorities announced their intention to adopt a set of additional expansionary fiscal measures 
for 2020 in autumn this year. These include reductions in tax rates, as well as the  introduction of a series of 
exemptions and tax expenditures or subsidies. The authorities have provided only a partial estimate of the fiscal 
impact  of  these  measures,  totalling  EUR  1.2  billion  or  0.6%  of  GDP.  For  now,  these  announcements  remain 
statements of future policy intention and an assessment on the quality of the measures and their impact on the 
achievement of the agreed fiscal targets would only be carried out if detailed proposals are actually tabled.  

The  Greek  authorities  have  also  announced  their  intention  to  revisit  the  agreement  reached  with 
European  partners  in  June  2018  as  regards  the  annual  primary  surplus  targets  of  3.5%  of  GDP  up  to 
2022. Linked to this, the authorities are considering transferring part of the cash reserves generated by the 2016-
2018  fiscal  over-performance  to  an  escrow  account.  Any  proposal  which  alters  the  agreement  reached  with 
European partners in June 2018 would need to be discussed at the Eurogroup in the context of an updated debt 
sustainability analysis. 

Greece’s public finances continue to face important fiscal risks with respect to ongoing court cases and the 
possible broadening of exemptions from the unified wage grid. No new information on the pending case on 
pensions has become available since the publication of the second enhanced surveillance report, and the ruling 
by the Council of State on the constitutionality of the cuts in seasonal bonuses is yet to be published. In addition, 
risks to the integrity of the unified wage bill have already started to materialise and remain a source of concern. 
They stem mainly from the decision to exempt certain officials at the Ministry of Finance from the unified wage 
grid  in  October  2018,  a  decision  that  has  been  extended  to  other  public  entities  since.  While  the  cost  of  this 
measure is relatively contained, it increases the likelihood of legal challenges by other groups of public officials 
and/or  of  further  discretionary  extensions.  Establishing  a  unified  wage  grid  was  one  of  the  key  reforms 
implemented under the financial assistance programmes. 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 actions within the same policy area. 

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FISCAL STRUCTURAL POLICIES 

Greece  has  made  progress  in  the  reform  of  the  ENFIA  property  tax  valuation  framework,  though 
preparations  for  a  mid-2019  realignment  of  property  values  have  not  yet  been  completed.  Considerable 
progress  has  been  made  on  the  operational,  IT  and  legal  aspects  of  the  valuation  process,  and  there  has  been 
agreement  that  a  new  nationwide  valuation  exercise  by  valuers  is  not  needed  in  mid-2019  (which  had  been  a 
specific commitment). At the same time, work still needs to be completed for a partial realignment of property 
tax  values  in  2019,  which  the  authorities  have  been  working  towards  as  an  intermediate  step  towards  fully 
aligning property tax zonal values with market prices by 2020. 

Progress  is  underway  on  other  smaller  tax  policy  reforms.  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. 

The hiring of staff to the Independent Authority for Public Revenue (IAPR) remains slow. Only a marginal 
increase was observed during the first quarter of 2019: if the current hiring trend remains, there is a risk that the 
specific  commitment  for  end-2019  may  not  be  met.  In  addition,  a  number  of  complementary  measures  were 
adopted earlier in the year to  ensure the continued strengthening of the IAPR’s capacity and follow-up actions 
are  expected  for  the  next  months,  in  particular  related  to  Human  Resource  reform,  implementation  of  the 
strategic Blueprint and IT arrangements. 

Progress on other commitments and reform items is mixed. On customs, continued progress has been made 
in  delivering  on  the  anti-smuggling  strategy  and  the  fuel  tank  action  plan.  Work  on  promoting  electronic 
payments is proceeding well, while on the other hand the planned asset registry has not been completed. Finally, 
a  recent  law  amendment  raises  potential  overlaps  between  the  responsibilities  of  General  Secretariat  for  IT 
Systems and the IAPR, and it is essential that a cooperation framework is agreed. 

The results for the first quarter of 2019 on key performance indicators set by the IAPR present a mixed 
picture.  Tax  collection  has  been  weaker  than  targeted,  while  key  performance  indicators  in  most  other  areas, 
including  collection  after  audits,  are  being  met.  The  Joint  Centre  for  the  Collection  of  Social  Security  Debt 
(KEAO) continues to meet its targets for the collection of social security debt, which are more ambitious than for 
the preceding year, though debt collection in April 2019 decreased year-on-year. IAPR and KEAO are working 
towards strengthening their co-operation within a coherent framework. In this context, the adoption of relevant 
legislation  to  allow  KEAO  to  apply  the  IAPR’s  classification  of  the  persons/entities  considered  to  have 
‘uncollectable’ debt should be adopted without further delays. 

New instalment schemes were adopted for tax, social security and municipal debt with up to 120 monthly 
instalments.  This  alters  a  key  reform  enacted  in  2013  that  replaced  former  settlement  schemes  by  a  single 
‘basic’ scheme accessible under strict eligibility criteria in a manner which reinstates design problems of earlier 
schemes. While the scope of the social security debt is more targeted, as its focus is on the self-employed and it 
links  entitlements  to  contributions,  the  new  instalment  scheme  on  taxes  does  not  include  any  specific 
prioritisation for eligibility or any prior viability assessment. In light of past experience, the announcement of a 
new instalment scheme may have contributed to weakening revenue collection and can create risks to payment 
discipline. 

