COMMISSION STAFF WORKING DOCUMENT Enhanced Surveillance Report - Greece, November 2019 Accompanying the document 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  SWD(2019) 930 final  COMMISSION STAFF WORKING DOCUMENT Enhanced Surveillance Report - Greece, November 2019 Accompanying the document COMMUNICATION FROM THE COMMISSION Enhanced Surveillance - Greece, November 2019 {COM(2019) 930 final}  
 
 
ABBREVIATIONS 

ADEDY:  Ανώτατη  Διοίκηση  Ενώσεων  Δημοσίων  Υπαλλήλων  (Civil  Servants' 
Confederation) 
ADMIE:  Ανεξάρτητος  Διαχειριστής  Μεταφοράς  Ηλεκτρικής  Ενέργειας  (Greek 
Electricity Transmission System Operator) 
ADP: Asset Development Plan 
AEDIK: Corinth Canal S.A. 
AEO: Authorised Economic Operator 
ALMP: Active Labour Market Services  
AFCOS: Anti-Fraud Coordination Service 
AFEK: Ατομικό Φύλλο Εκκαθάρισης (personal clearance certificate)  
AIA: Athens International Airport 
AMC: Asset Management Company 
ANFA: Agreement on Net Financial Assets 
APS: Asset Protection Scheme 
ASEP:  Ανώτατο  Συμβούλιο  Επιλογής  Προσωπικού  (Supreme  Council  for  Civil 
Personnel Selection) 
BoD: Board of Directors 
BoG: Bank of Greece 
CBD: Consolidated Banking Data 
CCM: Central Committee of Mediation 
CCP: Code of Civil Procedure 
CDLF (ΤΠΔ): Ταμείο Παρακαταθηκών και Δανείων (Consignment Deposits and Loans 
Fund) 
CEO: Chief Executive Officer 
CET1: Common Equity Tier 1 
CF: Cohesion Fund 
CIT: Corporate Income Tax 
CO2: Carbon Dioxide 
CoCo: Contingent Convertible Bond 
CoEx: Committee of Experts 
CoS: Council of State 
COSME:  (EU  programme  for  the)  Competitiveness  of  Small  and  Medium-Sized 
Enterprises 
CSR: Country-Specific Recommendations  
DAPEEP:  Διαχειριστής  Ανανεώσιμων  Πηγών  Ενέργειας  &  Εγγυήσεων  Προέλευσης 
(RES Market Operator) 
DEPA: Δημόσια Επιχείρηση Αερίου (Public Gas Corporation of Greece) 
DESFA:  Διαχειριστής  Εθνικού  Συστήματος  Φυσικού  Αερίου 
Transmission System Operator) 
DESI: Digital Economy and Society Index 
DEYA: Δημόσια Επιχείρηση Ύδρευσης Αθηνών (Athens Municipal Water Utilities) 
DRG: Hospital Reimbursement Scheme 
DSA: Debt Sustainability Analysis 
DTAs: Deferred Tax Assets 
DTCs: Deferred Tax Credits 
EBA: European Banking Authority  
EBF: Extra Budgetary Funds 

(Natural  Gas 

i 

EBRD: European Bank for Reconstruction and Development 
ECB: European Central Bank 
EDA Attiki: Εταιρεία Διανομής Αερίου Αττικής (Natural Gas Distribution Company of 
Attica) 
EDP: Excessive Deficit Procedure 
EFKA: Ενιαίος Φορέας Κοινωνικής Ασφάλισης (Unified Social Security Fund)  
EFSF: European Financial Stability Facility 
EIB: European Investment Bank 
EKAPY:  Εθνική  Κεντρική  Αρχή  Προμηθειών  Υγείας  (National  Central  Authority  of 
Health Procurements) 
EKAS: Επίδομα Κοινωνικής Αλληλεγγύης Συνταξιούχων (Pensioners' Social Solidarity 
Grant) 
EKXA: Εθνικό Κτηματολόγιο & Χαρτογράφηση (National Cadastral Mapping Agency) 
ELA: Emergency Liquidity Assistance 
ELSTAT: Ελληνική Στατιστική Αρχή (Hellenic Statistical Authority) 
ELTA: Ελληνικά Ταχυδρομεία (Hellenic Post) 
EMFF: European Maritime and Fisheries Fund 
EMU: Economic and Monetary Union 
ENFIA: Ενιαίος Φόρος Ιδιοκτησίας Ακινήτων (unified property tax) 
EOPYY: Εθνικός Οργανισμός Υπηρεσιών Υγείας (national health insurance body) 
EPA  Attiki:  Εταιρεία  Παροχής  Αερίου  Αττικής  (Natural  Gas  Supply  Company  of 
Attica) 
ERDF: European Regional Development Fund  
ERGANI: Database of Registered Employment Contracts 
ESA: European System of Accounts 
ESKAEN:  Εθνικό  Συμβούλιο  για  την  Κωδικοποίηση  και  την  Αναμόρφωση  της 
Ελληνικής Νομοθεσίας (National Council for the Codification of Legislation) 
ESM: European Stability Mechanism 
ETAA:  Ενιαίο  Ταμείο  Ανεξαρτήτων  Απασχολούμενων  (Independent  professionals 
Social Security Fund)  
ETAD: Εταιρεία Ακινήτων Δημοσίου ΑΕ (Public Properties Company) 
ΕΤΕΑΕP: Ενιαίο  Ταμείο Επικουρικής Ασφάλισης & Εφάπαξ Παροχών (Single Social 
Security Fund for Supplementary and Lump Sum Benefits) 
ETMEAR:  Ειδικό  Τέλος  Μείωσης  Εκπομπών  Αερίων  Ρύπων  (Special  Duty  for 
Reduction of Gas Emissions) 
ETS: Emissions Trading Scheme 
EU: European Union 
EYATH A.E.: Εταιρεία Ύδρευσης και Αποχέτευσης Θεσσαλονίκης Α.Ε. (Thessaloniki 
Water Supply and Sewerage Company S.A.) 
EYDAP  A.E.:  Εταιρεία  Ύδρευσης  και  Αποχέτευσης  Πρωτευούσης  A.E.  (the  Athens 
Water Supply and Sewerage Company S.A.) 
FDI: Foreign Direct Investments 
FEK: Φύλλο Εφημερίδος της Κυβερνήσεως (Government Gazette Issue) 
GACS: Guarantee on Securitization of Bank Non Performing Loans  
GAIAOSE: SOE active in the fields of railway property and rolling stock exploitation, 
management and development 
GAO: General Accounting Office (part of Ministry of Finance) 
GDP: Gross Domestic Product 

ii 

 
GFN: Gross Financing Needs  
GGE: General Government Entities 
GLF: Greek Loan Facility 
GRECO: Group of States against Corruption  
GSAC: General Secretariat for Anti-corruption 
GSCO: General Secretariat for Coordination 
GSIS: General Secretariat of Information Systems 
HBA: Hellenic Banking Association 
HCA: Hellenic Court of Auditors 
HCAP: Hellenic Corporation of Assets and Participations 
HELPE: Hellenic Petroleum 
HENEX: Hellenic Energy Exchange 
HFED: Hellenic Fund for Entrepreneurship and Development 
HFSF: Hellenic Financial Stability Fund 
HICP: Harmonised Index of Consumer Prices 
HR: Human Resources 
HRMS: Human Resources Management Strategy  
HTA: Health Technology Assessments 
IAPR: Independent Authority for Public Revenue 
ICT: Information and Communication Technologies 
IDIKA: Ηλεκτρονική Διακυβέρνηση Κοινωνικής Ασφάλισης Α.Ε. (Government Centre 
for Social Security Services) 
ILIMS:  Ολοκληρωμένο  Πληροφοριακό  Σύστημα  Άσκησης  Δραστηριοτήτων  και 
Ελέγχων (Integrated Licensing and Inspections Management System) 
IMD: International Institute for Management Development 
IMF: International Monetary Fund 
JMD: Joint Ministerial Decision 
KATH: Κεντρική Αγορά Θεσσαλονίκης (Central Market of Thessaloniki) 
KEAO: Κέντρο Είσπραξης Ασφαλιστικών Οφειλών (Centre for the Collection of Social 
Security Debt) 
KEK: Kεντρική Επιτροπή Κωδικοποίησης (Central Codification Committee) 
KEPA: Κέντρο Πιστοποίησης Αναπηρίας (Disability certification centre) 
KEPE: Κέντρο Προγραμματισμού και Οικονομικών Ερευνών (Centre of Planning and 
Economic Research) 
KPI: Key Performance Indicator 
KYSOIP: Governmental Council for Economic Policy 
LCR: Liquidity Coverage Ratio 
LFS: Labour Force Survey 
LNG: Liquified Natural Gas 
MAR: Ministry of Administrative Reform 
MFI: Monetary Financial Institution 
MIP: Macroeconomic Imbalance Procedure 
MoJ: Ministry of Justice, Transparency and Human Rights  
MoF: Ministry of Finance 
MREL: Minimum Requirement for own funds and Eligible Liabilities 
MSS: Motor Service Stations 
MTFS: Medium-Term Fiscal Strategy 
MTO: Medium-Term budgetary Objective 

iii 

 
MW: Megawatt 
MWh: Megawatt hour  
NACAP: National Anti-corruption Action Plan 
NECP: National Energy and Climate Plan 
NED: Non-Executive Directors 
NFC: Non-Financial Corporation 
NIIP: Net International Investment Position  
NOME: Nouvelle Organisation du Marché de l'Electricité (electricity auction) 
NPE: Non-Performing Exposure 
NPL: Non-Performing Loan 
NSJ: National School of Judges 
NSRF: National Strategic Reference Framework  
OAEE:  Οργανισμός  Ασφαλίσεων  Ελεύθερων  Επαγγελματιών  (Self-employed  Social 
Security Fund) 
OAKA:  Ολυμπιακό  Αθλητικό  Κέντρο  Αθήνας  «Σπύρος  Λούης  (Olympic  Athletic 
Centre of Athens)  
OASA:  Οργανισμός  Αστικών  Συγκοινωνιών  Αθηνών  (Athens’  public  transport 
company) 
OASTH:  Οργανισμός  Αστικών  Συγκοινωνιών  Θεσσαλονίκης  (Thessaloniki’s  public 
transport company) 
OBL: Organic Budget Law 
OCC: Operational Coordination Centre 
OCW: Out-of-Court Workout mechanism 
OECD: Organisation for Economic Co-operation and Development 
OGA: Οργανισμός Γεωργικών Ασφαλίσεων (Agricultural Insurance Organization) 
OKAA: Οργανισμός Κεντρικών Αγορών και Αλιείας (Central Market of Athens) 
OPEKA:  Οργανισμός  Προνοιακών  Επιδομάτων  και  Κοινωνικής  Αλληλεγγύης 
(Organization of Welfare Benefits and Social Solidarity) 
OPS-SEPE:  Ολοκληρωμένο  Πληροφοριακό  Σύστημα  -  Σώμα  Επιθεώρησης  Εργασίας 
(Integrated Information System -  Labor Inspectorate) 
OSDDY/PP:  Ολοκληρωμένο  Σύστημα  Διαχείρισης  Δικαστικών  Υποθέσεων 
/ 
Πολιτικών και Ποινικών (Integrated Management System for Judicial Cases / Civil and 
Penal) 
OTC: Over-The-Counter 
PCI: European Project of Common Interest 
PCR: Price Coupling of Regions 
PDMA: Public Debt Management Agency 
PFM: Public Financial Management 
PIB: Public Investment Budget 
PIT: personal income tax 
PPC: Public Power Corporation 
PRP: Primary Residence Protection 
PSO: Public Service Obligation 
RAE: Ρυθμιστική Αρχή Ενέργειας (Regulatory Agency for Energy) 
RAEM: Ρυθμιστική Αρχή Επιβατικών Μεταφορών (Regulatory Authority for Passenger 
Transport) 
RES: Renewable Energy Source 
RFA: Relationship Framework Agreement 

iv 

 
ROE: Return on Equity 
ROSCO: Rolling-Stock Maintenance Company 
SAFE: Survey on the Access to Finance of Enterprises 
SDR: Special Drawing Right 
SGP: Stability and Growth Pact 
SLA: Service Level Agreement 
SME: Small and Medium-sized Enterprise 
SMP: Securities Markets Programme 
SOE: State-Owned Enterprise 
SPA: Single Payment Authority 
SPV: Special Purpose Vehicle 
SRSS: Structural Reform Support Service 
SRSP: Structural Reform Support Programme 
SSI: Social Solidarity Income 
SSM: Single Supervisory Mechanism 
SSW: Special Secretariat for Water 
STASY: Σταθερές Συγκοινωνίες ΑΕ (Urban rail transport) 
SUP: Special Urban Planning 
TAIPED:  Ταμείο  Αξιοποίησης  Ιδιωτικής  Περιουσίας  του  Δημοσίου  AE  (Hellenic 
Republic Asset Development Fund) 
TEI: Τεχνολογικό Εκπαιδευτικό Ίδρυμα (technical education institutions) 
TEN-E Regulation: Trans-European Networks-Energy 
TITLOS: Swap proceeds securitized in the form of a structured finance vehicle 
TLA: Tunnel Licencing Authority 
TOMY: Τοπική Μονάδα Υγείας (Primary Health Care Unit) 
TSA: Treasury Single Account 
UCoA: Unified Chart of Accounts 
VAT: Value Added Tax 
VIPE: Βιομηχανική Περιοχή (SOE whose main activity is the sale of plots of land for 
industrial use) 
WWF: World Wide Fund for Nature 

v 

 
 
