COMMUNICATION FROM THE COMMISSION Enhanced Surveillance – Greece, November 2019
Date: 2019-11-20
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, 20.11.2019  COM(2019) 930 final  COMMUNICATION FROM THE COMMISSION Enhanced Surveillance – Greece, November 2019 {SWD(2019) 930 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  implementation  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 allows 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 framework 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 programme and to ensure 
that  the  objectives  of  the  important  reforms  adopted  under  the  financial  assistance 
the 
programmes  are  safeguarded.  In 
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 (3).  Fifteen  specific 
commitments have a deadline of mid-2019, progress on which is assessed in this report.  

that  context,  enhanced  surveillance  monitors 

This  is  the  fourth  enhanced  surveillance  report  for  Greece.  It  is  issued  alongside  the 
assessment of Greece’s  2020 Draft Budgetary Plan and serves also  as a  specific monitoring 
report  under  the  macroeconomic  imbalance  procedure  for  Greece  under  the  European 
Semester, which was identified as  experiencing excessive  imbalances in the 2019 European 
Semester.  This  report  is  based  on  the  findings  of  a  mission  to  Athens  between  23  and  26 
September 2019 conducted by the Commission in liaison with the European Central Bank (4). 
The  International  Monetary  Fund  participated  in  the  context  of  its  2019  Article  IV 
surveillance cycle, while the European Stability Mechanism 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 European Stability Mechanism.  

(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), Commission Implementing Decision (EU) 2019/338 of 
20  February  2019  on  the  prolongation  of  enhanced  surveillance  for  Greece  (OJ  L  60,  20.2.2019,  p.  17), 
Commission  Implementing  Decision  (EU)  2019/1287  of  26  July  2019  on  the  prolongation  of  enhanced 
surveillance for Greece (OJ L 202, 31.7.2019, p. 110). 

(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. The review mission was preceded by a technical mission from 16 to 20 
September. 

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This  report  could  serve  as  a  basis  for  the  Eurogroup  to  decide  on  the  release  of  the 
second set of policy-contingent debt measures worth EUR 767 million. 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 
under  the  European  Stability  Mechanism  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. Those measures include: (i) 
the  return  of  income  equivalent  amounts  stemming  from  central  banks’  holdings  of  Greek 
government  bonds  under  the  Securities  Markets  Programme  and  the  Agreement  on  Net 
Financial Assets and (ii) a waiver for the step-up interest margin for certain loans provided by 
the European Financial Stability Facility for the period from 17 June 2019 until 31 December 
2019.  

This report concludes that Greece has taken the necessary actions to achieve its specific 
reform  commitments  for  mid-2019.  Further  actions  will  be  crucial  to  complete,  and 
where  necessary  accelerate,  reforms.  This  assessment  takes  into  account  the  efforts  of 
the  new  administration  over  the  last  months  to  implement  the  commitments,  in  the 
context  of  advancing  a  broader  reform  agenda,  and  its  willingness  to  prepare  them  in 
close cooperation with the institutions. 

ECONOMIC OUTLOOK 

Economic growth in Greece continued in the first half of 2019 and is forecast to remain 
resilient  amid  external  headwinds.  Following  a  weaker-than-expected  start  of  the  year, 
growth is expected to regain momentum in the second half and reach 1.8% in 2019 overall, a 
notch below the 1.9% rate achieved in 2018. Private consumption and investment are likely to 
be  the  main  contributors  to  growth  this  year  and  the  next,  on the  back  of  a  solid  growth  in 
disposable  income  and  high  consumer  confidence  levels  in  market  surveys,  which  have 
already  surpassed  pre-crisis  levels.  The  recovery  in  Greece  is  taking  place  against  the 
backdrop  of  a  weakening  external  environment.  Nonetheless,  supported  by  the  announced 
cuts  in  taxes  on  labour  and  capital  and  continued  gains  in  export  market  shares,  growth  is 
forecast to strengthen to 2.3% in 2020, above the euro area average of 1.2%. 

Overall  sentiment  and  expectations  underline  a  positive  momentum.  The  Economic 
Sentiment  Indicator  has  improved  strongly  since  the  general  election  of  July  and  capital 
controls have been fully lifted Greece has been active on international capital markets, where 
interest spreads have rapidly declined to historically low levels, over and above the generally 
favourable developments in the European sovereign bond markets. There have been upgrades 
in the assessment by rating agencies, also reflective the positive and constructive engagement 
with the European institutions. The challenge for the Greek authorities, and indeed European 
partners, will be to now sustain this overall very positive momentum.  

Medium-term  growth  performance  crucially  depends  on  strengthening  investment, 
which is still below the euro area average. In 2018, investment in Greece as percentage of 
GDP  was  the  lowest  in  the  EU  and  7.7  percentage  points  below  the  euro  area  average  of 
20.6%  of  GDP.  Raising  investment  levels  to  recover  from  the  years  of  underinvestment 
during  the  crisis  is  of  key  importance  for  future  economic  growth.  Flagship  privatisation 
projects  and  attracting  foreign  direct  investment  will  be  central  to  increasing  private 
investment. Increasing public investment, first by reaching the budgetary expenditure ceilings 

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and  then  extending  public  investment  beyond  the  current  possibilities  of  the  budget,  would 
further stimulate growth due to the multiplier effect.  

The labour market shows further improvements and unemployment continues to decline 
at a steady pace. Employment is forecast to grow above 2% in 2019 and 2020, driving the 
unemployment rate down from 19.3% in 2018 to around 17% this year and close to 15% in 
2020.  Inflation  is  expected  to  be  muted  in  the  short  term  on  the  back  of  the  recent  cuts  in 
indirect taxes and oil price developments, and to increase moderately in the medium term. 

The  forecast  is  subject  to  upside  and  downside  risks,  with  the  risks  to  the  downside 
being  more  pronounced.  Downside  risks  to  the  outlook  stem  from  a  slowdown  in  foreign 
demand, as well as a persistent under-execution of the budget targeted for public investment. 
Upside  risks  are  related  to  the  marked  improvement  in  business  and  consumer  sentiment, 
which  has  yet  to  be  translated  into  significant  increases  in  spending.  The  projection  is 
contingent  upon  maintaining  the  reform  path  agreed  under  enhanced  surveillance,  including 
reforms in the resolution framework for non-performing loans, designed to ensure a sufficient 
reduction of non-performing loans and support bank credit. 

FISCAL POLICIES AND OUTLOOK 

Greece is on course to overachieve the agreed primary surplus target of 3.5% of GDP in 
2019, the fifth year in a row when targets would be exceeded. This dissipates concerns that 
surfaced earlier this year that the adoption of fiscal measures in May 2019 would pose a risk 
for  the  achievement  of  the  primary  surplus  target.  These  measures  were  maintained  by  the 
new  administration.  The  May  measures  included:  new  settlement  schemes  (with  120 
instalments) for debts on taxes and to social security funds and municipalities; a value added 
tax reduction on a selection of items; the reintroduction of a 13th monthly pension payment; 
and a reversal of an earlier reform of survivors’ pensions. In addition, the personal income tax 
reform pre-legislated in 2017, which would have broadened the tax base and lowered rates in 
a fiscally neutral manner as of 2020, was abandoned. The fiscal cost of the May measures is 
currently  estimated  at  0.7%  of  GDP,  lower  than  the  1.1-1.4%  of  GDP  expected  in  the  June 
enhanced surveillance report, on account of a lower-than-expected transfer of debts from the 
existing  tax  settlement  schemes  to  the  new  scheme.  The  quality  of  these  measures  raised 
concerns  given  the  objective  to  improve  the  quality  of  public  finances  and  regarding  their 
consistency  with  reforms  adopted  under  the  European  Stability  Mechanism  programme.  In 
July, the new administration amended the 120 instalments scheme, with a view to making it 
more attractive especially for businesses, and adopted a small cut in the Enfia property tax.  

To  ensure  that  the  fiscal  targets  are  met,  the  new  administration  revised  spending 
ceilings downward to more realistic levels, while additional fiscal space was provided by 
additional tax revenues. The authorities reduced budget ceilings in both the ordinary (non-
investment)  budget  and  the  public  investment  budget  to  take  into  account  their  persistent 
overestimation. This will improve the budget balance by 0.6% of GDP in 2019. The revision 
is partly carried over to the 2020 budget. The authorities have also developed an action plan to 
improve forecasting and monitoring of the public investment budget. Moreover, they adopted 
legislation  to  lay  down  the  rules  governing  the  development,  management,  financing,  and 
implementation of the national component of the public investment budget to address its low 
execution. These efforts are long overdue and very welcome. The authorities are encouraged 
to  use  the  fiscal  space  available  under  the  budget  ceilings  fully  to  bolster  the  economic 
recovery. The fiscal outlook for 2019 has also been supported by favourable developments in 

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revenues;  mainly  through  a  higher-than-expected  participation  of  new  debtors  in  instalment 
schemes and stronger value added tax revenues resulting also from a high growth in tourists’ 
spending.  