Progress  with  arrears  clearance  remains  disappointing.  The  Greek  authorities  have  committed  to  clear  the 
stock of arrears, avoid the accumulation of new arrears (a continuous action) and to complete the implementation 
of reforms identified by the Hellenic Court of Auditors by mid-2019. Despite the fact that the net stock of arrears 
has decreased since the end of the programme, the pace of reduction has significantly slowed and new arrears 
continue to be created in some sectors. The end-March 2019 stock of net arrears stood at EUR 1.4 billion, and 
while  EUR  0.3  billion  lower  than  the  end  of  programme  (August  2018),  this  is  the  same  level  as  at  end-
December  2018.  Of  the  total  EUR  7  billion  disbursed  for  arrears  clearance  during  the  programme,  EUR  0.1 
billion remain unused by end-April 2019.  

The  authorities  are  currently  implementing  structural  measures  to  address  the  bottlenecks  of  arrears 
management, based on the recommendations of systemic nature issued by the Hellenic Court of Auditors. 
To  this  end,  the  authorities  have  made  progress  with  the  implementation  of  two  action  plans,  in  the  fields  of 
responsibility  of  General  Accounting  Office  and  the  IAPR  respectively.  The  overall  implementation  of  the 

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reforms in both action plans  will be assessed by the Hellenic Court of  Auditors in  mid-2019 in the context of 
their follow-up audit.  

A way forward was agreed on the abolition of ex ante audits performed by the Hellenic Court of Auditors 
for entities outside central government. The authorities have amended relevant legislation so as to ensure that 
hospitals and the social benefits agency are no longer subject to ex ante audits, while the abolition will take place 
at end-July 2019 for the remaining extra-budgetary funds and municipalities in light of capacity considerations. 
The authorities have committed to undertake a set of specific supplementary actions, with a view to ensuring that 
the abolition of ex ante audits, which brings Greece closer in line with international practice, runs smoothly. The 
authorities will need to stick with the full arrears clearance plan and implement complementary actions targeting 
the structural sources of arrears creation. 

As  regards  other  public  financial  management  reforms,  the  authorities  are  moving  forward  with 
implementing  a  Treasury  Single  Account  at  the  Bank  of  Greece  and  with  setting  up  a  Unified  Chart  of 
Accounts. Some progress on the Treasury Single Account has been made in the first months of 2019 though the 
most important measures still remain to be taken. An important intermediate step was the rollout of the Unified 
Chart of Accounts for the 2019 State budget, and the authorities will need to further build on this with a view to 
ensuring full implementation of the Unified Chart of Accounts by 2023.  

SOCIAL WELFARE 

The  authorities  have  recently  passed  legislation  that  repeals  important  elements  of  the  pension  reforms 
adopted  in  2012  and  2016  and  leads  to  an  increase  in  spending  on  pensions  as  a  share  of  GDP.  In  May 
2019,  the  authorities  repealed  the  2016  reform  of  the  survivor’s  pensions  that  modernised  and  aligned  the 
pension entitlements to  standard practices of other Member States, loosening eligibility  criteria and increasing 
entitlements. Furthermore, the authorities have reinstated a permanent 13th pension that had been eliminated in 
2012. Both  measures  will  decrease  the  relative  share  of  social  benefits  benefiting  the  young  and  working  age 
population where the risk of poverty is much higher than for pensioners.  

The pace of collection of the health care clawbacks has seen a recent improvement, and collection of the 
clawback for 2018 is currently ongoing (mid-2019 specific commitment). Around one third of the clawback 
has been completed for outpatient pharmaceuticals and drugs circulated through pharmacies affiliated with the 
national health insurance fund, while for privately provided services the amount for 2018 has not been quantified 
yet. There are also still some backlogs in the clawbacks for previous years. Despite improvements in collection, 
the generation of new clawbacks is  high and has been increasing over time to levels  which  may soon become 
unsustainable. This underlines the need for more sustained efforts to implement structural measures designed to 
curb  supply-induced  demand.  In  this  respect,  some  recent  measures,  including  changes  to  the  repricing 
mechanism  for  pharmaceuticals,  go  in  the  wrong  direction  and  may  exacerbate  the  situation  as  regards  the 
balance of burden sharing between the public sector and private companies. 

The roll-out of primary health care is proceeding but at a slow pace and with marked disparities across 
the  country.  The  authorities  fulfilled  the  end-2018  commitment  of  opening  at  least  120  primary  health  care 
units,  and  have  meanwhile  exceeded  the  target  with  124  openings.  However,  the  broader  roll-out  of  primary 
health care occurs at a slow pace and with uneven distribution across the country, partly due to challenges with 
the recruitment of general practitioners.  

Progress  on  centralised  health  procurement  continues  at  a  slow  pace,  with  staff  constraints  translating 
into still limited capacity to launch new tenders. Reaching the necessary minimum staffing level will be a key 
determinant  of  the  capability  of  the  centralised  procurement  body  for  healthcare  to  operate  effectively  and 
systematically to realise the potential savings coming from central procurement.  

In the area of social welfare, a new housing benefit for renters has been introduced, further enhancing the 
effectiveness of the Greek social welfare system. The scheme addresses housing cost overburden by providing 
a means-tested subsidy to low-income households for paying the rent on their primary residence. As of end-April 
2019, some 240 000 applications have been accepted, corresponding to some 630 000 individuals (close to 6% of 
the Greek population), a result in line with initial expectations. 