ACKNOWLEDGEMENTS 

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

Contributors: 

Chris  Allen,  Vanda  Almeida,  Laszlo  Butt,  Giuseppe  Carone,  Fotini  Dionyssopoulou, 
Matteo  Duiella,  Sotirios  Giannoulis,  Christos  Gofas,  Andras  Hudecz,  Alexander 
Ioannidis,  Paul  Kutos,  Eloïse  Lecouturier,  Milan  Lisicky,  Dorin  Emil  Mantescu, 
Vasileios  Maroulis,  Benedetta  Martinelli,  Vasilis  Nikitas,  Zoltan  Petrov,  Fidel  Picos, 
Eleni  Polemidiotou,  Angelos  Rammos,  Marie-Luise  Rüd,  Alexandros  Tavoutsoglou, 
Andreas  Trokkos,  Vasiliki  Vasilopoulou,  Irene  Vlachaki,  Rainer  Wichern,  Alkistis 
Zavakou. Assistance was also provided by Fotini Louka. 

The  European  Central  Bank  (ECB)  Staff  participated  in  the  drafting  of  this  report  in 
accordance  with  the  Bank’s  competences  and  thus  provided  expertise  on  financial 
sector  policies  and  macro-critical  issues,  such  as  headline  fiscal  targets  and 
sustainability  and  financing  needs.  Staff  of  the  European  Stability  Mechanism  (ESM) 
contributed to the preparation of this report in the context of its Early Warning System 
and  in  accordance  with  the  Memorandum  of  Understanding  of  27  April  2018  on 
working  relations  between 
the  European  Commission  and  European  Stability 
Mechanism. International Monetary Fund’s staff participated in the context of its 2019 
Article IV surveillance cycle. 

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

Paul Kutos 

European Commission 

Unit ECFIN-F-2 

CHAR 14/103 

B-1049 Brussels 

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

vi 

 
 
CONTENTS 

Commission Staff Working Document 

1. 

Introduction 

2.  Macroeconomic developments 

3. 

Fiscal and fiscal-structural policies 

3.1. 
3.2. 

FISCAL POLICY 
TAX POLICY 
3.2.1.  ENFIA Valuation 
3.2.2.  Suspensions of tax on construction 
3.2.3.  Withholding tax on corporate bonds 

3.3.  REVENUE ADMINISTRATION 
3.4.  PUBLIC FINANCE MANAGEMENT 

3.4.1.  Arrears 
3.4.2.  Treasury Single Account 
3.4.3.  Chart of Accounts 

4.  Social welfare 

4.1.  PENSIONS 
4.2.  HEALTHCARE 
4.3. 

SOCIAL SAFETY NETS 

5. 

Financial sector 

5.1. 

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

6. 

Labour and product markets 

LABOUR MARKET 

6.1. 
6.2.  PRODUCT MARKETS AND COMPETITIVENESS 

6.2.1.  Business environment 
6.2.2.  Network industries 

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

privatisation 

7.1.  HCAP 
7.2. 

IMPLEMENTATION OF THE ASSET DEVELOPMENT PLAN 

8.  Public administration and justice 

8.1.  PUBLIC ADMINISTRATION 

Improving the human resource management in the public administration 

8.1.1.  Appointments of senior management positions 
8.1.2.  The Executive state law 
8.1.3. 
8.1.4.  Strengthening the legislative process and legal codification 
8.1.5.  Controlling the size and cost of public sector 
JUSTICE 

8.2. 

9 

11 

13 

17 

17 
22 
22 
22 
22 
27 
30 
30 
34 
35 

37 

37 
38 
39 

41 

41 
41 
44 
46 
51 

53 

53 
54 
55 
60 

65 

65 
68 

73 

73 
73 
75 
75 
76 
77 
80 

vii 

80 
81 
81 

85 

85 
86 

87 

93 

15 
19 
20 
29 
30 
31 
80 

80 

14 
43 

45 
47 
48 
57 
86 
87 

24 
26 

8.2.1.  Electronic Justice 
8.2.2.  Alternative dispute resolution 

8.3.  ANTI-CORRUPTION 

9.  Sovereign financing and capacity to repay 

SOVEREIGN FINANCING 

9.1. 
9.2.  DEBT SUSTAINABILITY 

Annex 1: Implementation of Commitments 

Annex 2: MIP specific monitoring 

LIST OF TABLES 

Fiscal impact of counter-measures 

Summary of the main macroeconomic variables (%) 

2.1. 
3.1.  Expansionary measures 
3.2. 
3.3.  Key Performance Indicators of the IAPR (Q1 2019) 
3.4. 
Stock of Arrears (m EUR) 
3.5.  Arrears clearance plan schedule 
8.1.  Evolution of public sector staff and wage bill (2009-2019) 
8.2.  Hiring limits of permanent personnel and indicative ceilings for temporary personnel to be 

monitored in the enhanced surveillance reports (2018-2023) 

LIST OF GRAPHS 

2.1.  Real GDP and growth contributions 
5.1.  Bank deposits (left) and total borrowing from the Eurosystem (right) 
5.2.  Evolution of NPL ratio as a % of total customer loans (left) and NPL stock within second 

quarter 2019 (right; EUR m) for the Greek banking system 
5.3.  Bank credit to non-financial corporations and households 
5.4.  Bank interest rates on new loans 
6.1.  Digital Economy and Society Index (DESI) 
9.1.  Credit ratings (left) and 10-year government bond spreads to the Bund (right) 
9.2.  Main results of the debt sustainability analysis 

LIST OF BOXES 

Taxation - Benchmarking and Main Issues 

3.1. 
3.2.  Reform of the Personal Income Tax for 2020 

viii 

 
 
 
 
 
 
Commission Staff Working Document 

 
 
1. 

INTRODUCTION 

Economic  developments  and  policies  in  Greece  are  monitored  under  the  regular 
economic  surveillance  framework  for  euro-area  Member  States  under  the 
European  Semester  for  economic  policy  co-ordination  and  under  the  enhanced 
surveillance  framework  according  to  Regulation  (EU)  No 472/2013 (1).  Following 
its second prolongation,  enhanced surveillance for Greece is  currently  in  place  for six 
months  as  from  21 August  2019 (2).  The  implementation  of  enhanced  surveillance  for 
Greece  acknowledges  the  fact  that  over  the  medium  term,  Greece  needs  to  continue 
adopting measures to address the sources or potential sources of economic and financial 
difficulties,  while  implementing  structural  reforms  to  support  a  robust  and  sustainable 
economic growth.  

Greece made a general commitment at the Eurogroup of 22 June 2018 to continue 
and  complete  reforms  adopted  under  the  European  Stability  Mechanism 
programme  and  to  ensure  that  the  objectives  of  the  important  reforms  adopted 
under  the  financial  assistance  programmes  are  safeguarded.  In  addition,  Greece 
made  specific  commitments  to  complete  key  structural  reforms  started  under  the 
programme in six key areas by agreed deadlines up to mid-2022, namely (i) fiscal and 
fiscal-structural  policies,  (ii)  social  welfare,  (iii)  financial  stability,  (iv)  labour  and 
product  markets, 
the  modernisation  of  public 
administration (3). In this context, 15 specific commitments were made with a deadline 
of mid-2019, progress on which is assessed in this report.  

(v)  privatisation  and 

(vi) 

This  report  is  based  on  the  findings  of  a  mission  to  Athens  between  23 and 
26 September  2019  and  regular  dialogue  with  the  authorities.  The  mission  was 
conducted  by  the  Commission  in  liaison  with  the  European  Central  Bank (4);  the 
International  Monetary  Fund  participated  in  the  context  of  its  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.  

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

(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)  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 2019. 

11 

                                                           
 
Commission Staff Working Document -  

Chapter 1 - Introduction 

economic  recovery.  To  this  end,  this  report  includes  an  assessment  of  economic 
conditions  in  Greece  (chapter  2);  an  assessment  of  implementation  of  reform 
commitments given by  Greece to  the European  partners  (chapters 3-8);  and an update 
on sovereign financing conditions and debt repayment capacity (chapter 9). This report 
is issued alongside the assessment of Greece’s draft budgetary plan for 2020 and serves 
also as a specific monitoring report under the macroeconomic imbalance procedure for 
Greece,  which  was  identified  as  experiencing  excessive  imbalances  in  the  2019 
European Semester. 

The  Eurogroup  on  22 June  2018  agreed  that  the  package  of  debt  relief  measures 
for  Greece  should  include  incentives  to  ensure  a  strong  and  continuous 
implementation of the reform measures agreed in the programme. To this end, the 
implementation  of  some  of  the  agreed  debt  measures  –  the  abolition  of  the  step-up 
interest  rate  margin  related  to  the  debt  buy-back  tranche  of  the  European  Financial 
Stability  Facility  (EFSF)  programme  as  of  2018  and  the  restoration  of  the  transfer  of 
equivalent amounts to the income earned by euro-area national central banks on Greek 
government bonds held under the Agreement on Net Financial Assets (ANFA) and the 
Securities  Market  Programme  (SMP)  –  will  be  made  available  to  Greece  subject  to 
compliance  with  its  commitments  on  reform  continuity  and  completion,  based  on 
positive  reports  under  enhanced  surveillance.  The  return  of  these  income  equivalent 
amounts would be made available to Greece in semi-annual tranches of some €640 m up 
to  mid-2022.  The  waiver  of  the  step-up  interest  rate  margin,  for  part  of  the  loans 
extended by the European Financial Stability Facility, would reduce interest payments 
by  some  €220 m  annually.  It  would  be  waived  on  a  semi-annual  basis  until  2022  and 
permanently after 2022. Following the Eurogroup on 5 April 2019, the first tranche of 
policy-contingent debt measures has been completed, inter alia based on 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 (5). The current report 
assesses  the  implementation  of  Greece’s  specific  reform  completion  commitments  for 
mid-2019 and its general reform continuity commitment, as well as compliance with the 
primary fiscal surplus targets.  It thereby provides a basis for the Eurogroup to discuss 
the  release  of  the  next  tranche  of  policy  contingent  debt  measures,  amounting  to 
€767 m. 

(5)  https://ec.europa.eu/info/sites/info/files/economy-finance/enhanced_surveillance_report_-

_greece_april_2019_en.pdf. 