Against this background, the European institutions project the primary surplus, per the 
definition monitored under enhanced surveillance,  to reach 3.8% of GDP in 2019.  The 
forecast  for  2019  assumes  that  the  payment  of  the  Public  Service  Obligation  to  the  Public 
Power Corporation of around EUR 200 million will be covered from the contingency reserve, 
and does not take into account any possible additional one-off measures that might be adopted 
later in 2019 to use the available fiscal space. 

This means that Greece is expected to achieve a general government surplus of 1.3% of 
GDP in 2019. This is well above the euro area average of a deficit of 0.8% of GDP. Greece’s 
public  finance  has  been  in  surplus  since  2016  on  the  back  of  the  substantial  fiscal 
consolidation efforts during the ESM programme but under-executed public investment have 
also  played  a  role.  The  achievement  of  a  general  government  surplus  is  consistent  with  the 
estimated substantial decrease in the structural balance (from 5.8% of GDP in 2016 to 3.0% in 
2019), signalling that the underlying fiscal stance is becoming gradually less tight.  

On  the  basis  of  the  information  included  in  the  2020  Draft  Budgetary  Plan,  the 
Commission  forecasts  Greece  to  meet  the  primary  surplus  target  of  3.5%  of  GDP  (a 
continuous  specific  commitment),  to  achieve  a  general  government  surplus  of  1.0%  of 
GDP and to respect all the requirements of the Stability and Growth Pact in 2020.  The 
draft budget includes a package of new growth-friendly measures worth 0.6% of GDP aimed 
to  reduce  distortionary  taxes  and  increase  family-oriented  social  benefits.  The  package 
includes  a  four  percentage  points  reduction  in  the  corporate  income  tax;  reform  of  the 
personal income tax, which inter alia reduces the tax rate from 22% to 9% for incomes up to 
EUR  10,000  and  increases  the  tax-free  threshold  for  taxpayers  with  children;  reduction  in 
social  security  contributions  by  one  percentage  point  for  full-time  salaried  persons;  and  a 
reduction  in  the  dividend  tax  from  10%  to  5%.  In  addition,  the  package  includes  a  new 
childbirth allowance of EUR 2,000. The government has also announced additional tax cuts 
for  2021  and  beyond  but  these  will  not  be  legislated  now.  To  ensure  budget  neutrality,  the 
package  is  complemented  in  the  Draft  Budgetary  Plan  by  ‘fiscally  equivalent’  measures 
mainly  of  parametric  but  also  of  administrative  nature  and  of  a  similar  magnitude.  These 
measures aim to increase the yield of indirect taxes, update the tax base for the property tax, 
and further reduce spending targets that have not been used in previous years.  

While the full set of measures is broadly budgetary neutral, it is expected to improve the 
quality of public finances and boost growth in 2020. The cuts in taxes on capital and labour 
are important, positive steps in reducing Greece’s effective corporate tax and the tax wedge 
on  labour.  All  taxpayers  are  expected  to  benefit  from  the  personal  income  tax  reform,  in 
particular those with lower incomes and the self-employed. In addition, full-time employees, 
including those with incomes below the non-taxable level, will benefit from the reduction in 
social  security  contribution.  The  growth-friendly  tax  shift  from  distortionary  to  less 
distortionary  taxes  such  as  the  value  added  tax  or  the  property  tax  is  expected  to  stimulate 
private investment and employment, and contribute to higher productivity growth and private 
consumption. The reform does not address the relatively high non-taxable allowance for the 
personal income tax, which was part of the tax reform agreed with the institutions under the 
European Stability  Mechanism programme in 2017 and originally due to enter into  force in 
2020.  The  final  bill  introducing  the  fiscal  package  for  2020,  as  published  for  public 

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consultation,  includes  some  minor  additional  measures  that  do  not  have  an  impact  on  the 
assessment of the fiscal policy for 2020. 

Greece’s public finances continue to face important fiscal risks related to pensions and 
public sector wages. While the Council of State has recently confirmed the constitutionality 
of the main pillars of the 2016 pension reform, some of its elements (including the provisions 
for supplementary pensions and accrual rates for long careers in the main pension) will need 
to be adjusted. The fiscal impact of addressing these aspects may still be significant; but the 
authorities  have  committed  to  sustain  the  possible  additional  fiscal  costs  within  the  budget 
ceiling of the Ministry of Labour for 2020. Moreover, the possible negative fiscal impact will 
also be substantially limited by the fact that key parts of the 2016 pension reform were found 
constitutional  and  the  Council  of  State  has  not  granted  a  right  for  retrospective  financial 
compensation. However, the pension rights of public sector officials are still under scrutiny by 
the Court of Auditors. Regarding public sector wages, the high number of temporary staff and 
risks related to the broadening of the scope of exemptions from the unified wage grid remain 
a source of concern. The potential for overshooting the fiscal target of 3.5% of GDP through 
underspending in the public investment budget remains but has diminished. 

FISCAL STRUCTURAL POLICIES 

Based on the findings of a technical support study, the European institutions agreed that 
the  valuation  exercise  to  update  Enfia  property  tax  values  (a  specific  mid-2019 
commitment) should be rescheduled so as to facilitate making a more substantial reform 
of  the  objective  property  tax  values  system  by  the  mid-2020  deadline.  In  particular,  the 
new government agreed to initiate a major widening of the property tax base for the Enfia and 
other property taxes. The reform set out in a detailed timetable is expected to increase the tax 
base of the Enfia property tax by more than 20% in time for the 2020 Enfia tax exercise and 
improve the fairness and efficiency of the property tax system.  

The  authorities  announced  a  suspension  of  the  value  added  tax  on  new  buildings  for 
three years  to boost the construction  sector.  The measure risks increasing the share of 
the  shadow  economy  and  is  currently  under  scrutiny  with  respect  to  compliance  with 
EU  law.  The  European  institutions  have  encouraged  the  authorities  to  develop  alternative 
measures to address the problems encountered by the building sector in Greece and to combat 
the shadow economy. 

Progress  was  made  on  important  tax  measures  to  increase  liquidity  in  domestic 
corporate  bond  markets  by  opening  them  up  to  external  investors.  The  authorities  will 
abolish  the  withholding  tax  on  domestically-listed  corporate  bonds  for  non-residents,  thus 
bringing the withholding tax treatment of these bonds in line with the majority of EU Member 
States. A similar treatment will be adopted for purchases by international investors of direct 
bond issuances made by banks to meet the minimum requirement for own funds and eligible 
liabilities.  

Given the accumulation of previous delays, the end-2019 target for staffing levels at the 
Independent  Authority  for  Public  Revenue  is  unlikely  to  be  met;  however,  the  new 
government has taken important commitments to swiftly adopt agreed complementary 
measures to further strengthen the capacity of the Independent Authority and enhance 
its  attractiveness  to  highly  qualified  candidates.  The  staff  level  of  the  Independent 
Authority at the end of the third quarter of 2019 reversed the negative trend observed in 2018 
but remains some 1,000 persons short of the target set for end-2019. The recent approval of an 

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additional  600  hires  is  a  step  in  the  right  direction.  The  new  government  has  committed  to 
complete the ground-breaking human resources reforms to allow the Independent Authority to 
recruit and retain highly qualified personnel and also allocated the needed budget. This will 
phase-in  a  position-based  remuneration  system  for  the  first  time  in  the  Greek  public 
administration. The authorities have committed to adopt the grading legislation by end-2019 
and the supplementary wage grid in time to allow the new system to come into effect as of 1 
July  2020.  To  ensure  a  sufficient  level  of  self-reliance  in  the  day-to-day  IT  operations,  the 
production  of  a  road  map  by  end-2019  has  been  agreed  between  the  Independent  Authority 
and the General Secretariat for Information Services to clarify their respective competencies. 
Finally,  the  authorities  have  confirmed  that  an  appropriate  building  has  been  identified  that 
will allow to host, by end-2020, all of the headquarter services of the Independent Authority 
that are currently scattered in 13 buildings. 