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The  reform  of  the  system  of  disability  benefits  is  advancing  but  with  significant  delays.  Upgraded  and 
simplified  procedures  are  being  gradually  introduced  throughout  the  country.  The  new  approach  to  determine 
disability  status  based  on  both  medical  and  functional  assessment  (whose  application  is  a  mid-2019  specific 
commitment) is to be developed on the basis of a pilot project that received technical support of the World Bank. 
In view of administrative delays, the evaluation of the pilot is only set to be completed by the end of the year, 
implying that the project can only be concluded in 2020. A revised timeline detailing the intermediate steps and a 
final deadline for adoption should be defined. 

The Social Solidarity Income scheme is reaching its maturity. In the first four months of 2019, the scheme 
reached about 270 000 households (about 500 000 individuals), for an annual expenditure of around EUR 680 
million.  This  is  slightly  lower  than  last  year,  likely  reflecting  a  combination  of  more  effective  controls  and 
eligibility  checks  and  the  general  improvement  of  the  economic  and  social  situation.  Meanwhile  the 
implementation  of  the  second  and  third  pillars  of  the  Social  Solidarity  Income  (an  end-2019  specific 
commitment),  is  progressing.  With  respect  to  the  second  pillar  (social  inclusion),  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.  For  the  third  pillar  (labour  market 
integration), the authorities are shifting to a more systematic approach to the design and management of active 
labour market policies, which is currently tested in a pilot project.  

FINANCIAL SECTOR POLICIES 

The  situation  of  the  financial  sector  continues  to  be  challenging  with  improvements  occurring  at  a  very 
slow pace and remaining significant vulnerabilities. On a positive note, the liquidity situation of Greek banks 
has  further improved. Greek  banks still rely primarily on  their internal capacity to  generate  capital,  which  has 
been further weakened by their low profitability due to their poor asset quality. Although broadly adequate, the 
capital  position  of  the  banking  system  slightly  deteriorated  during  2018  in  a  context  of  low  profitability  and 
weak asset quality, while deferred tax credits continue to account for a sizeable part of core tier 1 capital. Non-
performing loans (NPLs) have been gradually decreasing, but remain elevated, amounting to EUR 81.8 billion at 
end-2018 in comparison  with a peak of EUR 107.2 billion in March 2016. This translates into a NPL ratio of 
45.4%, which is 1.8 percentage points lower than the previous year. Despite the progress made to date, further 
major efforts are required to achieve a faster NPL reduction.  

Work  is  ongoing  on  a  range  of  initiatives  to  strengthen  the  NPL  resolution  framework,  but  the  pace  of 
implementation remains uneven, and additional efforts are warranted. More specifically: 

  The  conduct  of  electronic  auctions  is  proceeding  across  the  territory,  though  at  a  somewhat  slowing 
pace. Still, a large share of auctions (approximately two-thirds in the first quarter of 2019 according to 
data provided by the Greek authorities) is cancelled, suspended or is unsuccessful.  No action has been 
taken so far to address these issues. The issue of possible procedural abuses is under assessment by the 
authorities  together  with  the  Hellenic  Bank  Association  (with  report  due  in  September  2019),  and 
mitigating actions should be enacted in the context of the ongoing review of the implementation of the 
Greek Code of Civil Procedure.  

  The  process  of  the  gradual  elimination  of  the  backlog  of  cases  in  the  context  of  the  household 
insolvency  framework  is  significantly  behind  schedule.  Collection  and  processing  of  data  on  the 
clearing  of  court  backlogs  in  the  household  insolvency  framework  is  ongoing;  its  completion  should 
support the elaboration of a revised action plan by the authorities by end-June 2019, while the impact of 
the  new  mechanism  for  the  protection  of  primary  residences  should  be  factored  in  later  in  the  year. 
Preliminary data points to an increase of cases in the first quarter of 2019, whilst the authorities in their 
indicative trajectory envisaged a reduction. Therefore it is important to increase processing capacity to 
achieve the full elimination of the backlog of cases by 2021. 

  Following  the  adoption  of  primary  and  secondary  legislation  establishing  a  new  system  for  the 
protection  of  eligible  primary  residences  in  support  of  the  restructuring  of  non-performing  loans, 
technical  work  on  the  electronic  platform  is  ongoing.  The  complexity  of  the  process  has  led  to  a 
revision of the initial time frame, with the platform now scheduled to be operational by end-July 2019. 
This  should  not  affect  its  planned  expiry  at  the  end  of  2019  however  it  might  adversely  affect  the 

6 

 
 
enforcement procedure in the second and third quarter of 2019. With respect to the required State aid 
approval  of  the  protective  framework  by  the  Commission,  the  Greek  authorities  intend  to  submit  the 
official request shortly. An important pending issue regarding the effectiveness of the new framework 
in the context of NPL resolution is the required enactment of an extension of the tax treatment of write-
offs that expired at the end of 2018, which should be undertaken in a timely manner. 

  The Greek authorities committed in the context of the second enhanced surveillance report to harmonize 
and  improve  in  the  coming  months  in  a  holistic  fashion  the  bankruptcy  and  insolvency  regimes.  The 
Greek authorities proposed to address the issue either through a law-drafting committee or by means of 
a  working  group.  While  no  proposal  has  been  received  so  far,  they  committed  to  present  a  more 
concrete proposal shortly. 