12 

 
 
                                                           
2.  MACROECONOMIC DEVELOPMENTS 

Economic growth  in Greece continued in the first half of 2019, and is forecast to 
remain resilient amid external headwinds. After a weaker-than-expected first quarter 
(1.1% year-on-year), growth bounced back to 1.9% year-on-year in the second quarter. 
The lacklustre performance in the first quarter was due to a decrease in net exports as 
well as a decline in government consumption. These were reversed in the second quarter 
and  thus  headline  growth  reverted  to  the  2018  average.  Despite  higher  disposable 
incomes  and  improving  labour  market  conditions,  private  consumption  declined  by  -
0.7%  (year-on-year)  in  the  second  quarter  of  2019  after  slowing  down  already  in  the 
first quarter, indicating that a deleveraging process is still in place for households. The 
tourist sector shows stable headcounts but a robust increase in spending this year, which 
bodes well for exports of services in 2019. 

The recovery is expected to strengthen in the second half of this year and continue 
in 2020. The very positive developments in recent business and consumer survey data, 
which increased sharply in particular after the election period, underpin the expectation 
of  a  rebound  of  private  consumption  already  during  the  second  half  of  2019.  More  in 
general,  favourable  developments  in  domestic  demand  and  in  particular  in  investment 
are expected to support real GDP growth, which is expected at 1.8% in 2019. Supported 
by a balance-neutral shift away from distortionary to less distortionary taxes, which will 
be  accompanied  by  social  policy  measures,  growth  in  2020  is  forecast  to  reach  2.3% 
despite  a  weaker  global  environment  and  cool  down  slightly  to  2.0%  in  2021  as  the 
output gap continues to close (see Chapter 3.1 for a discussion of the effects of the 2020 
fiscal package on growth).  

Private consumption is forecast to support growth, in particular on the back of a 
lower tax wedge on labour income. The positive trend in the labour market, which is 
expected  to  continue  in  2020,  should  be  reflected  in  the  growth  of  disposable  income 
and private consumption over the medium term. Higher disposable income and strongly 
positive  expectations  captured  by  the  European  sentiment  indicator  reaching  108.4 
points in August 2019 (the highest level since end of 2007), bode well for a recovery in 
private consumption in the second half of 2019 and 2020. Furthermore, consumption is 
expected to be supported by the sustained positive labour market momentum in the first 
half  of  2019.  Business  and  consumer  surveys  indicate  positive  expectations  regarding 
higher employment and lower unemployment for the second half of 2019 and the first 
half of 2020. The tax package announced for 2020 is expected to have a positive effect 
in  2020  and  2021,  especially  as  they  are  aim  at  lowering  the  tax  wedge  for  lower 
incomes and decrease the tax burden on labour and capital in general. Simulations run 
using  the  QUEST  model (6)  show  a  positive  effect  of  the  reforms  on  consumption 
trough increased disposable income. As increases in productivity and employment lead 
to  higher  wages,  disposable  incomes  rise  in  the  short  run  as  prices  only  adjust  in  the 
medium term.  

(6)  For  more  information  on  the  QUEST  macroeconomic  model  see  https://ec.europa.eu/info/business-

economy-euro/economic-and-fiscal-policy-coordination/economic-research/macroeconomic-
models_en   

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Investment is expected to perform well and to strongly support growth, but comes 
from a very low level. At the moment, gross financial capital formation in percent of 
GDP is the lowest in Greece among all EU member states. With a gap of 7.7 percentage 
points to the euro area average, Greece needs to increase investment substantially. After 
the decline in  real  gross fixed capital  formation  in  2018 (-12.2%) due to lower public 
investment  and  its  multiplier  effect  on  private  investment,  investment  is  expected  to 
bounce  back  to  double-digit  growth  in  2019  and  2020.  The  recovery  of  residential 
construction is also expected to strengthen. The tax reform package announced for 2020 
is expected to have a considerable effect on investment in 2020 and a smaller effect in 
2021  and  2022  pushing  investment  growth  further  upwards.  The  QUEST  simulations 
show  an  increase  of  investment  due  to  the  tax measures  as  a  result  of  lower  expected 
cost  of  capital.  The  increased  investment  in  turn  leads  to  higher  employment  and 
productivity.  

Exports are expected to decelerate due to the external slowdown, which is however 
likely to be to some extent cushioned by continued gains in export market shares, 
the relatively low degree of openness and the specific structure of Greece’s exports. 
Following  a  strong  growth  in  2018,  exports  are  expected  to  grow  at  a  slower  pace  in 
2019  and  decelerate  further  in  2020  and  2021.  This  is  mainly  driven  by  the  expected 
slowdown  in  Greece’s  export  markets  and  is  consistent  with  the  projected  import 
demand  of  Greece’s  trade  partners.  The  EU  is  the  most  important  export  market  for 
Greece with the biggest export shares going to Germany, the UK and Italy. Yet, despite 
the market gains, the economy remains relatively closed: Exports of goods and services 
are with 36.1% of GDP (2018) substantially lower in Greece than the euro area average 
of  48%  of  GDP.  Due  to  the  product  structure  of  exports,  where  the  biggest  share  is 
concentrated in energy products, food and pharmaceuticals, Greek exports are to some 
extent  cushioned  from  the  direct  transmission  of  declines  in  external  demand  as  the 
demand for these is less reactive to the economic deceleration in export markets than for 
instance the demand for investment goods, which account for a low share of exports (7). 
Moreover,  Greece  has  recorded  continued  gains  in  market  shares  in  the  last  years, 
within the EU as well as with the rest of the world, a trend that is expected to continue 
and strengthen the Greek export position. Services exports have performed well in 2018 
and  in  the  first  half  of  2019,  and  are  expected  to  continue  to  grow  as  Greece  attracts 
higher spending tourists and the length of stays increases. The liquidation of the Thomas 
Cook  group  at  the  end  of  September  2019  is  expected  to  have  a  limited  effect  on  the 
Greek tourist sector. At the time of the liquidation, the peak season was practically over, 
which means that the effect  on 2019 would be only during the low season in  autumn, 
and  therefore  limited.  For  2020,  competitors  are  expected  to  fill  the  gap  left  by  the 
market exit of Thomas Cook.  

(7)  Greece biggest goods exports in 2017 were accounted for by mineral products (31%, mainly refined 
petroleum), metals (13%) chemical products (mainly pharmaceuticals, 9%) and foodstuffs (9%), while 
in  terms  of  service  exports  the  biggest  categories  are  related  to  tourism  and  shipping.  UN 
COMTRADE data. 

14 

                                                           
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Chapter 2 - Macroeconomic developments 

Graph 2.1: 

Real GDP and growth contributions 

Source: European Commission  

The  positive  developments  on  the  labour  market  are  expected  to  continue. 
Employment is forecast to grow above 2% in 2019 and 2020 and slow down from 2021 
onwards.  The  unemployment  rate  will  continue  its  downward  trend  and  reach  below 
14% in  2021. So far, the labour market  effects  of the recent  increase in the minimum 
wage  and  the  abolition  of  the  sub  minimum  wage  do  not  seem  to  have  significantly 
affected the labour market.  

Inflation  is  expected  to  be  low  in  the  short  term  but  increasing  in  the  medium 
term.  Due  to  the  VAT  reduction  in  the  second  quarter  of  2019  as  well  as  expected 
lower growth of oil prices, inflation is forecast to remain low at 0.4% in 2019. The tax 
reforms  announced  for  2020  are  expected  to  push  inflation  upwards  to  reach  0.6%  in 
2020 and slightly below 1% in 2021. The closing of the output gap in the outer years is 
expected to add further upward pressure on inflation.  

The forecast is subject to upside and downside risks, with the risks to the downside 
being  more  pronounced.  External  factors  such  as  the  global  slowdown  and  the 
continued global uncertainty over trade protectionism could affect Greek exports more 
than  anticipated  both  in  the  short  and  in  the  medium  term.  Moreover,  the  under-
execution of both the public investment budget and the ordinary spending, if sustained, 
might pose a further drag to the recovery in domestic demand. Upside risks are related 
to the substantial improvement in the business and consumer confidence, which has not 
materialised  in  the  hard  data  yet.  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. 

15 

 
 
 
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Table 2.1: Summary of the main macroeconomic variables (%) 

Source: European Commission  

16 

2018201920202021Real GDP1.91.82.32.0Employment growth1.72.22.21.4Unemployment rate19.317.315.414.0GDP deflator0.50.80.91.6Harmonised index of consumer prices0.80.50.60.9 
 
 
3. 

FISCAL AND FISCAL-STRUCTURAL POLICIES 

3.1.  FISCAL POLICY 

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 
worth 0.7% of GDP in May 2019 would pose a risk for the achievement of the primary 
surplus  target. Shortly  after  the  submission  of  the  Stability  Program,  the  previous 
government adopted a set of measures, which included: new instalment schemes (with 
120  instalments)  for  debts  on  taxes  and  to  social  security  funds  and  municipalities;  a 
VAT  reduction  on  a  selection  of  items;  the  reintroduction  of  a  13th  monthly  pension 
payment; and a reversal of an earlier reform of survivors’ pensions. The quality of these 
measures  raised  concerns  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.  Moreover,  the  measures  also  raised  concerns  regarding 
their consistency with reforms adopted under the ESM programme. 

The  fiscal  impact  of  the  measures  adopted  in  May  is  likely  to  be  lower  than 
expected  in  June,  mainly  because  of  a  reassessment  of  the  cost  of  new  settlement 
schemes  based  on  incoming  data.  The  European  institutions  currently  estimate  the 
fiscal cost of the measures in 2019 at 0.7% of GDP, compared with 1.1-1.4% of GDP 
expected  in  June.  The  revision  mainly  derives  from  an  update  of  the  fiscal  cost  of 
instalment schemes. Based on actual data, the total amount of enrolled debt is €4.7 bn, 
which  is  lower  than  the  expected  amount  of  €6.5 bn.  Despite  the  lower-than-expected 
participation, the revenues generated by the new scheme are projected to be higher for 
two  reasons.  First,  compared  to  what  was  expected,  the  new  schemes  have  induced 
lower  debt  transfers  from  the  existing  schemes  (the  basic  scheme),  despite  the  new 
scheme  being  substantially  more  generous.  Specifically,  according  to  the  latest  data, 
only about €0.8 bn debt was transferred from the old schemes instead of the €3 bn that 
was initially  expected based on the 2015  experience. This  leads to significantly  lower 
revenue fall-out from the basic scheme. Second, the new scheme attracted close to €4 bn 
worth  of  debt  from  outside  previous  settlement  schemes,  instead  of  the  previously 
assumed €3.5 bn. This increases the estimated revenue from this segment. 

The  authorities  also  decided  to  remove  the  pre-legislated  tax  credit  package, 
agreed  in  the  context  of  the  programme,  which  was  set  to  enter  into  force  in 
January 2020. This package included measures that were expected to broaden the tax 
base and create fiscal space of 1% of GDP for growth-enhancing tax reforms. In view of 
the very high proportion of taxpayers exempted from the personal income tax (see Box 
3.1),  the  pre-legislated  measures  aimed  to  distribute  the  burden  of  personal  income 
taxation at a wider pool of taxpayers, while at the same time reducing the high tax rates. 
Nonetheless,  a  major  base-broadening  reform  of  the  ENFIA  property  tax  is  in  the 
pipeline for mid-2020 (see section 3.2.1).  

The new administration  maintained  the above-mentioned  measures,  extended the 
enrolment  period  for  the  120  instalments  scheme  and  adopted  a  small  cut  in  the 
ENFIA  property  tax.  In  July  2019,  the  new  government  adopted  a  “mini  tax  bill” 

17 

Commission Staff Working Document -  

Chapter 3 - Fiscal and fiscal-structural policies 

which  included  a  reduction  in  the  property  tax  (ENFIA)  up  to  30%  for  certain  tax 
payers, on top of the cut adopted in December 2018, and modifications to the new tax 
instalment  schemes,  making  them  more  generous  especially  for  businesses.  In 
particular,  the  authorities  proceeded  with  the  extension  of  the  enrolment  period  for 
entering the schemes until end-September (and later to the first week in October), and 
the increase of instalments  for companies to  120 instead of 36 envisaged in  the initial 
plan.  The  amendments  have  also  reduced  the  interest  charged  on  the  debt  during  the 
settlement  period  to  3%,  which  is  lower  than  the  current  bank  lending  rate.  The 
European institutions expressed concerns in relation to the impact on payment discipline 
and excessive duration of this ad hoc scheme.  