The  authorities  will  amend  the  basic  instalment  scheme  with  a  view  to  facilitating  the 
repayment of tax debts.  The agreed  changes make the scheme more flexible,  inter alia by 
extending the maximum number of instalments to 24 or 48 depending on the type of the tax 
(from the current 12 and 24 instalments), and increase the incentives for staying in the scheme 
until the debt is settled fully. It is important for the credibility of this revised scheme that the 
authorities have committed not to open further new ad hoc instalment schemes.  

The  new  administration  has  adopted  a  new  broad  action  plan  to  clear  the  remaining 
stock of arrears by 2021, following a lack of progress under the previous plan since the 
end  of  the  programme.  As  of  end-August  2019,  the  stock  of  arrears  monitored  under 
enhanced  surveillance  remained  high  at  EUR 1.3 billion  compared  with  EUR 1.7 billion  a 
year  earlier.  This  is  substantially  above  the  zero  arrears  target  at  the  conclusion  of  the 
European Stability Mechanism programme. The new action plan aims to bring the net stock of 
arrears down to EUR 1 billion by December 2019 and to fully clear arrears by end-2020, with 
the exception of EUR 140 million for pension claims that would be cleared by June 2021. The 
plan  tackles  the  main  challenges  of  arrears  clearance  and  is  accompanied  by  a  number  of 
legal, administrative and IT actions to achieve its objectives.  

Measures to avoid the creation of new arrears (a specific mid-2019 commitment) are in 
the  pipeline,  but  will  require  more  time  to  be  designed  and  implemented  fully.  The 
Hellenic Court of Auditors, in its follow-up audit, noted that progress had been made on most 
of its recommendations; but some of the key recommendations will require more time, also in 
view of the very short period elapsed since its first audit. As part of the new Clearance action 
plan, the authorities will establish a Steering Committee by Ministerial  decision to  ensure  a 
timely implementation of both  the clearance plan and the plan against accumulation of new 
arrears.  The  remaining  ex  ante  audits  by  the  Hellenic  Court  of  Auditors  for  the  extra-
budgetary funds and local governments were phased out as envisaged. 

The implementation of the Treasury Single Account and the Unified Chart of Accounts 
remain broadly on track. The full implementation of the Treasury Single Account by end-
2019 will require some additional work but is progressing well overall. Regarding the Unified 
Chart of Accounts, the new government created a Steering Committee to oversee the project 
and took some initial steps to implement the chart of  accounts also in the public investment 
budget; but greater clarity is needed as to its full implementation in this area. 

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SOCIAL WELFARE 

The  Council  of  State  has  confirmed  the  constitutionality  of  the  main  elements  of  the 
2016 pension reform, but some of its aspects will need to be amended. The authorities are 
elaborating  proposals  to  address  the  issues  raised  by  the  Council  of  State  ruling  and  have 
committed  to  find  solutions  to  contain  the  cost  of  the  necessary  amendments  within  the 
budget  of  the  Ministry  of  Labour  for  2020.  However,  the  Second  Chamber  of  the  Court  of 
Auditors has recently reached an opposite conclusion regarding pension rights of public sector 
officials compared to the Council of State decision, which creates additional uncertainty.  

The  collection  of  the  2018  clawback  of  healthcare  expenditure  (a  specific  mid-2019 
commitment) has been delayed on account of changes in the repayment schedule, though 
the  needed  legislation  will  enter  into  force  shortly.  The  start  of  the  collection,  originally 
planned by June, was affected by the authorities’ decision to extend the maximum repayment 
period for the clawback up to 120 monthly instalments. Although most providers are expected 
to  repay  within  five  years,  the  change  still  results  in  an  overall  dilution  of  payments  and 
worsens the liquidity situation of the Health Fund. The European institutions have encouraged 
the authorities to step up efforts in this area.  

The authorities plan to take a number of steps to rationalise health care spending, which 
could reduce clawback in the medium and long-term, the ambition of which will need to 
be  commensurate  with  some  of  the  recent  steps  going  in  the  opposite  direction.  The 
authorities plan to establish a national cancer registry and a Health Technology Assessments 
Agency,  to  strengthen  the  Drug  Negotiating  Committee  and  step  up  the  work  on  the 
development  of  clinical  protocols,  as  well  as  other  actions.  These  are  all  steps  in  the  right 
direction though their impact is expected to materialise only in the longer term. At the same 
time, the authorities have delayed the annual update of the price bulletin, which usually leads 
to a downwards revision of pharmaceutical prices, and intend to eliminate the 25% entry fee 
for innovative drugs. Both these measures potentially increase the amount of clawback in the 
coming months. 

Progress  towards  mid-2020  commitments  to 
increase  the  share  of  centralised 
procurement  for  hospital  expenditure  and  to  consolidate  the  network  of  health  care 
providers is  slow.  Nonetheless,  the authorities  remain committed to  the  reform  and plan to 
reshape  the  recently  established  central  procurement  body  to  increase  its  flexibility  and 
efficiency  in  the  medium  term.  With  technical  support  provided  through  the  European 
Commission, the authorities have also made progress in updating the hospital reimbursement 
scheme. It will be important for the authorities to further build on the progress made. 

The  authorities  paused  the  opening  of  additional  health  care  centres  to  reconsider  the 
most  suitable  structure  of  delivery  of  primary  health  care,  though  they  have  signalled 
their intention to preserve the fundamentals of the already legislated reform. As a result, 
in  the  next  six  months  the  opening  of  at  most  ten  additional  primary  health  care  units  is 
considered feasible.  The timeline for the introduction of key features of the reform,  such as 
compulsory registration with a family doctor and gatekeeping functions, is yet to be clarified. 

Regarding social policy, the reform of the disability benefits framework (a specific mid-
2019  commitment)  is  advancing  but  with  significant  technically-related  delays  outside 
the control of the authorities. While the upgrading and simplification of the administrative 
processes  to  determine  disability  status  is  progressing,  the  new  approach  to  determine 
disability status based on both medical and functional assessment is still to be adopted. The 

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new  methodology  should  have  been  developed  on  the  basis  of  the  results  of  a  pilot  project 
which encountered delays for reasons outside the control of the authorities. A revised timeline 
will be agreed once the evaluation is received: provided the evaluation is available shortly, a 
concept  paper on the reform  should be available by February and the reform  undertaken by 
June 2020. 

The  specific  end-2019  commitments  on  the  completion  of  the  Social  Solidarity  Income 
scheme  and  a  review  of  subsidies  for  local  public  transport  remain  on  track.  The 
authorities have completed the second pillar of the Social Solidarity Income scheme – social 
inclusion –and work is  underway on the third pillar, which relies on the  provision of active 
labour market  services  to help  the recipients  of the scheme  (re-)enter the labour market.  To 
achieve  this,  the  authorities  are  developing  a  more  systematic  approach  to  the  design  and 
management  of  the  active  labour  market  services,  which  has  been  tested  and  should  be 
gradually expanded following its evaluation. Regarding the upcoming review of the system of 
subsidies for local public transport, the authorities have confirmed their commitment to assess 
the appropriateness of the current system of subsidised fares for local public transport by the 
end of 2019, and to follow up on eventual recommendations to improve the system.  

FINANCIAL SECTOR POLICIES 

The liquidity situation of Greek banks has further improved and there are signs that the 
banks’ market access is gradually re-established but legacy risks and challenges remain 
high.  Banks  continue  to  face  a  large  stock  of  non-performing  loans,  while  other  challenges 
persist,  such  as  the  fragile  profitability  and  the  strong  sovereign-bank  nexus,  including 
through  the  high  share  of  deferred  tax  credits  in  banks’  capital.  Going  forward,  the  Greek 
banking  sector  is  faced  with  the  challenge  of  boosting  its  resilience  and  accelerating  the 
reduction of non-performing loans, while improving its ability to finance growth. 

The improving liquidity situation of Greek banks and increased depositor confidence led 
to the complete lifting of capital controls as of 1 September 2019 (a continuous specific 
commitment). In the first nine months of 2019, banks’ private sector deposits have increased 
by about 3.5% and the emergency liquidity assistance was fully repaid in the beginning of the 
year. Whilst the abolition of capital controls normalises the functioning of the Greek economy 
and  is  supportive  for  confidence  building,  it  places  even  more  importance  on  accelerating 
efforts to strengthen the banking system and underpin depositor confidence. 