  Work  on  the  evaluation  of  the  implementation  record  of  the  reformed  Code  of  Civil  Procedure  is 

ongoing, and advancing towards completion of the data-gathering phase.  

  The authorities reported further progress in the provision of financial training to judges, notably in the 
area of household insolvency. The authorities have also continued with the appointment of successful 
candidates of recently completed personnel selection competitions for court clerks.  

  While the use of the out-of-court workout mechanism recorded modest increases up to the first quarter 
of 2019, recently adopted legislative amendments to the framework are of concern. These amendments 
have  further  extended  its  cut-off  date  regarding  the  time  limit  set  to  the  inclusion  of  debt  in  the 
restructuring, for the second time since the adoption of the law. The stipulation of a firm cut-off date is 
an  important  feature  of  this  mechanism  because  it  discourages  strategic  default  planning  and  thereby 
helps avert moral hazard. 

  The  large  stock  of  called  loan  guarantees  by  the  state  is  subject  to  a  low  processing  rate  and  a  high 
rejection rate. The action plan adopted by the authorities in March 2019 is so far on track, but does not 
allow for a full clearance of the guarantees called in a reasonable timeline. Some additional measures 
are considered to address the clearance process issue, notably the temporary recruitment of personnel.  

  Well-designed systemic initiatives could be helpful elements in the toolkit of NPL resolution. Further 
efforts are needed in scrutinizing all available policy options that could support all banks in a swift NPL 
reduction. The authorities are continuing their  work on an  Asset Protection Scheme, but to date  there 
has  been  no  progress  in  exploring  whether  the  scheme  can  also  be  complemented  through  an  Asset 
Management Company.  

In  line  with  Greece’s  Eurogroup  commitments,  the  status  of  the  Hellenic  Financial  Stability  Fund  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  potential  involvement  of  the  authorities  in  the  final  stage  of 
implementing the Funds’ divestment strategy is still under discussion. In early May 2019, the appointments to 
the vacant positions both in the Executive Board (including the Deputy Chief Executive Officer) and the General 
Council of the Fund have finally been enacted.  

LABOUR MARKET 

The Greek authorities continue monitoring labour market and wage developments and intend to conduct 
an ex-post assessment of the recent increase in the minimum wage. To this end, the Ministry of Labour has 
been  developing  a  monitoring  tool  based  on  administrative  data.  According  to  preliminary  data,  employment 
growth  in  the  private  sector  was  robust  in  the  first  months  following  the  increase  in  the  minimum  wage 
(February-April  2019),  with  a  large  increase  in  the  number  of  registered  contracts.  The  use  and  integration  of 
additional  data  sources  should  enable  a  more  robust  estimation  of  the  effects  of  recent  policy  changes,  and 
technical support to this effect from the World Bank is expected to start in June 2019.  

The  action  plan  to  fight  undeclared  work  is  progressing  smoothly.  A  higher  number  of  inspections  was 
carried out in 2018 compared to the previous year, and data from inspection results show a positive picture, with 
a steady reduction in the incidence of undeclared work in high-risk sectors.  

7 

 
 
A new provision on the rules for dismissal (whereby a dismissal is not valid if it is not based on a ‘valid 
reason’),  was  adopted  in  May  2019.  According  to  the  Greek  authorities,  this  provision  does  not  appear  to 
materially  alter  the  current  rules,  as  the  right  of  employees  not  to  be  dismissed  without  a  ‘valid  reason’  had 
already been introduced in the Greek legal system with the ratification of the Revised European Social Charter in 
2016. It remains to be seen to what extent the new provision, which the authorities argue aims at enhancing legal 
clarity  will  affect  the  overall  number  of  dismissals,  lead  to  an  increase  in  litigation,  with  a  higher  number  of 
dismissal decisions being challenged in court, and/or lead to an improved processing of such cases by the courts. 

Τhe  Greek  educational  system  faces  long-standing  challenges.  These  include  inadequate  allocation  of 
resources,  low  autonomy,  poor  educational  outcomes,  skill  mismatches,  and  weaknesses  in  the  governance  of 
higher education institutions. In the absence of a comprehensive prior evaluation, it is unclear how the current 
policy of upgrading technical education institutions to universities will improve the fragmented higher education 
landscape  or  the  need  to  make  tertiary  education  more  relevant  for  the  labour  market.  In  this  context,  it  is 
recalled that the 2018 OECD country review on Greece (7) made specific policy recommendations to improve the 
quality and efficiency of the system.  

PRODUCT MARKETS AND COMPETITIVENESS  

Notwithstanding  progress  over  the  last  years,  Greece  still  faces  major  challenges  as  regards 
competitiveness.  This  is  illustrated  in  its  stagnating  or  even  slightly  deteriorating  performance  in  a  range  of 
widely  used  competitiveness  metrics  (such  as  the  World  Bank  Doing  Business  ranking) (8).  An  improved 
business  environment  would  also  contribute  to  addressing  the  structural  component  of  sluggish  productivity 
growth  by  tackling  the  crisis-induced  investment  gap,  the  emigration  of  skilled  labour  and  the  still  high  long-
term unemployment. 