To ensure that the fiscal  target for 2019 is  met despite the large amount of fiscal 
measures  adopted  in  May  and  July,  the  new  administration  revised  spending 
ceilings  downwards  to  more  realistic  levels  for  the  current  year.  The  General 
Accounting  Office,  in  close  cooperation  with  the  line  ministries,  re-assessed  both  the 
spending  projects  underpinning  the  ceilings  and  the  spending  capacity/needs  of  the 
entities. As a result, the ceilings of the ordinary (non-investment) budget were revised 
downwards and thus, improve the budget balance, by more than 0.3% of GDP in 2019. 
The  categories  affected  were  mainly  the  consumption  expenditure,  the  primary 
residence protection subsidy (in view of the longer-than-expected time needed to submit 
an application and a low processing rate, see Chapter 5) and the lump-sum pensions the 
cost  of  which  was  regularly  overestimated  in  the  past  years.  Regarding  the  public 
investment  budget  (PIB),  after  taking  into  account  the  actual  data  of  the  budget 
execution and having in mind the past experience, the authorities revised downward PIB 
expenditure  by  0.3%  of  GDP  in  2019,  to  take  into  account  the  persistent  under-
execution  of  investment  expenditure,  which  was  the  biggest  contributor  to  the 
overachievement of fiscal targets in previous years (8).  

While the re-adjustment of the ceilings increases the realism and the credibility of 
the  authorities’  fiscal  projection,  the  authorities  stepped  up  efforts  to  improve 
budgetary  practices.  The  General  Accounting  Office  (GAO)  revised  the  budget 
guidelines,  which  previously  required  the  draft  budgets  to  be  based  on  the  previously 
budgeted amounts. The revised guidelines allowed the 2020 budget to take into account 
the  current  year’s  execution  and  also  to  assess  and  scrutinise  the  reasons  of  the  past 
underspending.  Additionally,  the  authorities  conducted  a  spending  review  exercise  for 
2020, receiving technical support. This is an initial but welcome step towards improving 
the quality of public finances.  

The authorities are planning to take steps to improve the low execution of public 
investment.  The  authorities  have  adopted  legislation  to  lay  down  the  rules  governing 
the  development,  management,  financing,  and  implementation  of 
the  national 
component of the PIB. This part of the PIB will be programmed through a medium-term 
development  plan, the “National  Development  Plan”, mirroring to  a certain  extent the 
management system of the EU structural funds. Importantly, the law specifies that the 
National  Development  Plan  shall  not  finance  recurrent  operating  costs  of  the  public 
sector.  In  addition,  the  Ministry  of  Development  in  close  cooperation  with  GAO, 

(8)  The  PIB expenditure  was revised downwards by 0.3 % of GDP of which 0.2% of GDP related to a 

decrease in the co-funded part and 0.1% of GDP to the national part of PIB. 

18 

                                                           
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designed an action plan for improving forecasting and monitoring of the PIB. The plan 
includes  more  frequent  and  enhanced  exchange  of  data  between  the  two  ministries, 
monthly updates on the total PIB allocation of expenditure based on actual payments, an 
increase in the frequency of PIB revenue forecasts from semi-annually to quarterly, and 
some  technical  adjustments  of  the  PIB  database  to  facilitate  the  budget  preparation 
process.  The  European  institutions  welcome  this  action  plan  and  encourage  the 
authorities  to  carefully  monitor  its  implementation,  while  at  the  same  time  advancing 
with the introduction of the Unified Chart of Accounts in the PIB (see section 3.4.3).  

The fiscal outlook for 2019 has also been supported by additional tax revenues. The 
main revenue categories, which had a better than expected performance in 2019 so far 
were the value added tax (0.2% of GDP), and arrears on property taxes (0.1% of GDP), 
while  the  loss  in  revenues  due  to  tax  refunds  was  lower  (by  0.1%)  than  previously 
forecast.  The  main  drivers  behind  the  improvement  in  the  VAT  were  a  stronger  than 
expected  export  of  services  (especially  tourism)  and  the  increased  use  of  electronic 
payment methods. Those positive developments were partially offset by the lower-than-
expected collection of the personal income tax and other categories. It is to be noted that 
the  authorities  extended  the  discount  on  VAT  rates  applicable  to  certain  islands 
suffering from the migration crisis in June 2019, in line with the mechanism put in place 
in December 2018.  

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. In the no-policy-change scenario, Greece is expected to overachieve the target 
by  0.3%  of  GDP.  This  estimation  takes  into  account  the  most  recent  fiscal  and 
macroeconomic data and the updated cost of the measures adopted so far, but continues 
to assume full implementation of the (revised) budgetary ceilings. Finally, the forecast 
assumes that the Public Service Obligation payment of €200 m for PPC will be covered 
from the contingency reserve. The forecast also does not take into account any one-off 
measures that might be adopted later in 2019 to use the available fiscal space since they 
were not announced with a sufficient level of detail. 

Table 3.1: Expansionary measures 

Source: European Commission 

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 

19 

(m euro)(% of GDP)Total impact of the measures-1 198-0.6CIT decrease-566-0.3PIT reform-281-0.1Reduction in social security contributions-123-0.1Childbirth allowance-120-0.1Dividend tax decrease-690.0VAT suspension on construction-270.0VAT decrease on children's items-120.02020 
    
 
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Chapter 3 - Fiscal and fiscal-structural policies 

GDP. Greece has reached a surplus already in 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 
(SGP)  in  2020.  The  draft  budget  includes  a  package  of  new  expansionary  measures 
worth  0.6%  of  GDP  aimed  to  reduce  distortionary  taxes  and  increase  family-oriented 
social  benefits  (see Table 3.1). The main tax policy measures  included in  the package 
are: a reduction of the corporate income tax (CIT) from 28% to 24% in 2019, a reform 
of  the  personal  income  tax,  which  inter  alia  reduces  the  tax  rate  from  22%  to  9%  for 
incomes up to €10 000 and increases the tax-free threshold for taxpayers with children, 
a reduction in social security contributions by one percentage point for full-time salaried 
persons  and  a  reduction  of  the  dividend  tax  from  10%  to  5% (9).  In  addition,  the 
package  includes  a  new  childbirth  allowance  of  €2 000.  The  final  bill  introducing  the 
fiscal  package  for  2020  as  published  for  public  consultation  includes  some  minor 
additional measures that do not have an impact on the assessment of the fiscal policy for 
2020. 

These  measures  are  steps  in  the  right  direction  to  make  public  finances  more 
growth  friendly.  As  shown  in  Box  3.1,  the  current  tax  system  imposes  a  very  high 
burden on both labour and capital, and all this with a relatively narrow tax bases. The 
planned  measures  are  important  steps  towards  addressing  the  high  tax  burden.  The 
reductions  of  the  corporate  income  tax  and  the  dividend  tax  decrease  the  overall  tax 
burden  on  capital,  and  the  personal  income  tax  reform  and  the  cut  in  social  security 
contributions reduce the tax wedge on labour. On the other hand, the personal income 
tax  (PIT)  reform  further  narrows  the  tax  base  for  families  with  children  and  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  ESM  programme  in 
2017 and originally due to enter into force in 2020. Box 3.2 provides an overview of the 
distributional impact of this tax measure. The expansionary package is projected to have 
a  positive  impact  on  the  economy  through  increased  investments,  which  in  turn  are 
likely to boost productivity, employment and wages, and consequently stimulate private 
consumption as well. As a result, the fiscal balance is expected to improve by 0.1% of 
GDP. 

The government has also announced additional measures for 2021 and beyond but 
these  will  not  be  legislated  now.  These  measures  include:  (a)  a  further  reduction  of 
CIT  from  24%  to  20%,  (b)  a  gradual  abolition  of  special  solidarity  tax,  (c)  a  gradual 
abolition  of  trade  duty  for  self-employed,  and  (d)  an  additional  reduction  of  social 
security  contributions  for  full-time  employees  by  four  percentage  points.  While  these 

(9)  The package also includes the suspension of VAT on new buildings for 3 years, the implementation of 

which creates a risk of compliance with EU regulations. See section 3.2 for further analysis.  

20 

                                                           
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Chapter 3 - Fiscal and fiscal-structural policies 

measures  would  be  of  high  value  for  stimulating  economic  growth,  they  will  not  be 
legislated  at  this  point  and  therefore  remain  declarations  of  future  policy  intentions, 
whose implementation will be conditional on the available fiscal space. Given the early 
stage of the aforementioned measures, the European institutions will conduct a formal 
assessment  once  the  authorities  announce  officially  their  plan  to  proceed  with  the 
implementation and more details become available. 

Table 3.2: Fiscal impact of counter-measures 

Source: European Commission 

To  neutralise  the  fiscal  impact  of  the  expansionary  measures,  the  authorities 
presented in the Draft Budgetary Plan a set of ‘fiscal equivalent’ measures mainly 
of  parametric  but  also  of  administrative  nature  and  of  broadly  comparable 
magnitude (see Table 3.2). The package includes:   

Increase  in  the  share  of  electronic  payments:  Taxpayers  will  be  expected  to  spend  a 
certain percentage of their income via card payments or bank transfers to businesses; 
in case of failure to reach this threshold, a tax will apply to the difference. This is a 
modification  of  a  similar  legislation  already  in  place  since  2017,  with  higher 
thresholds and stronger incentives. In line with the impacts of the earlier legislation, 
this measure is expected to help decrease VAT evasion and thus raise VAT and other 
tax revenues.  

Increase  in  municipal  levies:  revaluation  of  the  base  for  municipal  levies  and  an 
administrative  measure  imposing  the  collection  of  levies  through  the  central  tax 
system.  

Adjustment of objective values for the ENFIA property tax taking into account the recent 
increase in real estate market prices. This measure is projected to lead to higher tax 
receipts from real estate taxes and other minor taxes (i.e. inheritance tax) by 0.1% of 
GDP and also improves the efficiency and fairness of the tax.  

Adjustment  of  spending  ceilings  of  the  Employment  Fund  to  partially  finance  the 
reduction in social security contributions: Given the persistent underspending in this 
category, the adjustment of the appropriations for employment programs by 0.1% of 

21 

20192020Total impact of the measures-1961 091VAT: measure on electronic payments389ENFIA: recalculation of objective values143CIT adjustment for advance payments and clearance-138138Higher municipality levies134More realistic spending ceilings123Change in the schedule of heating oil allowance-5858Faster processing of tax cases at administrative courts50Spending reviews45Fees from re-licensing of on-line gambling11(m euro) 
  
 
Commission Staff Working Document -  

Chapter 3 - Fiscal and fiscal-structural policies 

GDP  is  in  reality  an  elimination  of  a  buffer,  which  frees  fiscal  space  for  growth-
friendly measures.    

In  addition  to  the  aforementioned  measures,  the  package  includes  some  one-off 
measures  improving  the  balance  in  2020,  such  as  a  reduction  of  CIT  advances  in 
2019 ahead of the cut in CIT rates in 2020, which will result in lower tax refunds in 
2020, and a change in  the schedule of the heating oil allowances for the upcoming 
heating season.  

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 specific mix 
of  measures  included  in  the  2020  budget  represents  a  growth-friendly  tax  shift  from 
distortionary to less distortionary taxes, whereby, permanent cuts in taxes on labour and 
capital  (lowering  production  cost)  are  compensated  by  increases  in  less  distortionary 
taxes,  such  as  the  ENFIA  property  tax,  VAT,  and  municipal  charges.  Economic 
literature finds growth multipliers of such tax shifts to be at around 0.3–0.4 in normal 
times,  while  the  multipliers  are  generally  expected  to  be  substantially  higher  in  a 
situation  of  a  large  output  gap (10).  While  the  expansionary  part  of  the  2020  package 
amounts  to  0.6%  of  GDP  (see  Table  3.1.),  some  of  the  fiscal  equivalent  measures 
arguably  do  not  have  any  negative  macro-economic  impacts  (e.g.  the  shift  of  the  CIT 
advances between years), while raises the effective volume of the expansionary package 
to about 0.7% of GDP. The calculated impact on GDP growth of the package as a whole 
is 0.3 percentage points, with a multiplier of 0.4, which is consistent with the evidence 
mentioned above, even before taking into the situation of the large negative output gap.  