The pace of reduction of the non-performing loans accelerated in 2019 but levels remain 
very  high.  Non-performing  loans  in  the  Greek  banking  system  peaked  in  March  2016  at 
EUR 107.2 billion  or  48.8%.  The  pace  of  decline  in  non-performing  loans  has  accelerated 
since  2018,  reaching  45.4%  and  43.6%  of  total  customer  loans  at  end-2018  and  mid-2019, 
respectively.  This  was  overall  in  line  with  the  operational  targets  set  by  the  four  systemic 
banks, under the oversight of the supervisory authority. While the non-performing loans ratio 
remains  very  high,  the  recent  acceleration  in  the  pace  of  reduction  of  the  non-performing 
loans is more pronounced in absolute terms: the stock decreased to EUR 75.4 billion by end-
June  2019,  i.e.  by  EUR 13.5 billion  or  15%  year-on-year.  For  the  coming  years,  the  four 
systemic banks plan to further substantially reduce non-performing loans  to EUR 26 billion 
or 19.2% by end-2021. To this end, additional efforts will be needed by both banks and the 
authorities: banks will need to accelerate ‘organic’ resolution activities for the non-performing 
loans  and  strengthen  efforts  to  identify  and  adequately  address  strategic  defaults,  while  the 

8 

 
 
authorities are expected to ensure that the legal framework and the judicial system are able to 
efficiently support the resolution of non-performing loans. 

Systemic  initiatives,  like  the  Hercules  asset  protection  scheme,  can  help  clean  up  the 
balance sheet of Greek banks. Under the scheme, each bank may transfer non-performing 
loans  to  separately  managed  Special  Purpose  Vehicles,  which  may  issue  junior,  mezzanine 
and  senior  notes,  with  a  state  guarantee  for  the  senior  notes.  In  exchange  for  the  guarantee 
offered, the state will receive remuneration at market terms. External servicer companies will 
manage  the  assets.  In  October  2019,  the  Commission  concluded  that  the  scheme,  which  is 
similar  to  the  Italian  Guarantee  on  Securitization  of  Bank  Non-performing  Loans  scheme, 
does  not  constitute  State  aid  within  the  meaning  of  Article 107 (1) of  the  Treaty  on  the 
Functioning of the European Union. 

The  focus  now  falls  on  completing  the  design  of  the  asset  protection  scheme  and 
commencing  its  swift  implementation.  Participation  in  the  scheme  is  voluntary,  while  the 
envelope of guarantees could support a substantial de-recognition of non-performing loans for 
all banks. The current improvement in sovereign financing conditions provides an opportunity 
for banks to achieve a relatively low price for the state guarantee, though market risk needs to 
be  taken  into  account.  The  success  of  the  scheme  will,  inter  alia,  depend  on  the  balance  of 
regulatory  capital  gains,  guarantee  related  expenses  and  losses  stemming  from  the  sales  of 
notes to the investors. The scheme will run for 18 months, with the possibility of renewal. The 
authorities  could  also  explore  additional  measures,  including  complementary  schemes,  to 
further support the health of the banking sector.  

The  authorities  are  working  on  a  range  of  initiatives  to  strengthen  the  resolution 
framework  for  non-performing  loans,  though  there  is  scope  to  accelerate  the  pace  of 
implementation. The implementation of the actions outlined below is monitored and assessed 
under enhanced surveillance as part of the continuous specific commitment to “continue to 
implement  reforms  aimed  at  restoring  the  health  of  the  banking  system,  including  non-
performing loans resolution efforts”. 

  Electronic  auctions:  Despite  progress  in  the  first  semester  of  2019,  the  majority 
electronic  auctions  continue  to  be  cancelled  or  suspended,  or  have  failed  due  to  lack  of 
interest among bidders, and most of the successfully auctioned real estate assets are still 
acquired by banks. Identified impediments leading to the cancellation or suspension of e-
auctions  due  to  procedural  abuse  are  currently  under  assessment.  The  Greek  authorities 
have  established  a  working  group  to  assess  the  extent  of  the  problem  as  well  as  other 
potential  impediments,  in  order  to  define  and  recommend  the  necessary  mitigating 
measures.  The  authorities  have  provided  an  initial  analysis  of  the  reasons  for  the  above 
status quo, and committed to providing a full report shortly. 

  Backlog of household insolvency cases: The elimination of the backlog of cases at courts 
in the context of the household insolvency framework (a specific end-2021 commitment) 
remains  significantly  behind  schedule.  It  is  key  for  the  authorities  to  increase  the 
processing  capacity  of  magistrate’s  courts  in  order  to  achieve  full  elimination  of  the 
backlog,  including  cases  created  under  the  new  primary  residence  protection  regime,  by 
end-2021,  via  the  elaboration  of  an  appropriate  updated  action  plan  by  end-December 
2019. The European institutions have encouraged the authorities to  assess the change in 
numbers  of  cases  in  the  past  (processed  cases  vs.  inflows  of  new  incoming  cases)  and 
present adequate measures to anchor the projected path of the elimination of the backlog 
by end-2021. 

9 

 
 
  Tax treatment of write-offs: An amendment reinstating the favourable tax treatment of 
loan  write-offs  that  had  expired  at  the  end  of  2018  for  restructurings  made  up  to  end-
2019 is currently in public consultation. The relevant provision stipulates that the amount 
of the write-off will not be considered as an income of the debtor and will be exempted 
from the tax levied on donations. This addresses the disincentives to restructurings caused 
by the expiry of the previous tax treatment.  

  Primary  residence  protection:  Following  the  launch  of  the  electronic  platform  in 
summer  2019,  the  measure  was  approved  by  the  Commission  under  the  state-aid  rules. 
The  authorities  have  undertaken  amendments  to  the  framework  and  the  IT  platform  to 
facilitate applications. They intend to prolong the scheme by four months and terminate it 
by  end-April  2020.  While  such  a  technical  delay  could  help  increase  the  uptake  of  the 
scheme from its current  low levels, it slows down the normalisation of payment culture. 
The  authorities  have  also  committed  to  accelerate  the  work  on  the  harmonisation  of 
insolvency  frameworks.  The  institutions  will  report  on  the  completion  of  both  elements 
under enhanced surveillance. Under the new framework, it would be warranted to ensure 
the  free  enforcement  of  all  collateral  including  primary  residences,  which  would  help 
normalize the banking sector’s credit provision to the economy. 

  Insolvency  framework:  Preparatory  work  on  the  harmonization  and  integration  of  the 
bankruptcy  and  insolvency  regimes  has  started.  The  elaboration  of  a  well-defined  and 
systemically consistent unified framework is highly desirable, and should be entrusted to a 
law-drafting  committee  and  be  effected  without  undue  haste  but  in  a  holistic  and 
technically thorough manner. The authorities have drafted a concept paper as a basis for 
the elaboration of a draft new single insolvency framework by end-April 2020, which sets 
out the basic objectives of this reform.  

  Code  of  Civil  Procedure:  Progress  with  assessing  the  implementation  of  the  reformed 
Code of Civil Procedure is underway but behind schedule, due to inherited delays. On the 
basis  of  stakeholder  consultation,  the  relevant  working  group  is  currently  conducting  a 
comprehensive evaluation of the reform. Its work will be followed by the formation of  a 
law-drafting committee that will draft potentially requisite amendments to be adopted by 
the end of 2020.  

  Financial training of judges: The authorities reported further progress in the provision of 
financial  training  to  judges,  notably  in  the  area  of  household  insolvency.  Two  draft 
Presidential  Decrees  were  submitted  to  the  Council  of  State  for  the  required 
constitutionality assessment. The authorities are also proceeding with the appointment of 
clerical court staff, an action which has been subject to considerable delays.  

  Legal safeguards for bank officials dealing with restructuring cases:  An amendment 
to  the  Penal  Code  aiming  at  addressing  the  issues  of  pending  court  cases  against  bank 
officials  involved  in  past  debt  restructurings,  and  the  protection  of  these  officials  in  the 
context  of  ongoing  and  future  restructurings  has  been  adopted.  The  impact  of  this 
legislation in the context of the Greek legal framework will be monitored under enhanced 
surveillance. 