More needs to be done on export promotion to reach the authorities’ export/GDP target of 50% by 2025. 
The pace of implementation of two related action plans has been mixed. Efforts should focus on increasing the 
exporters’ base, as well as the export propensity of the Greek economy as a whole. Further work is also required 
on  removing  unnecessary  procedural  impediments  to  trade  and  increasing  the  openness  of  the  economy, 
including  through  the  further  streamlining  of  customs  procedures  with  the  help  of  technical  support  provided 
through the Commission services.  

On the investment licensing reform, significant work is underway. Despite delays in certain areas, the reform 
appears to be broadly on track with deadlines on specific investment licensing commitments for the outer years 
(ICT system, inspections framework law, extension of simplification, reform of nuisance classification). Whilst 
continued efforts to complete reform commitments are welcome, the adequacy of existing control mechanisms to 
contain the risk of potential policy reversal remains uncertain. Greater engagement of all stakeholders is needed 
to safeguard the integrity of reforms implemented thus far and ensure completion of the reform in the future.  

It is important to assess the actual impact of product market reforms adopted in recent years so that they 
can  be  fine-tuned  and  strengthened  where  needed.  An  impact  assessment  conducted  by  the  Centre  of 
Planning  and  Economic  Research  on  reforms  in  the  areas  of  pharmacies,  over-the-counter  drugs  and  Sunday 
retail trading suggests that these reforms have already had a positive effect on competition and job creation. The 
Centre  of  Planning  and  Economic  Research  will  provide  an  updated  impact  assessment  of  these  reforms  in 
September  2019  and  further,  undertake  an  impact  assessment  of  prior  reforms  affecting  engineers  (including 
public engineers), lawyers, and private clinics. 

The cadastre project has further progressed in the recent months. The Commission has taken the decision to 
co-finance with structural funds the last set of contracts (about EUR 84 million), and a technical support is made 

(7)  Education for a Bright Future in Greece, OECD, April 2018 
(8)  The challenges facing the business environment in Greece were discussed in the context of the European Semester Conference organised 
by  the  European Commission in collaboration  with  the  Foundation  for  Economic  &  Industrial  Research  (IOBE)  in  Athens,  in March 
2019. https://ec.europa.eu/info/events/integrating-greece-european-semester-policy-framework-2019-mar-20_en 

8 

 
 
 
                                                           
 
available (9). The current round of declaration of properties around the country is progressing satisfactorily, with 
an  electronic  platform  in  place  and  a  sizeable  number  of  cadastral  offices  operating  across  Greece.  That  said, 
progress  with the establishment of the  future  institutional  framework  for the cadastre  has been  mixed, and the 
government  has  committed  to  strengthen  the  team  implementing  the  migration  into  the  new  Agency  and  to 
prepare a detailed plan for the integration of the mortgage offices to meet the deadlines set with the advice of the 
World Bank. 

The preparation of the forest maps (a mid-2019 commitment) is expected to be on time.  As of May 2019, 
forest maps for 55% of the territory have been uploaded for consultation, of which maps for 41% of the territory 
are already ratified; the maps for 98% of the territory are expected to be produced by July 2019. The remaining 
2% of the country’s forest  maps have  been contracted in  May 2019 and  will be finished by February 2020. A 
recent  decision  by  the  Council  of  State  raised  questions  about  the  temporary  exclusion  of  “building 
concentrations” from the forest maps. The authorities intend to adopt legislation swiftly in order to address the 
Council of State’s concerns and avoid implications for the timely completion of the forest maps.  

Progress  with  the  implementation  of  energy  market  reforms  has  slowed  notably  during  the  past  few 
months. The divestiture of PPC’s lignite plants (a delayed end-2018 specific commitment) was relaunched after 
the first deadline resulted in no bids being accepted. A new timeline had been agreed which should close by the 
end  of  June  2019,which  should  include  a  fairness  opinion  on  any  offers.  A  unilateral  decision  extending  the 
process  deadline  to  July  15th  was  made  by  PPC  following  consultation  with  the  Ministry  of  Energy  and 
Environment,  and  as  such,  the  closure  will  not  be  made  within  the  agreed  deadline.  Whilst  Greece  has  made 
some  initial  steps  towards  the  introduction  of  the  target  model  for  the  electricity  market  (mid-2019  specific 
commitment), it seems clear at this juncture that the go-live of the intraday, day-ahead and balancing markets, 
already delayed from the initial plan of April 2019, will not occur until 2020. These delays will have knock-on 
effects  for  Greece’s  coupling  with  the  neighbouring  markets  of  Italy  and  Bulgaria.  Meanwhile  the  NOME 
electricity auctions continued with its allocated quantities, and the delays to the lignite divestiture meant that a 
planned correction mechanism was not triggered. On a positive note, PPC’s market share has slowly receded to 
below 77% in March 2019, down from 80% at the time of the last enhanced surveillance report but still some 
way off the original programme objective  of PPC’s  market share  going to below 50%  by 2020. The recently-
released  2018  financial  results  for  PPC  show  a  strong  decline  in  profitability  and  a  worsening  of  cash  flow 
issues,  which  calls  for  determined  efforts  to  address  structural  issues,  including  pricing  policy  and  arrears 
collection. Meanwhile, reforms in the gas market have advanced overall, with the completion of the sale of the 
transmission  network  operator  DESFA  and  the  split  of  the  gas  supply  company  DEPA  into  commercial  and 
infrastructure  parts,  with  a  view  to  preparing  the  agreed  privatisation  transactions  in  line  with  unbundling 
requirements. The Renewable Energy Source (RES) account maintained its surplus, but cash flow issues remain, 
affecting RES producers. 