Overall,  the  primary  surplus  target  for  2020 is  projected  to  be  met.  Based  on  the 
Commission  2019  Autumn  Forecast,  the  primary  balance  in  the  definition  monitored 
under  enhanced  surveillance  is  projected  to  reach  3.5%  of  GDP.  Except  from  the 
measures described above, the forecast takes into account the revenue over-performance 
from 2019, which is partially carried over to the following years, a downward revision 
of  the  ceilings  in  the  ordinary  budget  by  0.3%  of  GDP,  and  a  revised  projection  of 
drawing of EU funds in view of the lower-than-expected absorption of EU funds so far. 

Regarding  the  Council  of  State’s  final  ruling  on  the  2016  pension  reform,  the 
authorities have committed to sustain the impact of the follow-up legislation within 
the  agreed  spending  ceilings  of  the  Ministry  of  Labour  for  2020.  The  Plenary 
session  of  Council  of  State,  Greece’s  highest  court,  has  reached  its  final  decision 
regarding  several  elements  of  the  2016  pension  reform.  The  Court  confirmed  the 
constitutionality  of  the  main  pillars  of  the  pension  reform  and  granted  no  rights  for  a 
retroactive compensation of benefits (see section 4.1 for further details) which limits the 
potential  fiscal  impact.  Yet,  additional  fiscal  costs  are  possible  to  occur  from  the 
implementation  of  the  ruling  regarding  supplementary  pensions,  the  calculation  of 
social contribution of the self-employed and the replacement rate of high pensions. The 

(10) See  e.g.  M.  Bussière  &  L.  Ferrara  &  M.  Juillard  &  D.  Siena,  2017,  “Can  Fiscal  Budget-Neutral 
Reforms  Stimulate  Growth?  Model-Based  Results”,  Working  papers  625,  Banque  de  France  and 
Nicolas Carnot & Franciso de  Castro, 2015. “The discretionary fiscal effort: an assessment of fiscal 
policy  and  its  output  effect”,  European  Economy  -  Economic  Papers  2008  -  2015  543,  Directorate 
General  Economic  and  Financial  Affairs  (DG  ECFIN),  European  Commission  and  the  literature 
surveyed therein. 

22 

                                                           
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cost  of  the  future  legislation  bringing  the  pension  reform  in  line  with  the  ruling  will 
depend on the specific design of the reforms. The authorities declared a commitment in 
their 2020 Draft Budgetary Plan to sustain the possible additional fiscal costs within the 
budget ceiling of the Ministry of Labour.  

Greece’s public finances however continue to face important fiscal risks related to 
pensions  and  public  sector  wages.  In  fact,  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  above  (see  section  4.1  for 
further  details).  Regarding  public  sector  wages,  risks  related  to  the  broadening  of  the 
scope  of  exemptions  from  the  unified  wage  grid  continue  to  materialise  and  remain  a 
source of concern. Recent provisions allow specific categories of personnel to directly 
be  placed  at  the  most  senior  remuneration  grade  and  their  salary  progression  not  be 
taken  into  account  when  calculating  the  size  of  the  ‘personal  difference’,  whereas 
previously adopted exemption as concerns the ‘personal difference’ has been extended 
further  (see  section  8.1.5  for  further  analysis).  In  addition,  the  increasing  number  of 
temporary  staff  remains  a  source  of  concern  (see  section  8.1.5  for  further  analysis). 
Finally,  the  potential  for  overshooting  the  fiscal  target  of  3.5%  of  GDP  through 
underspending in the public investment budget remains but has diminished.  

3.2. 

TAX POLICY 

3.2.1. ENFIA Valuation 

Based  on  the  findings  of  a  technical  support  study,  the  European  Institutions 
agreed that the valuation exercise to update ENFIA property taxes (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  undertake  a  substantial  new 
reform that will result in a major widening of the property tax base for ENFIA and other 
property taxes. The reform set out with a detailed timetable is expected to increase the 
tax  base  of  the  ENFIA  property  tax  and  improve  the  fairness  and  efficiency  of  the 
property tax system.  

The planned reform of the objective property tax values system represents a major 
widening of the property tax base for the ENFIA and other property taxes by mid-
2020. The authorities signalled that they intend to seek technical support for this project. 
The reform will consist of three parts: (i) an extension of the coverage of zonal system 
of property tax values by February 2020 to all of the urban planning areas, representing 
an increase in the coverage of the objective value zones from 85% to 100% of the urban 
population;  (ii)  a  revaluation  of  all  objective  value  zones  in  line  with  market  prices 
determined by a high-quality standardised national valuation exercise by May 2020; (iii) 
the  revised  treatment  of  non-urban  property  tax  values  on  the  basis  of  property  type 
rankings  by  May  2020.  Legislative  amendments  for  the  implementation  of  the  new 
property  valuation  system  should  be  completed by  June  2020,  in  time  for  the  sending 
out of ENFIA property tax bills in August 2020. 

Overall, the reform is expected to increase the tax base of the ENFIA property tax 
by more than 20% and to greatly improve the fairness of the property tax system. 

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Moreover,  the  convergence  of  property  tax  values  and  market  prices  will  facilitate  a 
review of the current tax rates and thresholds of ENFIA to make further improvements 
in the tax’s fairness and efficiency. 

3.2.2. Suspensions of tax on construction  

The authorities are considering boosting the construction sector by adopting a set 
of tax suspensions that is under scrutiny with respect to compliance with EU law. 
In  addition  to  the  tax  on  property  capital  gains,  VAT  on  new  buildings  would  be 
suspended for a three years period. This last measure is currently under assessment with 
respect to its compliance with the EU VAT Directive. According to the EU law, VAT is 
charged at each stage of the supply chain, unless an exemption is provided for under the 
rules as laid down in the VAT Directive. Such exemptions are provided for the supply 
of buildings but only if these are not new. This entails that the supply of new buildings 
by  a  taxable  person  is  subject  to  VAT,  without  Member  States  being  able  to  suspend 
payment of that tax throughout the chain.  

Moreover,  the  VAT  suspension  effectively  risks  increasing  the  proportion  of  the 
shadow economy.  It makes the purchases of construction inputs the final stage of the 
VAT  chain,  instead  of  the  completed  house,  which  means  that  the  sector  will  need  to 
carry the burden of VAT on its inputs and will not be able to recover it on the finished 
construction. This  will likely increase the size of the shadow economy. The European 
institutions  encouraged  the  authorities  to  develop  alternative  measures  to  address  the 
problems encountered by the building sector in Greece and take measures to tackle the 
shadow economy. 

3.2.3. Withholding tax on corporate bonds 

In order to open up corporate bond markets to external investors, the authorities 
will  have  abolish  the  withholding  tax  on  domestically-listed  corporate  bonds  for 
non-residents from EU and other countries with double taxation conventions with 
Greece. This brings the withholding tax treatment of listed corporate bonds in line with 
the  majority  of  other  EU  Member  States.  This  is  likely  to  give  a  significant  boost  to 
financing through the domestic stock market. The revenue cost of such a measure based 
on the existing stock of corporate bonds is estimate to be less than €1 million per year. 

A similar treatment of withholding tax will be adopted for international investors 
making direct over-the-counter purchases of direct bond issuances made by banks 
to meet the  minimum requirement for own funds and eligible liabilities (MREL). 
This  will  help  bring  down  the  cost  of  long-term  unsecured  funding  and  support  the 
issuance of capital instruments and other MREL-eligible debt instruments. 

24 

 
 
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(Continued on the next page) 

25 

  Box 3.1: Taxation - Benchmarking and Main IssuesThis box presents an updated analysis of the main features of the tax and social security system of Greece in comparison to the euro area and peer economies. A similar analysis was presented in the second enhanced surveillance report in February 2019. This box updates the findings with recent data and presents a background for the assessment of the tax measures in the 2020 budget. Graph 1: Benchmarking on Greece’s tax system   The euro area figure was calculated as the unweighted average of the 19 Member States. Sources: (1) WB Doing Business 2019 and DG TAXUD Taxation Trends Report 2019 (for the top CIT statutory rate). (2) Tax wedge at different levels of income of the first earner (as % of the average wage), for a two-earner                                                              couple with two children, spouse earning 67% of the average wage. EC, Tax and benefits indicators database, 2019 (3) Basic tax-free allowance (as % of the average wage) for single and one earner with/without two children. EC, Tax and benefits indicators database, 2019. (4) OECD Tax Wedge Decomposition 2019. The overall tax-to-GDP ratio in Greece increased substantially over the past years and is already higher than in peer countries. The tax system imposes a high tax burden on corporations and on low-income earners and households with children, which undermines Greece’s international competitiveness and discourages labour supply. These issues, considering also the high additional cost carried by Greek citizens to purchase complementary services to basic public services, help explain the recent surge of the notion of over-taxation in Greece. 0102030405060Single1 earnerSingle, 2children1 earner, 2children(4) Basic Tax Free AllowanceELEA (Average)05101520253035404550506780100125167(2) Tax wedge as % of labour costsELBGROPTEA05101520253035201020112012201320142015201620172018(1) Corporate taxes as a % of commercial profitsELCYBGROPTEL topEA02468101214ESITPTEAELTUSocial Security Contributions paid (%)(3) All households: Social Security Contributions paid by employees 
   
 
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Box (continued) 

26 

  The high tax burden on corporations, including the high administrative burden, does not make Greece an attractive place for investment. Apart from the high statutory CIT (6th highest in the euro area in 2019 - see Figure 1.1), there is a restrictive depreciation regime. Nonetheless, Greece collects only an average amount of revenues from the CIT compared to the euro area.  Furthermore, all self-employed are due to pay a fixed annual levy of €650 if they have been active for more than five years irrespective of their profitability and relatively high and complex stamp duties. The tax system further shows a high debt bias, which disadvantages young and innovative companies. According to the 2019 PwC Paying Taxes Report, Greek companies spend more than twice as many hours complying with taxes than other EU countries.   The average tax burden on labour in Greece is also high. In 2017, Greece had an implicit tax rate on employed labour of 43%, compared with 36% in the euro area. The tax burden is materially higher than in peer countries for couples with only one wage earner and households with dependent children (see Figure 1.2).   This is despite the high tax-free allowance, which narrows the tax base on which the income tax is applied and is 10th highest in the euro area (see Figure 4). The high tax burden on the low earners is driven primarily by social security contributions, for which the tax-free allowance does not apply and the proportion of contributions carried directly by employees is relatively high (see Figure 1.3). The high tax burden drives workers to self-employment, which is more than twice as common in Greece as in the euro area, although the proportion of the self-employed has started to decrease since 2013. Despite the high tax burden, Greece collects a below average amount of revenues from taxing employees’ income. Finally yet importantly, the high marginal tax rate for high earning employees is associated with the special solidarity contribution and increases incentives for underreporting of the taxable income. The tax base is also eroded by the still unfavourable situation from labour market.  Despite numerous efforts to improve compliance, VAT fraud remains substantial. The VAT gap increased by 2.6 percentage points compared to 2016 and is the second largest (33.6%) in the euro area in 2017, and registered a record high for the period 2013-2017. This is due also to a composition effect as a result of VAT reforms enacted in mid-2016, where the rates increased in sectors that traditionally exhibit a low VAT compliance rate (for example hotels & restaurants), while dropped on sectors that had a higher compliance rate. VAT gap is expected to decrease in 2018 thanks to the ongoing tax compliance reforms.   
 