  State guarantees:  In September 2019, the backlog of called loan guarantees by the state 
remained considerable and increased since the previous report largely due to an increase in 
claims  by  the  banking  sector,  despite  efforts  to  accelerate  the  processing  rate.  The 
authorities have presented an updated action plan and a corresponding seven-year payment 
plan for the clearance of the EUR 2 billion stock of guaranteed loans called by commercial 
banks.  The  action  plan  aims  to  deal  with  bottlenecks  in  cooperation  with  banks,  while 

10 

 
 
strengthening  human  resources  at  the  General  Accounting  Office  and  upgrading  the  IT 
framework. Taking into account inter alia the long lag from the time the guarantees were 
called, which for some dates back to 2012, the authorities are seeking scope for a payment 
profile not exceeding four years with adequate measures to ensure its credibility. 

The Hellenic Financial Stability Fund continued exercising its shareholding rights in the 
four  systemic  banks,  contributed  to  non-performing  loans  resolution  polices  and 
improved  their  governance.  The  Fund  as  a  shareholder  evaluated  and  approved  several 
divestments,  challenged  banks’  strategies  and  policies  and  contributed  to  non-performing 
loans  reduction  policies.  By  October  2019,  banks  have  mostly 
the 
recommendations  of  the  Fund  from  the  2017  board  performance  and  governance  review, 
which  focused  primarily  on  the  banks’  risk  management  culture,  compliance  and  internal 
control frameworks. The implementation of the Fund’s divestment strategy approved in 2018 
is  in  its  first,  preparatory  phase,  where  the  Fund  aims  to  effectively  challenge  the  banks’ 
strategies  and  the  business  models  to  promote  value-enhancing  initiatives.  Discussions 
between  the  Fund  and  the  Ministry  of  Finance  on  the  potential  involvement  of  other 
authorities  in  the  final  stage  of  the  divestment  and  the  legal  protection  for  the  Fund’s 
governing bodies and staff have not been concluded yet. The preservation of independence of 
the  Hellenic  Financial  Stability  Fund  is  a  cornerstone  in  the  process  toward  restoring  the 
health of the banking sector. 

implemented 

LABOUR MARKET 

The  authorities  committed  to  continue  monitoring 
labour  market  and  wage 
developments and intend to conduct an ex post assessment of the recent increase in the 
minimum  wage.  This  exercise  will  benefit  from  technical  support  from  the  World  Bank, 
provided through the European Commission, and its results are intended to feed into the next 
minimum wage review in 2020.  

The authorities are on track to complete the implementation of an action  plan to fight 
undeclared work for 2017-2019 by end-2019 and are preparing a follow up. The current 
action  plan  promotes  an  integrated  approach  to  undeclared  work,  including  measures  to 
reinforce  the  cooperation  among  different  institutions  and  improve  the  capacity  to  detect 
undeclared work. The authorities will design a follow-up to the action plan, after an ex post 
evaluation of all implemented measures will have been completed through technical support 
provided  through  the  European  Commission.  These  measures  have  been  accompanied  by  a 
number of additional recent steps to encourage work in the formal economy and to limit the 
abusive use of part-time work, which often masks undeclared full-time work. These notably 
include an increase in the overtime remuneration for part-time workers and the expansion of 
the  employment  registration  system  allowing  it  to  cover  also  non-standard  forms  of 
employment.  In 2020, the  government  is  also  planning to  introduce a digitalised system for 
the recording of working time.  

The  new  Development  Bill  of  October  2019  introduced  a  number  of  changes  to  the 
collective  bargaining  framework.  The  Bill  introduces  the  possibility  of  opting  out  from 
sectoral-level bargaining for certain businesses. It also amends the procedure for the extension 
of  sectoral  agreements  that  is  no  longer  automatic,  but  at  the  discretion  of  the  Minister  of 
Labour  subject  to  specific  conditions.  Other  new  elements  include  the  creation  of  a  public 
registry  for  employer  associations  and  for  trade  unions  in  order  to  better  verify  their 
representativeness, and a restriction to the unilateral recourse to arbitration. It remains to be 

11 

 
 
seen  how  these  changes  will  affect  collective  bargaining  in  practice.  While  the  new 
requirements  for  the  extension  of  collective  agreements  may  reduce  the  incentives  for 
sectoral-level bargaining, the opt-out possibilities – if taken up by the social partners – may 
promote social dialogue both at firm and at sector level.  

The  new  government  has  embarked  on  an  ambitious  programme  of  reforms  aimed  at 
modernising the education system and bringing it closer to good practice. This impetus is 
welcome  and  long  overdue  in  view  of  long-standing  challenges,  including  inefficient 
allocation  of  resources,  low  autonomy,  poor  educational  outcomes,  skill  mismatches,  and 
weaknesses in the governance of higher education institutions. 

PRODUCT MARKETS AND COMPETITIVENESS 

Although there are few product market and competitiveness reform commitments with 
a  deadline  relevant  to  this  enhanced  surveillance  cycle,  it  is  worth  stressing  that  key 
structural reforms in this vital area have been initiated under the programme and will 
require several years of sustained implementation, so as to secure a lasting improvement 
in  the  business  environment,  investment  and  growth.  Broad-based  structural  reforms 
initiated in recent  years have already started to improve the functioning of Greece’s product 
markets. Greece’s exports market shares are expanding and foreign direct investment is on an 
upward trend, albeit from a very low level. However, further efforts will be needed to close 
Greece’s  sizeable  investment  gap  and  to  improve  Greece’s  ranking  in  comparative 
international  competitiveness  indicators.  Long-standing  weaknesses  include  registering 
property and enforcing contracts, while there is also significant scope for catching-up in the 
fields of digital economy, product market regulation and competitiveness at regional level. 

The new administration has signalled its intention to pursue a strongly pro-growth and 
investment policy agenda. Since entering into office, the government has taken a number of 
initial  steps that pave the way towards improving the business  landscape. This  has included 
legislation  to  foster  the  transition  to  a  ‘digital  state’,  improve  the  quality  of  legislation,  and 
advance legal codification. The administration is also taking first steps towards a coordinated 
approach to  promoting the outward orientation  of the Greek economy, where there is  scope 
for  a  much  more  ambitious  strategy.  Progress  with  rebalancing  the  economy  towards 
promising  export-oriented  sectors  such  as  the  agricultural  and  agro-food,  tourism,  transport 
and logistics and high-tech sectors, including through the development of smart specialisation 
strategies,  would  help  strengthen  the  current  account  and  redress  the  very  negative  and 
deteriorating net international investment position. 

Further  measures  have  been  introduced,  through  the  recently  adopted  Development 
Law. Amongst others, they include the alignment of the nuisance classification system to the 
environmental  classification,  which  is  harmonised  with  relevant  EU  legislative  acts,  the 
reduction of licensing requirements, and the development of a Single Digital Map to provide 
clarity and transparency on land use rules to investors, as well as changes in spatial planning 
to accelerate major investment projects.  

The government is off to a good start in terms of launching initiatives to strengthen the 
business environment and is planning further actions to streamline regulatory processes 
and stimulate investment in key sectors. Indeed, it is essential to provide sustained certainty 
and  greater  incentives  to  investors.  To  that  end,  the  government  has  indicated  that  it  will 
continue  to  prioritise  further  actions  on  rationalising  and  expediting  the  licensing  process, 
notably  in  relation  to  environmental  licensing.  This  would  be  particularly  important  for 

12 

 
 
boosting  investment,  especially  in  activities  of  high  economic  impact,  as  would  further 
actions  to  review  the  land  use  and  licensing  framework  in  Attica,  and  to  strengthen 
enforcement mechanisms. 

To guide the completion of the investment licensing reform, which is part of the specific 
commitments  up  to  2022,  the  new  administration  has  produced  revised  action  plans. 
According to the revised plans, the authorities commit to meeting the deadlines set out under 
the enhanced surveillance framework. Nonetheless, previous delays have made conforming to 
some  reform  elements  more  challenging  (i.e.  on  the  simplification  of  legislation  in  the  24 
sectors not  yet covered by the investment licensing reform and on the development of tools 
for  the  environmental  domain  of  the  inspection  framework).  It  will  thus  be  key  that  the 
government commits adequate resources to the process. As regards the review of the nuisance 
classification,  the  authorities  have  committed  to  align  this  system  with  the  environmental 
classification system by mid-2020, in line with the relevant provision included in the recently 
adopted  Development  Law,  a  year  earlier  than  the  commitment  deadline.  Furthermore,  the 
work on the tendering procedure on the relevant IT system, due to be completed by end-2019, 
appears  to  be  largely  on  track.  Lastly,  the  authorities  have  committed  to  safeguarding  the 
integrity  of  critical  reform  gains  achieved,  and  to  this  end  it  is  expected  that  a  formalised 
mechanism will be established. 