HELLENIC CORPORATION OF ASSETS AND PARTICIPATIONS (HCAP) AND PRIVATISATIONS 

Greece  made  commitments  to  European  partners  in  June  2018  to  continue  and  complete  the  important 
work  of  HCAP, which  gathers  under  a  single  institutional  structure  a  significant  portfolio of assets  and 
shareholdings in public enterprises. 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 review, 
and  replacement  if  required,  of  Board  members  of  all  state-owned  enterprises  (SOEs)  by  mid-2019.  The 
implementation of the strategic plan has proceeded as planned and the Board review is progressing well. Up to 
the  present,  HCAP  has  appointed  39  Board  members  (executive  and  non-executive)  in  its  direct  and  other 
subsidiaries. That said, in order to ensure that the process can be sustained over time in an effective manner, it is 
necessary to ensure competitive remuneration of professional Board members.  

Progress  has  also  been  made  in  improving  corporate  governance  in  the  SOEs  that  form  part  of  HCAP. 
The  implementation  of  the  coordination  mechanism  that  governs  the  interaction  between  the  authorities  and 
HCAP  regarding  the  mandates  and  objectives  of  the  SOEs  under  HCAP  has  been  launched  and  it  is  at  an 
advanced stage for the first four SOEs. However, recent legislation and actions in certain sectors (e.g. regional 

(9) Commission Implementing Decision C(2019)299 of 23.1.2019 approving the financial contribution to the major project "Compilation of 
the preliminary cadastral base-maps and development of the cadastral database for public presentation in the areas of the 4th generation 
of cadastral surveys" selected as part of the operational programme "Competitiveness, Entrepreneurship and Innovation" in Greece. 

9 

 
 
                                                           
airports) appear 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, which should be rectified and avoided going forward. 

Implementation of the Asset Development Plan is key to stimulate private investment, increase efficiency, 
and  provide  financing  to  the  State. In  June  2018,  the  authorities  made  a  specific  commitment  to  Eurogroup 
partners to implement the Asset Development Plan, which will be updated every six months, and in this context 
to  complete  the  transactions  on  Hellenic  Petroleum  (HELPE)  and  the  marina  of  Alimos  by  mid-2019.  Further 
commitments were taken for end-2019 and beyond. In addition, the transaction on Hellinikon (development of 
the  site  of  the  former  Athens  International  Airport,  end-2018  specific  commitment)  has  remained  pending 
despite  good  progress,  taking  into  account  the  complexity  of  the  project.  On  Hellinikon,  the  authorities  have 
continued  the  efforts  to  complete  the  conditions  precedent  to  allow  the  transfer  of  shares  to  the  preferred 
investor. If the authorities continue the strong efforts, financial closing could be feasible in the coming months. 

Progress on the transactions in the Asset Development Plan which are due to be completed in 2019 (mid 
and end-2019 specific commitments) is behind schedule, with progress in smaller transactions being offset 
by delays elsewhere. The state of play can be summarised as follows: 

  Marina of Alimos: The preferred bidder was selected in an e-auction procedure of April 2019; progress 

is satisfactory although the financial closing is not expected before the fourth quarter of 2019. 

  The Hellenic Petroleum (HELPE) transaction is subject to delays as no binding offers were submitted 
for the joint sale. Agreement has been reached with the Greek authorities so that the Hellenic Republic 
Asset  Development  Fund  (TAIPED)  is  given  the  technical  mandate  to  explore  all  options  available 
towards proceeding with the transaction.  

  The  sale  of  30%  of  Athens  International  Airport  (AIA):  the  process  remains  stalled  in  view  of 
disagreements  between  the  Greek  authorities  and  AviAlliance,  shareholder  of  40%  stake  in  AIA, 
regarding the corporate governance rights accompanying the 30% stake post sale. The Greek authorities 
committed to seek an immediate resolution of the issue, with a view to launching the tender process for 
the sale of 30% of AIA by end-June 2019.  

  DEPA  - Public Gas Corporation: the invitation for the expression of interest  for the  sale  of 50% plus 
one share of DEPA Commercial is expected to be published in the coming  weeks and it should be in 
accordance with the term sheet agreed between the authorities and the European institutions. 

  The Egnatia transaction entails the award of a long-term concession for the operation and maintenance 
of  the  motorway  and  its  three  vertical  axes.  In  January  2019,  the  authorities  agreed  to  a  number  of 
actions to deal with the recurrent obstacles to the concession. Most of the agreed actions due so far have 
been implemented in line with technical feasibility. It is imperative that the authorities complete all the 
outstanding actions needed to allow the submission of binding offers to take place. 

  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).  The 
Expression  of  Interest  for  the  two  ports,  however,  requires  the  prior  issuance  of  a  Joint  Ministerial 
Decision that will include the specific activities subject to sub-concession as well as the fees to be paid 
by the sub-concessionaires to the relevant port authorities.  