   
 
 
 
 
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(Continued on the next page) 

27 

Box 3.2: Reform of the Personal Income Tax for 2020 This box assesses the distributional effects of the personal income tax reform presented in the Draft Budgetary Plan for 2020. The evaluation was performed using the EUROMOD tax-benefit microsimulation model of the euro area adapted to run with administrative data (jointly developed by the Joint Research Centre of the European Commission and the Council of Economic Advisors of the Hellenic Ministry of Finance). The underlying microdata are based on a large sample of personal income tax returns of 2018 (related to 2017 incomes).   The reform entails several parametric changes, which reduce the overall burden of taxation. In particular, the reduction of the income tax rate for incomes up to €10 000, from 22% to 9%, by splitting the current first tax bracket (up to €20 000); a one-percentage point reduction of the tax rates applied on incomes above €20 000; and, a revision of the basic tax credit leading to an increase in the tax-free threshold for taxpayers with dependent children. These changes are illustrated in Graph 1. As a result of these changes, no taxpayer is subject to an increase in taxes, but only to a reduction or no change. In particular, the share of individuals below the tax-free threshold (at 36%) remains roughly the same (increasing by 0.5 percentage points).    Graph 1: General tax schedule (left) and tax-free threshold (right) currently and after the reform   Source:  Ministry of Finance of Greece  The proposed reform is expected to reduce the effective average tax rate (1) by 0.6 percentage points on average. The pattern is similar for all income deciles except for the first, where the reduction is much higher, reaching 3.5 percentage points. This is due to the new lower tax rate of 9% for the first income bracket (below €10 000), which significantly reduces the tax due for the self-employed, who are not entitled to the basic tax credit and typically report very low taxable incomes.                                                             (1) The effective average tax rate is calculated as the ratio between total PIT liabilities and total taxable incomes in the corresponding population group. 22%22%29%37%45%9%22%28%36%44%0%5%10%15%20%25%30%35%40%45%50%up to10 00010 001 –20 00020 001 –30 00030 001 –40 000>  40 000Current tax schedule2020 reform8636886490919545954590001000011000120005 0006 0007 0008 0009 00010 00011 00012 00013 000Nochildren1 child2 children3 children4 or morechildrenTax-free rate (current)Tax-free rate (after reforms) 
   
 
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Box (continued) 

3.3.  REVENUE ADMINISTRATION 

Given the accumulation of previous delays, the end-2019 target for staffing levels 
at  the  Independent  Authority  for  Public  Revenue  (IAPR)  is  unlikely  to  be  met, 
although the allocation of additional resources for new hires is a positive step. The 
IAPR’s staff level at the end of the third quarter of 2019 stood at 11 751. Although, this 
constitutes  an  increase  from  the  beginning  of  2019  (11 487)  and  a  reversal  from  the 
actual reduction of staff seen in 2018, it remains well short of the target  of 12 500 set 

28 

Graph 2: PIT liability (m EUR) and its reduction (%) after the reform   Source: European Commission - Joint Research Centre, and Hellenic Ministry of Finance - Council of Economic Advisors. Calculations based on the EUROMOD model with administrative data. The reform is expected to slightly reduce disposable income inequality (by 0.26%), and render the tax system more redistributive (by 1.54%); i.e., the after-tax incomes would be more equally distributed than in the current regime (2)(3). The increase in redistribution would be due to an increase in progressivity in the design of the tax, which would be partially offset by a lower net average tax rate. Furthermore, the model simulations suggest that the reform would leave income poverty relatively unaffected for all population categories (since in general households at risk of poverty were already paying no personal income tax). The notable exception is the self-employed, who are not eligible for the basic tax credit and for whom the at-risk-of-poverty rate would be reduced by 2.3 percentage points. In terms of household types, families with children are the ones that would benefit the most from the PIT reform due to the more generous tax credit.                                                              (2) The impact of the reform on disposable income inequality is measured by the change in the Gini coefficient of disposable income (-0.26%). The impact on the degree of redistribution is measured by the change in the Reynolds-Smolensky index (1.54%). The later indicator was decomposed in terms of changes in progressivity reflected by Kakwani index (8.92%) and changes in the net average tax rate (-7.35%).  (3) The Kakwani index is calculated as the concentration index of tax liabilities (sorted by taxable income) minus the Gini coefficient of taxable income while the Reynolds-Smolensky index is computed as the difference between the Gini coefficients of taxable income before and after PIT (higher values indicate higher redistributive impact). As regards at-risk-of-poverty rate figure, this reflects the percentage of individuals whose equivalised disposable income is under the poverty line, measured as 60% of the median equivalised disposable income 0%5%10%15%20%25%30%05001 0001 5002 0002 50012345678910Income decileCurrent regime (lhs)Reform (lhs)Reduction in PIT Liability (rhs) 
   
 
 
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for end-2019. A positive development has been the Ministry of Finance recent approval 
of an additional 600 hires of permanent staff to the IAPR. As the end-2018 commitment 
was not met a number of complementary measures were agreed to further strengthen the 
IAPR’s  capacity  and  enhance  its  attractiveness  to  highly  qualified  candidates.  These 
complementary measures concerned (i) completion of the human resources reform; (ii) 
strengthening  of  the  IAPR’s  IT  capacity;  and  (iii)  improving  the  IAPR’s  housing 
conditions. 

Important  progress  has  been  made  on  completing  the  human  resources  (HR) 
reform with key primary legislation expected to be adopted by mid-2020. The HR 
reform is seen as critical in order to allow the IAPR to recruit and retain highly qualified 
personnel  that  it  needs,  as  it  is  transforming  towards  a  modern  tax  collection 
organisation. To date, the appraisal and mobility scheme components of the reform have 
been completed. What remains pending is the supplementary grading and the wage grid, 
where  primary  and  subsequent  secondary  legislation  needs  to  be  adopted.  The 
authorities  have  committed  to  adopt  the  grading  legislation  by  end-2019  and  the 
supplementary  wage  grid  by  June  2020;  thus  allowing  the  new  system  to  come  into 
effect as of 1 July 2020. The Ministry of Finance has confirmed that the needed budget 
has  been  allocated  in  next  year’s  budget.  Once  the  HR  reform  is  implemented,  it  will 
establish a HR management system that is position-based compared to current seniority-
based  system.  This  will  allow  the  IAPR  to  link  the  grading  and  remuneration  level 
(defined  based  on  the  specific  qualifications  and  skills  needed  for  a  specific  position) 
with the job descriptions that have been prepared for each post.  

A road map will be completed by end of 2019 between the IAPR and the General 
Secretariat  for  Information  Services  (GSIS)  that  will  set  out  the  issues  to  be 
clarified as concerns the IAPR’s IT competencies. Following the transfer of the GSIS 
from  the  Ministry  of  Finance  to  the  new  Ministry  of  Digital  Governance,  its  mandate 
has  now  been  extended  to  cover  all  ministries.  There  is  a  need  to  clarify  the 
responsibilities of each organisation, in order to ensure a sufficient level of self-reliance 
in its day-to-day operations, while at the same time exploiting economies of scale. The 
road  map  currently  being  prepared  between  the  IAPR  and  the  GSIS  and  that  will  be 
finalised by end-2019 is expected to identify the key competencies of each organisation 
(e.g.  security,  database  administration  and  procurement  of  services/equipment).  A 
working group is expected to be established that will be mandated by the Governor of 
the  IAPR  and  the  Minister  of  Digital  Governance  to  implement  the  agreed  road  map. 
The implementation of the road map, including updating of the Staff-Level Agreement, 
is  expected  to  be  completed  by  mid-2020.  Finally,  it  is  important  that  the  budget 
allocated to the GSIS will contain a specific budget line for the IAPR with the needed 
budget, in order to meet the IAPR’s IT needs for the period 2020-2022 (c. €20 million). 

Authorities have  confirmed that an appropriate building has been identified  that 
will  allow  to  host  all  of  the  IAPR’s  headquarter  services  that  are  currently 
scattered  in  13  buildings.  The  identified  building  is  a  public  property  but  not  fully 
utilised. According  to  the timeline, the  IAPR should  be able to  move in by  end-2020. 
Also  symbolically  it  is  important  in  terms  of  enshrining  the  IAPR’s  independence, 
considering that the Governor’s office remains hosted in a building co-shared between 
the IAPR and the Ministry of Finance. 

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A  legal  provision  securing  smooth  continuation  of  the  work  of  the  Operational 
Coordination  Centre  remains  pending  and  should  be  adopted  as  a  matter  of 
priority,  in  order  not  to  further  disrupt  its  operations.  The  initial  results  of  this 
innovative structure that brings together officials from various services (11) involved in 
combating the smuggling of products subject to excise duties have been impressive. In 
its  first  six  months,  it  prevented  duty  loss  of  €9.6 million  and  seized  43 million 
cigarettes;  tobacco  equivalent  of  60 million  cigarettes,  and  86  tonnes  of  fuel.  It  is 
therefore important that the continued smooth operation of the Operational Coordination 
Centre  is  secured.  The  proposed  legal  amendment  aims  to  extend  the  secondment 
periods allowed and reinforce the role of its director. 

Other  reforms  and  action  plans  are  progressing.  This  reporting  period  has  seen 
significant  capacity  building  support  provided  to  the  IAPR  staff/managers,  who  have 
been  trained  in  the  application  of  indirect  audit  methods,  transfer  pricing  techniques, 
lean  methods  and  tools  to  be  applied  by  the  model  collection  centre,  project 
management and leadership. In view of this considerable technical support, the IAPR is 
expected to adopt secondary legislation on the application of indirect audit methods for 
legal  entities,  to  issue  a  basic  audit  manual  for  tax  auditors  and  to  make  the  model 
collection centre fully operational by March 2020. 

The results for the third quarter of 2019 on key performance indicators (KPIs) set 
by the IAPR presents a mixed picture. The data show that tax debt collection targets 
are not fully met. On the other hand, the KPIs in most other areas, including collection 
of debts by the large debtor unit, are met (see Table 3.3). 

(11) The IAPR, National  Authority  for Transparency, Police, General Secretariat of Commerce, Hellenic 

Coast Guard and the Economic Crime Unit. 

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Table 3.3: Key Performance Indicators of the IAPR (Q3 2019) 

Source: IAPR 

The  Joint  Centre  for  the  Collection  of  Social  Security  Debt  (KEAO)  is  close  to 
meeting its debt collection target. For the second quarter of 2019, debt collection by 
the  KEAO  stood  at  €628.9 m  compared  to  a  target  of  €630 m.  As  concerns  the 
strengthening of joint actions between the IAPR and the KEAO, secondary legislation 
that would allow the KEAO to  consider  directly  applying the  IAPR’s classification of 
the persons/entities considered to have ‘uncollectable’ debt remains pending and needs 
to be adopted without delays.  

The  authorities  amended  the  120  monthly  instalment  scheme.  The  changes  were 
presented  in  section 3.1.  This  scheme  was  closed  in  early  October  and  in  accordance 
with preliminary data around 660 000 debtors (out of a total of four million) submitted 
an  application  covering  debt  of  €6.4  bn.  Out  of  this  debt,  it  is  estimated  that  debtors 
covering  €4.7  bn  of  debt  actually  enrolled  into  this  scheme  (i.e.  made  a  first  payment 
within three days after submitting the application).  