In the area of land use, reforms are advancing. Forest maps for some 95% of the country 
have  been  completed,  materially  reaching  the  target  of  completing  the  drafting  of  the  last 
phase of forest maps (a specific mid-2019 commitment). Out of these maps, some 44% have 
been ratified, and thus become definitive. Cadastral mapping has been completed for around a 
third of the 39 million property  rights  in  Greece, and the remaining part is  in  progress.  The 
declaration  of  properties  for  cadastral  mapping  is  picking  up,  and  the  authorities  are 
considering  further  steps  to  accelerate  the  process.  The  setup  of  the  institutional  framework 
for the cadastre is  advancing but  proving challenging.  In particular,  given that in  spring the 
integration of mortgage offices into the new cadastral agency has been proceeding slower than 
planned, the authorities have committed to accelerate the transition to the new entity. Positive 
legislative  steps  have  been  taken  in  the  area  of  spatial  planning,  aimed  at  accelerating  the 
implementation  of local  spatial  plans and the approval  of major investments  (special spatial 
plans). 

The  authorities  have  undertaken  efforts  to  stabilise  the  finances  of  the  energy 
incumbent,  Public  Power  Corporation,  and  have  announced  ambitious  energy  market 
reforms,  which  will  affect  the  timeline  for  the  implementation  of  the  target  model  for 
electricity (a specific mid-2019 commitment). The decisive steps taken by the authorities to 
shore  up  Public  Power  Corporation’s  finances  have  been  reflected  in  a  positive  half-year 
financial  report,  which  was  an  important  signal  for  markets.  The  authorities  are  currently 
developing measures to  tackle the longer term challenges of arrears and strategic defaulters. 
The  authorities  decided  to  cancel  the  last  scheduled  auction  in  October  under  NOME 
(Nouvelle Organisation du Marché de l'Electricité), which was put in place as a transitional 
measure while energy market reforms took place to open up to competition. One such reform 
was the implementation of the target model; this is on track for delivery by the new deadline 
of June 2020. Coupling with neighbouring markets should follow. The authorities’ proposals 
to speed up delivery of the forward market are welcome.  

The authorities have proposed an ambitious plan for the longer-term transformation of 
the energy market in Greece, and have communicated their intention to formally submit 
revised  antitrust  remedies  in  January  2020.  The  core  of  the  energy  strategy  involves 

13 

 
 
closing  down  all  lignite-fired  capacity  by  2028,  with  a  significant  share  of  closures  taking 
place  much  earlier.  The  government  is  also  considering  taking  further  steps  to  open  up  the 
market to competition. If these plans are fully implemented, major developments with a target 
model-based,  open  market  that  is  less  reliant  on  fossil  fuels  and  open  to  expanding  its 
renewables  capacity  could  already  be  observed  in  2020.  While  the  direction  of  this  longer-
term strategy is welcome, further more immediate steps are needed to address Public Power 
Corporation’s  market  dominance,  such  as  through  the  ongoing  antitrust  procedure.  Data  on 
the market shares of the Public Power Corporation indicate that competitors are entering the 
market on the retail and wholesale side, but its dominant position and its exclusive access to 
lignite-fired  generation  remain  a  concern.  In  this  context,  it  should  be  noted  that,  against  a 
background  of  legal  uncertainty  and  lack  of  transparency,  no  bids  were  received  for  the 
second  round  of  the  tender  for  the  lignite  divestiture  in  July  2019  (a  pending  specific  end-
2018 commitment which had seen delays). The failure of this divestiture resulted in a breach 
of  the  anti-trust  commitment,  so  an  alternative  remedy  has  to  be  found.  The  authorities 
formally communicated their intention to submit revised remedies in January 2020. 

Greece’s  gas  market  is  still  small,  but  growing.  The  completed  sale  of  the  transmission 
grid,  the  Natural  Gas  Transmissions  System  Operator,  as  well  as  the  ongoing  sale  of  the 
Public Gas Corporation will lead to  further market opening and investment on the domestic 
level, whilst ongoing progress with projects such as the Bulgaria-Greece Interconnector and 
growing liquefied natural  gas imports show Greece’s potential  to  become a  regional  energy 
hub. The authorities are revisiting the planned sale of the Public Gas Corporation though the 
revised plan is encouraging, involving the sale of a larger government stake and provisions to 
ensure full unbundling. 

HELLENIC  CORPORATION  OF  ASSETS  AND  PARTICIPATIONS  AND 

PRIVATIZATIONS 

The work of Hellenic Corporation of Assets and Participations on the key areas covered 
by the commitments to the Eurogroup is  continuing. The implementation of the strategic 
plan  (a  continuous  commitment)  is  ongoing  and  the  Board  review  is  progressing.  The 
Corporation’s  board  has  completed  the  review/replacement  for  most  of  its  subsidiaries  of 
state-owned enterprises (a specific mid-2019 commitment), in line with technical feasibility. 
This  includes  the  appointment  of  new  board  members  at  Hellenic  Post  and  Public  Power 
Corporation,  thus  facilitating  the  changes  needed  at  these  companies.  The  authorities  have 
engaged  meaningfully  with  the  Hellenic  Corporation  of  Assets  and  Participations’  reform. 
They  have  materially  improved  the  situation  of  low  caps  on  director  remuneration  for  the 
bigger non-listed state-owned enterprises under the Corporation, through a legal amendment, 
thereby facilitating the process of board reviews going forward. Since the publication of the 
third enhanced surveillance report in June 2019, the Corporation has made further progress in 
improving  corporate  governance  in  the  state-owned  enterprises.  The  first  consolidated 
financial accounts for the group for the year 2018 were prepared and submitted for approval 
to the General Assembly. The implementation of the coordination mechanism, which governs 
the interaction between the authorities and Corporation regarding the mandates and objectives 
of the state-owned enterprises under the Corporation, was relaunched in October with priority 
attached  to  four  SOEs  (central  markets  of  Athens  and  Thessaloniki,  Corinth  Canal  and  the 
national  fairs  organiser  Helexpo).  The  mandates  and  deliverables  for  these  state-owned 
enterprises are expected to be finalised soon since significant preparatory work has been done 
by Corporation and discussed with the competent authorities.  

14 

 
 
The authorities have greatly  strengthened  momentum in the privatisation process.  The 
updated Asset Development Plan has been adopted (a continuous commitment) and progress 
with ongoing transactions has accelerated in the last three months. In particular: 

  Hellinikon, (development of the site of the former Athens International airport, a 
pending  specific  end-2018  commitment):  The  authorities  have  attached  great 
emphasis and strongly engaged in the transaction, intensifying significantly the efforts 
to  complete  the  conditions  precedent  to  allow  the  transfer  of  shares  to  the  preferred 
investor,  Lamda.  The  overall  recent  progress  is  significant  and  the  financial  closing 
could be feasible in the coming months.  

  Marina  of  Alimos  (a  specific  mid-2019  commitment):  the  preferred  investor  was 
selected on 16 April 2019. The Court of Audit  approved the tender procedure on 26 
June 2019. The next steps are procedural. Thus, satisfactory progress is being made in 
the tender for the long-term concession of the marina of Alimos, although the financial 
closing is not expected before end-2019. 

  Hellenic  Petroleum  (a  specific  mid-2019  commitment):  No  binding  offers  were 
submitted for the joint sale (along with PanEuropean Oil and Industrial Holdings S.A., 
the other strategic shareholder of Hellenic Petroleum) of a majority stake (50.1%) and 
thus there was no positive outcome of the specific transaction. The financial closure is 
thus 
to  significant  delays.  The  Hellenic  Republic  Asset 
Development Fund, the Taiped, was given the technical mandate to explore all options 
available  towards  proceeding  with  the  transaction.  The  ultimate  decision  as  to  the 
structure and the timing lies with the Greek authorities and should be determined on 
the  basis  of  what  provides  the  best  commercial  and  strategic  value  for  Greece.  The 
approach is expected to be clarified and a timeline finalised by end- 2019. 

inevitably  subject 

  Sale  of  30%  of  the  Athens  International  Airport:  Open  issues  on  corporate 
governance, which had delayed the transaction, were resolved by the authorities. The 
tender process  is  thus  proceeding.  Ten investment  schemes expressed on 29 October 
2019  their  interest  (Phase  A)  to  acquire  the  30%  stake  in  the  company.  The  binding 
offers  are  expected  to  be  submitted  in  early  2020,  and  the  financial  closing  of  the 
transaction is expected before the end of 2020.  