PUBLIC ADMINISTRATION AND JUSTICE 

Overall,  progress  has  been  made  with  the  specific  mid-2019  commitments  in  the  area  of  public  sector 
reform.  Regarding  the  preparation  of  an  independent  assessment  of  the  delayed  selection  process  of 
Administrative Secretaries, the authorities have requested technical support from the Commission and the final 
assessment  is  expected  to  be  completed  by  June  2019,  with  follow-up  actions  due  by  September  2019;  at  the 
same time, the pace of appointments of Administrative Secretaries remains very slow. The selection process for 
all  90  Directors-General  has  been  completed,  while  one  third  of  Directors  have  been  appointed  (with  the  rest 
expected  by  end-July),  and  the  recruitment  of  Heads  of  Division  is  expected  to  be  launched  by  end-June  and 

10 

 
 
completed  by  October.  The  3rd  mobility  cycle  that  was  launched  in  August  2018  is  progressing;  while  the 
process is subject to delays and impediments should be addressed, the gradual increase in the number of entities 
and applications for each cycle is a welcome signal that the public sector has embraced this public administration 
reform. The performance assessment cycle for 2018 is expected to be completed on time. 

Continued  progress  has  been  made  towards  establishing  an  integrated  Human  Resource  Management 
System,  which  should  be  on  track  to  be  completed  by  end  of  2019.  More  specifically,  745  general 
government  entities  (approximately  half  of  the  total)  have  completed  their  digital  organigrams,  with  close  to 
135 000  job  descriptions  completed  (i.e.  for  around  70%  of  all  positions).  Once  this  exercise  has  been 
successfully  completed,  it  will  provide  the  main  elements  for  the  integrated  Human  Resource  Management 
System.  

Progress  with  the  streamlining  of  the  existing  job  classification  system,  with  a  view  to  aligning  it  to  the 
functions referred to in the generic job descriptions, has been limited. Whilst the first meeting of the inter-
ministerial  working  group  in  May  was  a  welcome  first  step,  the  authorities  would  need  to  speed  up  the 
implementation of its road map, also taking full advantage of the technical support provided. 

Progress  has  been  made  in  terms  of  legal  codification  with  the  adoption  of  a  law  that  strengthens  the 
mandate of the Central Codification Committee, but work on inter-ministerial coordination has stalled. It 
is  important  to  clearly  define  the  operational  modalities  of  the  legal  codification  process  and  the  allocation  of 
roles,  including  between  the  Central  Codification  Committee  and  the  Ministries.  Technical  work  for  the 
preparation  of  a  unified  Labour  Law  Code  and  Code  of  Labour  Regulatory  Provisions  (a  mid-2020  specific 
commitment)  has  started  but  concrete  progress  is  awaited.  On  inter-ministerial  coordination,  no  concrete 
progress  has  been  reported  since  the  adoption  of  an  inter-ministerial  manual  in  June  2018,  and  an  update  on 
actions initiated and planning for actions to be launched is expected to be prepared by the General Secretariat for 
Coordination in time for the next enhanced surveillance report.  

The European institutions continue to carefully monitor the scale of recruitments in the public sector. The 
hiring plan for 2019 as well as for 2020-2022, as included in the 2018 Medium-Term Fiscal Strategy, seems to 
be respecting the one-in-one-out hiring rule for recruitments of new permanent staff in the public sector, though 
the ceiling for temporary staff has not been respected in 2018. It is estimated that the number of temporary staff 
will need to be reduced by approximately 1 550 persons in 2019, in order for the overall size of the public sector 
to be maintained. Regarding effective monitoring, the agreed actions to improve the reporting of the census are 
still to be implemented, while updated staffing figures for 2019 are yet to be uploaded on the census' website. 

Recently  adopted  salary  provisions  pose  risks  to  the  unified  wage  grid,  and  a  number  of  decisions  to 
complete  this  reform  remain  pending.  Although  the  actual  fiscal  cost  of  recent  decisions  to  expand  the 
coverage  of  ‘personal  differences’  for  some  Ministries  is  small,  it  raises  structural  problems  and  fiscal  risk  as 
other Ministries  may seek  similar salary provisions. If specific  salary provisions and adjustments to the  hiring 
process  for  permanent  staff  are  being  considered  for  independent  authorities,  it  would  be  preferable  if  these 
provisions would be part of a systematic approach rather than ad hoc exceptions to the current legal framework. 

The  Greek  authorities  are  proceeding  with  the  preparatory  stage  of  the  second  phase  of  the  Integrated 
Judicial Case Management System, activated earlier this year and scheduled for finalisation by mid-2020. 
In this context, completion of the tendering procedure for the electronic filing of legal documents to the courts is 
a  mid-2019  specific  commitment,  and  the  proceedings  for  the  public  consultation  of  the  draft  tender  texts 
regarding  the  projects  of  the  second  phase  are  to  be  finalised  shortly.  Furthermore,  the  implementation  of  the 
electronic  filing  of  court  documents  (legal  writs),  already  available  in  a  number  of  courts,  is  proceeding, 
supported by legal and technical work to facilitate its full roll-out. 

In the area of anti-corruption, the authorities have continued their efforts, led by the General Secretariat 
for  Anti-corruption.  A  number  of  legal  initiatives  promoted  by  the  Secretariat  are  to  be  introduced  to  the 
Parliament, relating to whistleblowing, internal auditing and the Secretariat’s mandate. In particular, the law on 
internal audit is expected to be adopted shortly and ahead of the newly elected local administrations assuming 
their  function.  The  authorities  also  committed  to  accelerate  work  on  the  establishment  of  a  coordination 
mechanism for corruption cases, although no concrete progress has been made during this reporting period. 