Further,  the  authorities  will  amend  the  basic  instalment  scheme  with  a  view  to 
facilitating the repayment of tax debts. The current scheme is perceived as too strict 
in terms of number of payments allowed and does not take into account the income of 
the debtor when determining their payment capacity. The main changes of the updated 
scheme  that  is  expected  to  be  adopted,  includes  increasing  the  number  of  monthly 
instalments  to  24  or  48  depending  of  the  type  of  tax  debt  and  reducing  the  minimum 
value of the monthly instalment to €30. Further, the number of instalments granted for 
some categories of tax debt is also made dependent on the declared income and number 
of  dependent  children.  Another  measure  that  is  expected  to  provide  a  disincentive  for 
debtors to drop out and then re-enter the scheme is that the debtor will need to pay two 
monthly instalments up front while the number of total instalments will remain the same 
and a penalty is applied through an increase of the interest rate. The revised scheme is 

31 

Q3 2018TargetResultResultsKPI 1Collection of tax debts as of the end of the previous year (EUR millions)2 3602 253.862 401.25KPI 2Collection of new debts in the current year (percent of new debt in the year)24.0%29.7%25.8%KPI 3Collection of debts by Large Debtor Unit (EUR millions)530.00541.71656.25Audits of fresh tax cases by the whole IAPRKPI 4Percent of fresh tax audit cases in total completed audits70.0%56.6%53.3%Tax audits and collection of large tax payersKPI 5Collection after audits in the year (percent of assessed tax and penalties)40.0%105.4%74.4%Tax audits and collection of high wealth individualsKPI 6Collection after audits in the year (percent of assessed tax and penalties)40.0%72.8%215.5%Tax refundsKPI 7Percent of VAT tax refund claims processed within 90 days95.0%85.7%82.7%Compliance and enforcementKPI 8Percentage of total tax paid on time for VAT, Income and Property taxes83.0%81.8%81.3%Percentage of total tax paid on time for VAT, income and property taxesKPI 9Percentage of debtors under enforcement measures65.0%68.8%63.9%Pre litigation phaseKPI 10Percentage of cases closed by explicit decision of the DRU82.0%95.0%97.1%Prosecution audits by mobile unitsKPI 11Prosecution audits by Mobile Units  (Customs Administration)15 00016 57117 210Q3 2019Debt collection 
    
 
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also  expected  to  provide  an  incentive  for  the  debtor  to  seek  a  reduced  number  of 
instalments as the interest rate will increase gradually. It is important for the credibility 
of the revised basic instalment scheme that the authorities will keep its commitment that 
there will be no new special instalment schemes, and that the only scheme available will 
be the basic instalment scheme. 

3.4.  PUBLIC FINANCE MANAGEMENT  

3.4.1. Arrears 
At  end-August  2019 (12),  the  stock  of  net  arrears  stood  at  €1.3 bn,  substantially 
higher than planned. Clearance did not turn out in line with the plan presented in the 
third Enhanced Surveillance Report, which expected net arrears to come below €0.5 bn 
by August 2019. Since the end of programme (August 2018), net arrears have decreased 
by €407 m (13), however arrears clearance halted since the beginning of 2019. The slow 
decrease  in  the  stock  can  be  attributed  to  the  creation  of  new  arrears.  In  addition,  the 
remaining stock of, often aged arrears, is  said  to  be the most difficult  to clear namely 
due  to  technical  and  administrative  reasons.  The  current  arrears  stock  is  mainly 
stemming  from  the  health  sector  and  social  funds  but  extra  budgetary  funds  (EBFs), 
pension claims and local governments play a role. In gross terms, hospitals are also of 
concern and rose since the end of the programme.  

Table 3.4: Stock of arrears (m EUR) 

Source: European Commission 

Measures to avoid the creation of new arrears (a commitment for mid-2019) are in 
the pipeline but will require more time to be designed and implemented fully. The 
follow-up  HCA  audit  in  mid-2019  assessed  the  level  of  implementation  of  the 
recommendations  from  the  2018  audit.  These  structural  and  sectorial  measures  were 
designed with a view to avoiding the creation of new arrears. The HCA noted that some 
progress was made on most recommendations but emphasized that the very short period 
elapsed between the two audits explained the relatively low rate of implementation. In 
effect,  the follow-up assessment  was performed  less than one  year  after  the first  audit 
whereas  the  usual  time  between  audits  is  around  two  years.  One  of  the  major 
weaknesses  in  most  of  the  audited  entities  is  the  lack  of  internal  control  and  internal 
audit,  as  well  as  the  low  level  of  standardization  and  automation  of  the  payment 

(12) Latest available data at the cut-off date of the report.  
(13) Out  of  the  €407  m  an  amount  of  €57  m  refers  to  adjustments  for  local  governments  that  became 

available in August 2019 

32 

Aug-18Aug-19Total general government arrears under post-program definition1.71.3of whichSSFs after adjustments and after clawback683402Pension claims192303Extra budgetary funds after adjustments249231Local governements after adjustments263150Tax refunds new definition220130State after adjustments9276Hospitals after adjustments-125 
    
 
                                                           
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processes. These reforms require more time to be designed and implemented properly, 
and require careful monitoring involving the HCA.  

The  authorities  will  shortly  establish  a  Steering  Committee  to  ensure  a  timely 
implementation  of  the  clearance  plan  and  the  plan  against  accumulation  of  new 
arrears. This is a very welcome initiative that shows the authorities’ commitment and 
ownership of the reform. The Steering Committee will oversee the full implementation 
of the structural reforms on arrears management based on the HCA recommendations, 
monitor  the  implementation  of  the  proposed  targeted  actions  per  subsector  and  the 
adopted  horizontal  measures (14).  It  will  also  be  in  a  position  to  propose  potential 
solutions  where  necessary  to  reach  the  set  targets.  This  new  committee  will  be 
composed of representatives from all relevant entities, including the HCA and the GAO. 
It will convene once per month until all reforms are implemented, at the latest, the next 
18 months.  A  monitoring  report  will  be  will  be  submitted  to  the  Minister  of  Finance 
every six months in  addition to  two interim shorter reports. The European  Institutions 
would encourage the authorities to empower the Committee to make recommendations 
regarding further audits and to incentivise the entities to clear their arrears. 

The new administration adopted a broad action plan to clear the remaining stock 
of arrears by mid-2021 and avoid the creation of new arrears. The plan would bring 
the net stock down to €1 billion by December 2019. Most of the remaining arrears will 
be cleared within 2020, with only a small amount of €140 million pertaining to pension 
claims left by December 2020 (15). These would be cleared by June 2021, in line with 
the  envisaged  digital  transformation  of  new  pension  claims  (see  below).  Although  the 
plan could  be further strengthened for some subsectors (especially for extra-budgetary 
funds  and  local  governments),  the  European  institutions  welcome  the  specific 
quantitative  targets  and  intermediate  ones  that  have  been  adopted  for  some  crucial 
entities  (social  security  funds  and  IAPR).  Moreover,  dedicated  actions  were  designed 
and initiated in all subsectors. The combination of targeted actions for specific entities 
and  horizontal  measures  is  expected  to  prevent  the  accumulation  of  new  arrears.  The 
European institutions urge the authorities to  work intensively on the proposed plan. A 
summary of the actions per subsector is described below.   

(14) It  would  also  record  any  emerging  needs  in  terms  of  training  and  information  provision  regarding 
arrears  clearance.  Moreover,  it  will  be  responsible  for  the  coordination  and  implementation  of  any 
additional measures proposed to further streamline payment processes. 

(15) It  should  be  noted  that  in  a  more  conservative  scenario,  another  €160  million  could  remain  by 

December 2020 and eliminated by June 2021. 

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Table 3.5: Arrears clearance plan schedule 

(1) The hatched part corresponds to a safety margin (conservative scenario) 
Source: GAO  

A  major  source  of  arrears  are  social  security  funds.  Their  arrears  amounted  to 
approximately  €402 m  in  August  2019.  The  highest  amounts  of  arrears  in  this 
subcategory  is  held  by  three  funds:  the  Subsidiary  Insurance  Fund  (ETEAEP)  with 
arrears  amounting  to  €101 m,  the  Organization  for  the  Provision  of  Health  Services 
(EOPYY)  with  arrears  of  €86 m  and  the  Unified  Social  Security  Fund  (EFKA)  with 
arrears  of  €210 m.  This  latter  is  also  responsible  for  the  clearance  of  pending  main 
pension claims, amounting to €300 m in August 2019. 

The  clearance  of  EFKA’s  arrears,  which  are  both  health  and  pension  arrears, 
would  rely  on  an  administrative  reorganization  and  on  an  increase  in  EFKA’s 
capacity.  The EFKA is  a relatively new social security fund that was created through 
consolidation  of  a  number  of  social  security  funds.  A  significant  share  of  its  arrears 
related  to  health  therefore  pertains  to  amounts  that  were  created  by  the  former  social 
security  funds.  Their  arrears  were  initially  transferred  to  EOPYY  in  2012  and  later  to 
EFKA.  The  necessary  legislative  interventions  needed  to  allow  the  EFKA  staff  to 
perform the clearance of this backlog have been adopted since 2018, but several other 
problems  remained  and  resulted  in  a  relatively  slow  clearance  until  September  2019. 
The insufficient staffing, the fact that the existing teams were not fully dedicated to the 
arrears clearance, the manual calculations of pension rights, the lack of electronic files 
and other deficiencies stemming from the time elapsed since the creation of these debts 
are  part  of  the  issues  encountered.  To  tackle  this  situation  and  to  accelerate  the 
clearance of arrears, the recently appointed EFKA administration has presented a set of 
actions.  To  address  the  lack  of  digitization,  the  number  of  staff  in  the  relevant 
departments  has  been  increased.  The  departments  are  also  being  reorganized  and  the 
public  sector  mobility  scheme  has  temporarily  been  frozen  in  order  to  make  sure  the 
EFKA  will  benefit  from  a  sufficient  human  capacity (16).  A  daily  target  for  arrears 
clearance has been set to facilitate the monitoring of the quantitative targets and taking 
corrective  actions  if  necessary.  Taking  into  account  these  measures,  the  authorities 
deems that the existing stock of arrears is expected to decrease by approximately 50% 
until January 2020 and be completely cleared by June 2021.  

The clearance of ETEAP’s arrears would rely on digitalisation and administrative 
reorganisation.  The  arrears  under  the  ETEAEP  are  related  to  pending  lump-sum 

(16) Art 71 law L.4635/2019 voted on 25 October 2019. Although in principle exceptions to the mobility 
scheme should be avoided, it is understood that this provision will not be extended further and should 
facilitate the ongoing reorganization of EFKA. 

34 

M1M2M3M1M2M3M1M2M3M1M2M3M1M2M3M1M2M3M1M2M3M1M2M3M1M2M31.Social security funds2.Extrabudgetary funds3.Pension claims4.Hospitals5.Local governments6.Tax refund claims7.StateQ4Q12021SubsectorsQ2Q4Q3Q4Q1Q220192020Q3 
    
 
                                                           
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pensions  that  were  consolidated  under  the  ETEAEP.  According  to  the  results  of  the 
HCA follow-up audit, the situation has improved compared to the initial audit in 2018 
and  75%  of  the  proposed  recommendations  for  the  ETEAEP  have  been  completed  or 
are  currently  in  progress.  A  harmonised  IT  system  is  being  developed  for  the  claims’ 
management. The pending adoption of ETEAEP’s organizational chart shall also ensure 
a  more  suitable  allocation  of  staff  across  departments.  Following  these  measures, 
GAO’s plan shows  that ETEAEP  arrears are supposed to  fall to  just €9 m  by October 
2020.  

The clearance of EOPYY’s arrears is based on administrative reorganisation and 
legal actions. The existing stock of arrears in EOPYY comprises overdue payments of 
both  EOPYY  itself  and  entities  that  were  incorporated  in  EOPYY  in  2012. 
Organizational  issues,  lack  of  staff  or  expertise  as  well  as  the  difficulties  in  clearing 
some of the old arrears have driven the accumulation of these arrears. The HCA follow-
up  audit  states  that  two  of  its  five  recommendations  are  currently  being  implemented 
but  the  rest  is  delayed.  According  to  GAO,  the  full  implementation  of  the 
recommendations, namely the staffing and training of the Internal Control Unit should 
improve  the  clearance  path  and  minimize  arrears  by  November 2020.  Concerning 
arrears of entities  that were incorporated in  EOPYY, GAO deems  the abolition of the 
statute  of  limitations that  is  currently  being  prepared  would  speed  up  the  clearance  of 
EOPYY’s debts toward the private sector (17). 

Clearance  of  pension  claims  relies  mainly  on  digitalising  the  processing  of  new 
pension  claims  and  reassigning  more  staff  to  work  on  the  existing  paper  claims. 
The stock of unprocessed pension claims amounted to more than €300 m in August and 
increased in the past few months. The digital transformation would take place in three 
phases and is planned to be completed by June 2021. At this date, 90% of new pension 
claims  would  be  processed  and  awarded  automatically.  As  the  transformation 
progresses, staff would become available to clear the existing paper claims. According 
to the action plan, around €140 million pension claims would remain in end-2020 and 
would eventually be cleared by June 2021. 