  Public  Gas  Corporation:  The  authorities  are  considering  changes  in  its  corporate 
restructuring  and  demerging  into  Commercial  (wholesale  and  retail  gas  supply)  and 
Infrastructure  (gas  distribution  networks)  units,  while  the  Corporation’s  interests  in 
international  strategic  gas  infrastructure  projects  would  be  transferred  to  a  new 
corporate  entity.  The  corporate  structure  is  a  policy  choice  to  be  made  by  the 
authorities,  provided  that  it  is  in  accordance  with  the  principles  of  the  agreed  term 
sheet  of  June  2018.  The  Greek  authorities  have  indicated  their  intention  to  proceed 
with  the  full  divestment  of  their  stake  (65%)  in  both  Commercial  and  Infrastructure 
units and thus increase the expected privatization proceeds, while also facilitating the 
unbundling of the gas market. 

  Egnatia  motorway  concession:  given  previous  delays  and  obstacles,  a  number  of 
actions are still needed before the submission of binding offers (related inter alia to the 
implementation  of  the  toll  pricing  policy  approved  by  the  Commission,  construction 
and operation of toll stations, and the safety certification of bridges and tunnels). The 
authorities  have  stressed  their  commitment  to  unblock  the  transaction;  however 
determined follow-up will be needed.  

15 

 
 
  Regional  ports:  the  authorities  are  positive  with  respect  to  providing  flexibility  of 
choice  on  the  privatisation  transaction  structure  (i.e.  master  concession,  sub-
concession,  sale  of  equity)  for  each  port.  The  consultants  of  Taiped  are  expected  to 
deliver  shortly  the  relevant  study  and  the  authorities  to  enact  a  necessary  legal 
amendment providing Taiped the flexibility of choice, so that the tender procedure for 
the first two ports can be launched.  

PUBLIC ADMINISTRATION AND JUSTICE 

The selection process of Administrative Secretaries (an end-2018 commitment) has been 
cancelled  and  replaced  by  the  establishment  of  a  Permanent  Secretary  post  and  by  a 
significant  change  in  the  delegation  of  signature  powers  for  individual  acts  from  the 
political  to  the  administrative  level.  However,  in  order  to  safeguard  the  achievements  in 
terms  of  de-politicisation  of  the  public  administration  and  institutional  continuity,  the 
authorities have committed that the adopted measures are implemented without delay and the 
selection  process  for  Directors  and  Heads  of  Division  continues  in  accordance  with  the 
existing  legal  framework.  The  authorities  have  also  committed  to  reintroduce  an  open 
selection process  for senior management posts  at  legal  entities of public  and private law by 
May  2020  and  to  adopt  measures  to  create  permanent  organisational  structures  at  the 
Presidency Office. An independent assessment of the selection process for the Administrative 
Secretaries (a specific mid-2019 commitment) has been completed.  

The far-reaching legislation on the functioning of the central administration, which was 
the  first  major  legislation  brought  forward  by  the  new  government,  introduced  a 
number  of  key  provisions  to  modernise  the  public  administration, 
including 
strengthening  the  government’s  centralised  coordination  capacity.  Given  that  weak 
coordination  has  been  one  of  the  long-standing  weaknesses  of  the  public  administration, 
reinforcing  the  role  and  resources  of  the  government’s  Presidency  Office  is  an  important 
reform. Further, this major codification law consolidates the role of the Council of Ministers 
and  sets  out  specific  provisions  for  the  annual  programming  and  monitoring  of  the 
government’s priorities. The law also includes provisions for harmonising and strengthening 
the  legislative  process  across  the  central  administration,  including  improving  the  impact 
assessment process. 

Reforms  adopted  during  the  programme  period,  such  as  the  mobility  scheme  and 
performance assessment, continue to be implemented with overall good participation. It 
is important for the credibility of the mobility scheme reform that transfers are speeded up. In 
this  respect,  the  authorities  have  committed  to  introduce  legal  provisions  by  end-2019  that 
will ensure that the selection process of the mobility scheme will go faster. This is a welcome 
initiative  as  it  would  further  enhance  the  credibility  of  this  scheme  amongst  the  general 
government entities. 

The  new  administration  has  also  taken  actions  to  implement  other  ongoing  reforms  in 
this area, such as the human resources management strategy and legal codification, and 
to introduce targeted improvements, further demonstrating their commitment to reform 
herein. The mobility  cycle launched in  August  2018 is  advancing with  minor delays,  while 
performance  assessments  for  2018  have  been  completed  (both  are  specific  mid-2019 
commitments). The new administration has committed to a road map to complete the human 
resources  management  strategy  by  2023.  In  addition,  each  jobholder  will  be  linked  with  a 
specific  job  description/position  by  the  end  of  2019.  Non-complying  general  government 

16 

 
 
entities  will  not  be  able  to  request  new  hires.  As  concerns  the  legal  codification,  it  is 
important that the ongoing review of the national portal for codification be completed swiftly 
so as to ensure a timely start of the tender procedure. 

Hires of permanent staff remain within the hiring target set by the authorities in their 
budget  and  the  Medium-term  Fiscal  Strategy,  and  the  authorities  are  taking  action  to 
regain  control  of  hiring  of  temporary  staff.  The  hiring  benchmark  for  the  hires  or 
temporary  staff  (i.e.  yearly  average  of  temporary  staff  in  2016)  was  estimated  to  have  been 
surpassed  by  1,500  when  the  previous  enhanced  surveillance  report  was  published  (data 
covering up until February 2019) while the current estimate exceeds the benchmark by 5,200 
(data  up  until  September  2019).  A  recent  amendment  removed  a  number  of  important 
exceptions  from  the  regular  hiring  rules  for  temporary  staff,  which  should  increase  control 
over hiring by the Ministry of Interior and hopefully result in a gradual decrease of temporary 
staff. 

A  few  recent  salary  provisions  raise  some  concerns  about  the  integrity  of  the  unified 
wage grid. These salary provisions place specific staffing groups in some priority services at 
the  most  senior  remuneration  grade  and  also  extend  scope/coverage  of  the  ‘personal 
difference’ allowance. The authorities have  committed to  reinforce and  centralise control of 
the  unified  wage  grid  reform  and  hiring  procedures  by  establishing  an  inter-ministerial 
working  group  with  the  mandate  to  present  specific  measures  by  end-2019,  which  will  be 
implemented by January 2020. 

The government has adopted legislation to promote the transition to a digital State, with 
the new Ministry of Digital Governance taking a leading role. The Ministry is tasked with 
creating  a  digital  public  administration  through  delivering  a  series  of  major  IT  projects. 
Projects to be pursued in the short-term include the development of a single digital identity for 
the  authentication  of  all  transactions  with  the  State,  the  simplification  of  specific 
administrative procedures for citizens and businesses, and the setting up of a unified platform 
(gov.gr)  to  bring  together  information  and  electronic  services  offered  by  the  State.  In  the 
medium-  to  long-term,  the  Ministry  aims  at  further  developing  the  infrastructure  for  5G 
networks and promoting the interoperability of public systems and registries. The authorities 
are  also  revising the existing National  Digital  Strategy setting the framework for the digital 
transformation of the public administration and the economy as a whole. 

The  new  administration  has  committed  to  proceed  with  the  third  phase  of  the  Single 
Payment Authority reform, which has been subject to significant delays. The third phase 
will  establish  an  integrated  information  system  and  increase  the  authority’s  mandate  to 
include  clearing  tasks,  thus  improving  public  financial  management.  This  will  require  a 
number of actions, including legislative amendments, an IT project to be launched in January 
2020,  and  the  establishment  of  a  joint  working  group  to  review  the  current  clearance 
processes. 

Progress  with  the  implementation  of  commitments  in  the  area  of  justice  has  been 
uneven. The legislation on mandatory electronic filing and processing of legal documents in 
administrative jurisdictions was adopted in October 2019 but will become effective only as of 
January  2021,  a  year  later  than  expected  under  this  end-2019  specific  commitment.  At  the 
same  time,  the  implementation  of  the  second  phase  of  the  Integrated  Judicial  Case 
Management  System,  a  mid-2020  commitment,  is  advancing.  The  tendering  procedure  (a 
specific  mid-2019  commitment),  which  had  been  subject  to  delays,  was  completed  in 
November 2019, and the publication of the tender is due by December 2019, upon completion 

17 

 
 
of  ongoing  administrative  proceedings  at  the  Ministry  of  Digital  Governance.  The  key 
objective of the reform is to enhance quality and efficiency of the judiciary through a uniform 
IT environment.  