11 

 
 
The Commission has continued to  monitor  developments in relation to the legal proceedings against the 
members  of  the  Committee  of  Experts  of  TAIPED  and  the  former  President  and  senior  staff  of  the 
Hellenic Statistical Authority (ELSTAT). In the case against former ELSTAT President A. Georgiou related to 
charges filed in connection  with  fiscal  statistics, the  Athens Court of  Appeal issued a ruling in  his  favour that 
was published on 8 March 2019. As the  Supreme  Court Prosecutor did not file an appeal,  the ruling stands in 
force  and  the  excessive  deficit  case  has  been  irrevocably  dismissed.  This  is  a  very  welcome  development. 
Regarding other pending cases, an appeal introduced by Mr Georgiou in a defamation lawsuit is scheduled to be 
heard in May 2019. Regarding the Committee of Experts, there has been a positive development since the last 
enhanced surveillance report, in the form of the issuance of an exculpatory ruling by the chamber formation of 
the Athens Court of Appeal (not yet published). The Commission will continue to closely monitor developments 
in both procedures to report back in the context of enhanced surveillance. 

OVERALL ASSESSMENT OF PROGRESS WITH REFORM COMMITMENTS  

Greece  is  at  an  important  juncture  as  regards  policy  choices  needed  to  deliver  a  sustained  and  lasting 
economic recovery. Greece has made a reasonable start to the post programme environment since the expiry of 
the ESM programme in August 2018. Real growth and employment creation has been maintained, and Greece 
once again overachieved its primary surplus target in 2018. Albeit with some delay, the completion of specific 
reform  commitments  due  for  the  end  of  2018  allowed  the  implementation  of  additional  debt  measures  worth 
EUR  970  million  in  April  2019.  Greece  has  also  started  to  regain  market  access  and  benefited  from  upgrades 
from rating agencies. However, significant legacy effects of the crisis remain as reflected in high levels of public 
debt, NPLs and unemployment. Reducing these imbalances will require many years of sustained implementation 
of institutional and structural reforms initiated in recent years to modernise the economy and the state, as well as 
many years of economic growth.  

The  pace  of  reform  implementation  has  slowed  in  recent  months  and  the  consistency  of  some  measures 
with  commitments  given  to  European  partners  is  not  assured.  Whilst  there  are  a  few policy  areas  where 
reform implementation continues (e.g. some issues related to the cadastre, Hellinikon), there is a risk that most of 
the 15 specific commitments for mid-2019 will not be completed on schedule. In some cases, such as reforms in 
the  field  of  social  welfare  (disability  assessments),  public  administration  (appointment  of  the  Administrative 
Secretaries) and energy (implementation of the target model), these delays risk running to several months The 
Commission  also  underlines  the  importance  for  the  Greek  authorities  to  take  steps  that  will  enable  ongoing 
privatisation tenders (e.g. HELPE, Egnatia, Athens International Airport) to proceed smoothly in the second half 
of 2019.  

Projections by the European institutions indicate that, following the adoption of fiscal  measures in May 
2019, there are risks to the achievement of the agreed primary surplus target of 3.5% of GDP in 2019 and 
beyond, as well as for the compliance with the medium-term budgetary objective in 2020. The quality of the 
recent  fiscal  measures  is  of  concern  given  the  objective  to  make  public  finances  more  growth-friendly  and  to 
direct a higher share of social spending towards groups who face the highest incidence of poverty.  

SOVEREIGN FINANCING 

After  the  successful  bond  issuance  in  January,  Greece  tapped  the  markets  for  a  second  time  in  March 
2019.  Taking  advantage  of  the  improving  market  environment  and  a  ratings  upgrade,  the  Public  Debt 
Management Agency proceeded with the issuance of a 10-year government bond for the first time since 2010, 
raising  EUR  2.5  billion  at  a  re-offered  yield  of  3.9%  amid  strong  demand.  Greece’s  yield  spreads  have  since 
improved further in April: the spread vis-à-vis the German Bund reached on average 340 percentage points on 
the 10-year tenure. However, in the more recent period, Greek bonds experienced pressure in particular after the 
announcements of new fiscal measures on 7 May. State cash reserves stood high at EUR 24.3 billion at the end 
of  March;  including  the  cash  reserves  of  general  government  entities  in  the  Treasury  Single  Account,  the 
reserves reached EUR 33.7 billion. 

The technical update of the debt sustainability analysis shows that the assessment of the sustainability of 
Greece’s  debt  is  broadly  unchanged.  The  baseline  scenario  shows  the  debt  remaining  on  a  downward  path, 
though  it  remains  above  100%  of  GDP  until  2048.  Greece’s  gross  financing  needs  will  hover  around  10%  of 

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GDP until 2032 and remain around 17% of GDP at the end of the forecast horizon. It is not yet possible to fully 
incorporate the recent fiscal measures into the DSA as further analysis is required on their impact on growth and 
more clarity needed on the orientation of policies over the medium-term. But policies that affect negatively the 
primary balance surplus and growth potential would have a negative impact on the trajectory of debt.  

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