The  mandatory  mediation  framework,  which  had  been  twice  postponed,  will  soon 
become effective. The amendments ensure conformity of the mediation framework with the 
Greek  Constitution  and  EU  law,  reduce  the  categories  of  disputes  subject  to  mandatory 
mediation  and  the  minimum  cost  of  mediation,  and  modify  a  number  of  procedural  and 
technical aspects of the framework. 

The implementation of the national  anti-corruption  action plan is  proceeding.  The vast 
majority of the more than 100 actions are considered by the authorities as completed, with the 
remainder having been launched. Sustained implementation will be key. In August 2019, the 
implementation  of  the  plan,  which  is  a  mid-2021  specific  commitment,  became  part  of  the 
mandate  of  the  new  independent  National  of  Transparency  Authority,  which  will  be  fully 
operational in 2020. The agency brings together a number of functions previously followed by 
different bodies and will be endowed with greater institutional capacity to fight corruption.  

The legislative amendments adopted in June 2019 which downgrade the status of active 
bribery  from  felony  to  misdemeanour  are  a  concern.  The  relevant  amendments  to  the 
Criminal  Code  and  Criminal  Procedure  Codes  attracted  criticism  from  the  Group  of  States 
against  Corruption  and  the  Organisation  for  Economic  Co-operation  and  Development’s 
Working Group on Bribery. The draft positions published for public consultation in October 
2019 do not to address these concerns fully. The findings of a planned joint mission by Group 
of  States  against  Corruption  and  the  Organisation  for  Economic  Co-operation  and 
Development could provide useful guidance to the authorities on appropriate further actions, 
including legal amendments. 

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.  The  case  against  former 
the Hellenic Statistical Authority President A. Georgiou related to charges filed in connection 
with fiscal statistics has been irrevocably dismissed. An appeal introduced by Mr. Georgiou in 
a civil  defamation lawsuit is  scheduled  to  be heard in  January 2020.  In the case against the 
Committee of Experts, a further positive development has materialised since the last enhanced 
surveillance  report:  as  there  was  no  appeal  launched  against  the  ruling  by  the  chamber 
formation of the Athens Court of Appeal, the dismissal of the charges against the Committee 
of Experts stands irrevocably in force. 

OVERALL ASSESSMENT OF PROGRESS WITH REFORM COMMITMENTS 

The new administration has made a swift start and confirmed, immediately after taking 
office, its intention to stick to the reform path agreed under the enhanced surveillance 
framework.  The  government  has  engaged  positively  and  constructively  with  the  European 
institutions and a high level of openness and willingness to engage is widespread at all levels. 
The  government  has  taken  important  steps  to  improve  coordination  of  economic  policies, 
which  will  be  instrumental  to  ensuring  a  timely  completion  of  Greece’s  specific 
commitments. 

The flagship reforms adopted thus far by the new administration and its overall growth-
friendly  narrative  have  been  well  received  by  the  markets.  Greek  bond  yields  have 

18 

 
 
decreased  to  historical  lows  (with  3-month  bills  at  negative  rates)  over  and  above  the 
generally favourable developments in the European sovereign bond markets, capital controls 
have been phased out earlier than expected and economic sentiment is at pre-crisis levels. The 
ongoing economic recovery continues to drive down the high unemployment rate and growth 
is  forecast  to  strengthen  in  2020  on  the  back  of  the  announced  cuts  in  taxes  on  labour  and 
capital. The improved economic prospects have started to pass through to Greece’s sovereign 
bond  ratings,  and  it  will  be  key  for  the  new  administration  to  remain  focused  as  it  will  be 
under  scrutiny  from  investors  for  quite  some  time,  amidst  economic  weakening  among 
Greece’s trade partners. 

The  government  has  presented  a  Draft  Budgetary  Plan  that  complies  with  the  agreed 
fiscal targets, respects all the requirements of the Stability and Growth Pact in 2020, and 
announces a major tax reform for 2020. The new administration offset the fiscal impact of 
the measures adopted in May 2019 by revising spending ceilings downward to more realistic 
levels, while additional fiscal space was provided by additional tax revenues. Moreover, the 
government  designed  a  package  of  growth-friendly  measures  for  2020  that  shift  taxes  from 
capital and labour to less distortionary taxes such as the value added tax or property tax, and 
increase social spending on families with children. The policy package will be implemented 
in a balance-neutral manner, and will improve the quality of public finances and boost growth 
in 2020. The European institutions project that the agreed primary surplus targets of 3.5% of 
GDP will be exceeded in 2019 and  met in 2020, which is equivalent to general  government 
surpluses of 1.3% of GDP in 2019 and 1.0% of GDP in 2020. 

While important reforms have been undertaken, it will be key to sustain the momentum 
in  order  to  deliver  on  the  number  of  ambitious  action  plans  going  ahead.  Key  areas  of 
privatisation,  the  business  environment  and  digital  governance  have  seen  a  positive 
momentum, and new initiatives were adopted for ensuring an effective collective bargaining 
framework or are being developed for strengthening of the banking sector. In this context, the 
authorities  have  gone  well  beyond  the  specific  commitments  given  to  the  Eurogroup. 
Important  reforms  in  the  areas  of  land  use,  property  tax  and  the  tax  administration  are 
advancing. The authorities have developed sound reform plans to remedy the inherited delays, 
which  affected  a  number  of  commitments  given  to  European  partners,  most  notably  on  the 
clearance  of  arrears,  public  administration  reform,  and  energy  market  reforms.  Where 
appropriate, these plans include alternative or complementary measures of equivalent merit to 
commitments given to Eurogroup. The authorities are in the process of catching up with the 
financial sector reforms but the plans will need to be firmed up going forward. The sustained 
implementation  of  these  reforms  will  be  closely  monitored  in  the  successive  enhanced 
surveillance reports so as to ensure that the specific commitments given to the Eurogroup in 
June 2018 remain effective.  

Greece  has  taken  the  necessary  actions  to  achieve  its  specific  reform  commitments  for 
mid-2019.  Further actions  will  be crucial to complete, and where necessary accelerate, 
reforms. This  assessment takes into account the efforts of the new administration over 
the last  months  to implement  the  commitments, in the context of advancing a broader 
reform  agenda,  and  its  willingness  to  prepare  them  in  close  cooperation  with  the 
institutions. 

19 

 
 
SOVEREIGN FINANCING 

Encouraged  by  the  marked  decrease  in  bond  yields,  Greece  continued  to  build  its 
presence on the government bond market by issuing bonds in July and re-opening the 
books of an earlier issuance in October. The Public Debt Management Agency tapped the 
market  for  the  third  time  this  year  in  July  by  issuing  a  7-year  bond  at  a  re-offered  yield  of 
1.9%.  Another  record-low  yield  of  1.5%  was  achieved  in  October  with  a  10-year  bond. 
Greece’s  yield  spreads  vis-à-vis  German  Bunds  continued  to  moderate,  reaching  1.9 
percentage points on the 10-year tenure in September 2019, down from 3.5 percentage points 
a year ago. The improving financing situation has started to be reflected in Greece’s sovereign 
credit  ratings.  The  cash  buffer  account  was  not  used  in  this  reporting  period.  State  cash 
reserves,  which  include  this  cash  buffer  account  of  EUR  15.7  billion  and  other  reserves, 
remained high at around EUR 20.3 billion as of end-September 2019. The available reserves 
are sufficient to cover sovereign financing needs of more than two years ahead. 

The partial early repayment of the loans from the International Monetary Fund, which 
is expected to take place by end-November, is a welcome step and an important positive 
signal.  After  the  completion  of  national  procedures,  the  governing  bodies  of  the  European 
Stability  Mechanism  and  the  European  Financial  Stability  Facility  waived  their  right  for  a 
proportional repayment on 28 October. The transaction will be financed through funds raised 
earlier this year and is expected to have a positive but limited impact on debt sustainability, as 
most  of  the  amounts  due  would  have  to  be  paid  by  the  end  of  2020.  Nonetheless,  this  is  a 
welcome step as it helps reduce the foreign exchange rate risk, generates savings and sends 
the right signal to the markets. 

An update of the debt sustainability analysis has been carried out. The baseline scenario 
shows the debt remaining on a downward path, though it remains above 100% of GDP until 
2041. Greece’s gross financing needs will hover around 10% of GDP until 2032 and remain 
around 14% of GDP at the end of the forecast horizon. 

20