The  action  plan  on hospitals,  which  aims  at  reinforcing  their  accounting  services 
and  improving  the  supplies  management,  could  be  further  enhanced.  Despite  the 
fact that hospital arrears are only €25 m in net terms,  gross arrears are substantial and 
put the State at risk of infringing the Late Payments Directive. The main driver of gross 
arrears in hospitals are the legality issues of hospital expenses. Hospitals tend to obtain 
material  supplies  through  direct  contract  awards  instead  of  an  open  regular  tender 
process. This irregularity in the supply chain has prompted the authorities to systematic 
ex post legalization of the procedure for securing the supplies. This process has led to 
frequent delays in  the payment  of hospitals’ providers. The authorities  expect  that the 
implementation  of  the  central  procurement  system  (EKAPY)  would  solve  the  issue. 
Nevertheless, this project has been progressing slowly. Moreover, even if according to 
the  Minister  of  Health  the  planned  transformation  of  EKAPY  into  a  public  limited 
liability  company  (S.A)  was  supposed  to  improve  its  future  efficiency,  given  the 

(17) It should be noted that delays in clearing the EOPYY arrears also arise while Complaints Commission 
examines complaints lodged by health providers. The respective amounts €40.5 m that are subjected 
to such an examination are however not part of the agreed definition of the net stock of arrears. 

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timeline of the central procurement reform, a more timely action to address the legality 
issue of the supplies management would be appropriate. This is all the more important 
because  EKAPY  may  not  be  responsible  for  all  hospitals’  supplies  in  the  future. 
Potential liquidity issues are monitored by the Ministry of Health, according to  which 
their  financial  services  transfer  funds  to  low  liquidity  hospitals.  Separately,  another 
action undertaken to clear the arrears stock and avoid new arrears is the outsourcing of 
accounting services with a view to supporting hospital accounting offices in cases where 
existing hospital personnel  is  not  able to  handle  accounting operations. This  had been 
legislated  in  summer  2019 (18)  and  it  is  expected  to  reinforce  hospitals’  payments 
capacities, especially needed in the context of the recent phasing out of ex ante audits 
performed by the HCA.  

Targeted measures are currently being undertaken to address identified issues in 
the  local  government  sector,  where  arrears  amounted  to  €207 m  in  August.  The 
most  important  identified  reasons  for  the  creation  and  accumulation  of  arrears  are 
related to  staffing and expertise as well as legality issues. The lack of internal  control 
and  audit  is  also  playing  a  role.  To  promote  the  setting  up  and  operation  of  internal 
control  units  in  local  government,  a  technical  support  project  has  been  undertaken  to 
build internal  audit services. This  project  also  includes the development  of an internal 
audit manual  and practical  guide to support ongoing efforts  of municipal and regional 
entities  to  develop  or  further  strengthen  their  internal  audit  function.  It  shows 
encouraging  results  so  far  in  most  of  the  local  governments.  Since 2017,  20 local 
authorities and one decentralised administration have implemented at least one internal 
audit  thanks  to  this  project.  Even  though  is  not  clear  up  to  date  which  entities  have 
formally  and  durably  established  an  internal  audit  unit  in  their  organigrams,  this  is  a 
first and very welcome step. The challenge lies now in designing the next milestones to 
ensure  the  enhancement  and  sustainability  of  the  reform.  Another  technical  support 
project  will  target  the  smallest  municipalities’  internal  audit  and  is  currently  running 
until August 2020 with a view to testing a dedicated tool (inter-municipal cooperation) 
for  the  delivery  of  internal  audit  services  that  would  take  into  account  smallest 
municipalities’ characteristics. To ensure greater success for this significant reform, the 
European institutions would encourage the authorities to make internal audit mandatory 
for  all  regions  and  biggest  municipalities.  According  to  the  plan  supervised  by  GAO, 
the above actions are estimated to result in a significant decrease in the stock of arrears 
in the short-term. By December 2019, arrears are expected to amount to approximately 
€60 m in net terms.  

The  reasons  for  accumulation  of  arrears  in  the  extra  budgetary  funds  (EBFs) 
subsector differ for each EBF, hence specific targeted actions are currently being 
undertaken  in  each  of  them.  EBFs’  arrears  amounted  to €231 m  in  August  2019.  A 
full  implementation  of  the  reforms  suggested  by  the  HCA  in  combination  with 
horizontal  actions  and  specialized  trainings  are  expected  by  GAO  to  minimize  arrears 
before December 2020 and to streamline EBFs’ payment systems. This should also help 
the EBFs to endorse their full responsibility for payments in view of the abolition of the 
ex ante payments audits by the HCA.  

(18) Legal provisions were adopted in August with Law 4623/2019, OJ A-134/09.08.2019, Article 79. 

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Implementation  of  the  HCA  recommendations  as  regards  tax  refund  claims  has 
been  a  priority  for  the  Independent  Authority  of  Public  Revenue  (IARR)  and  is 
almost  fully  completed.  Although  the  clearance  entailed  solving  complex  issues, 
significant  progress  has  been  made  in  this  field  since  mid-2017.  The  more  than  six-
month-long  audit  performed  by  the  HCA  in  2017-2018  had  proved  helpful  in  this 
regard. Moreover, the amounts of arrears declared by the IAPR are often overestimated 
due  to  delays  in  the  calculation  of  the  net  stock  of  arrears.  The  arrears  related  to  tax 
refunds  claims  are  currently  being  collected  in  a  more  systematic  way  and  should, 
according to the IAPR, contribute to the decrease of the pending stock.  

Necessary  actions  to  clear  the  backlog  of  arrears  created  by  the  two  ministries 
responsible  for  the  major  part  of  the  arrears  of  the  State  subsector  have  been 
initiated. “State” arrears amounted to €76 m in August.  

Approximately €28 m of arrears are attributed to the Ministry of National Defence and 
pertain to the supply of  consumables of  military hospitals. Their clearance depends 
on the payment by EOPYY for the provision of hospital services and on settling legal 
issues.  The  government  is  currently  taking  legislative  actions  to  enhance  the 
procurement  process  with  a  view  to  significantly  reducing  the  stock  of  arrears  by 
December 2019 and full clearance by February 2020.  

Arrears of the Ministry of Education amounted to approximately €23 m in August 2019. 
This  Ministry  is  currently  undertaking  actions  to  address  the  relevant  issues  and  to 
accelerate  payment  processes.  According  to  the  plan,  the  authorities  will  decrease 
arrears by €16 m by December 2019 and the remaining stock of arrears is expected to 
be cleared in 2020.  

Other ministries have reported minor delays in the clearance of arrears, predominantly 
for administrative reasons and shortage of staff. Nevertheless, continuous assistance 
and  information  support  by  GAO  is  provided.  According  to  their  action  plan,  this 
should alleviate the remaining issues and result in minimization the remaining stock 
of  arrears  in  the  short-term.  However,  the  plan  presented  by  GAO  does  not  fully 
address  the  weakness  noted  by  the  HCA  in  the  audited  central  state  payment 
services.  

In conclusion, the new plan tackles the main challenges of the arrears clearance in 
a satisfactory manner and is accompanied by a number of legal, administrative or 
IT actions to achieve its objectives. If implemented as endorsed, net arrears would be 
fully  cleared  by  end-2020,  with  the  exception  of  €140 m  in  pension  claims (19)  that 
would be cleared by mid-2021.   

The remaining ex ante audits by the HCA for EBFs and local governments were 
phased  out  as  of  1  August  2019,  as  envisaged.  A  similar  reform  was  undertaken  in 
line  ministries  in  2017.  An  extension  was  however  provided  until  January  2019  for 
hospitals and until July 2019 for EBFs and local governments, since they were not fully 
ready  to  implement  the  reform.  To  support  local  governments  and  the  EBFs  in  this 

(19) In  a  more  conservative  scenario,  another  €160  million  could  remain  by  December  2020  and 

eliminated by June 2021. 

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transition and to allow them to assume their new responsibilities for the whole payment 
process,  GAO  undertook  several  actions  including  provision  of  trainings  and 
information. In addition to the above-mentioned measures targeting specific sectors, the 
Ministry of Interior is preparing to issue guidelines, which, following consultation with 
the HCA, will be available on the website of the ministry as a supporting material for 
the authorizing and payment officers. 

3.4.2. Treasury Single Account 

The  implementation  of  the  Treasury  Single  Account,  which  is  an  end-2019 
commitment,  is  progressing  well.  The  full  implementation  of  the  Treasury  Single 
Account would allow the State to see its cash position nearly in real time. Pursuing this 
goal  will  require  some  further  analysis  and  potentially  changes  in  the  financial  circuit 
and payment procedures. The European institutions have encouraged the authorities to 
provide  an  action  plan  for  the  remaining  steps  to  ensure  full  implementation  of  the 
reform, which so far remains on track.  

By  end-September  2019,  half  of  all  general  government  entities  had  already 
opened  an  account  at  the  Bank  of  Greece,  yet  additional  steps  will  be  needed  to 
ensure  that  all  entities  do  so,  as  required  under  the  TSA.  A  significant  number  of 
general  government  entities  have  opened  new  accounts  at  the  Bank  of  Greece  or 
reactivated accounts that were inactive or dormant in the last few years. Many of them 
maintain  multiple  accounts,  either  for  historical  reasons  or  due  to  the  fact  that  their 
internal organizational structure necessitates that they rely on the banking infrastructure 
of the Bank of Greece (20). As of end-September, 976 general government entities (i.e. 
approximately  the  half  of  the  total)  had  a  cash  management  account  in  the  Bank  of 
Greece,  which  is  significant  progress  compared  to  the  June  report.  This  amount 
correspond approximately to the number of entities relying on State grants.  

According to the information provided by GAO, all State grants and subsidies are 
credited to general government entities through their cash management account at 
the Bank of Greece. This acts as a strong incentive for general government entities to 
open and use a cash management account  at  the Bank of Greece, since the use of the 
funds  granted  by  the  State  is  inextricably  linked  to  the  existence  and  the  use  of  these 
accounts. In order to make sure the entities that are not receiving State funding through 
their  cash  management  accounts  at  the  Bank  of  Greece  will  effectively  follow  the 
general  framework of the TSA, GAO has adopted a set of measures (21). These would 
act as incentives to open such an account and would need to be applied if necessary. 

Minor  delays  have  been  encountered  in  transferring  excess  liquidity  of  general 
government  entities  to  the  Bank  of  Greece,  which  is  part  of  the  TSA  reform.  A 
Ministerial Decision (22) and a GAO circular (23) postponed the deadlines regarding the 

(20) As of September 2019, there were 14 general government entities with more than 5 cash management 
accounts,  six  of  them  with  more  than  10  accounts,  and  two  entities  with  more  than  50  cash 
management accounts. 

(21) In  case  of  non-compliance,  the  Board  of  Directors  and  Finance  Manager  shall  be  deprived  of  their 

functions. 

(22) Ministerial Decision 2/66482/29.8.2019. 
(23) GAO Director General’s circular 2/72810 of 26 September 2019. 

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general cash planning framework for general government entities and the launch of the 
pilot  process  with  27  general  government  entities  that  was  initially  planned  in  July. 
General  government  entities  are  now  required  to  open  a  cash  management  account  at 
the Bank of Greece by November 2019. They will have to transfer their cash surpluses 
from  the  commercial  banking  system  to  the  cash  management  accounts  in  the 
Bank of Greece by 11 December  instead  of  July 2019.  However,  this  delay  in  the 
implementation of the project should put at risk neither the timeline nor the achievement 
of the project by end-2019. Entities have already been transferring some of their excess 
liquidity.  The  Bank  of  Greece  forecasts  are  that  the  remaining  amount  of  funds  to  be 
transferred in 2019 should not exceed €2 bn. This is not expected to cause any liquidity 
issues for the banking sector. 

Progress  has  also  been  made  on  the  governance  of  the  TSA  project.  A  new 
directorate has been created in the Ministry of Finance to manage the TSA project, with 
a  task  to  monitor  general  government  entities’  cash  flow  projections  based  on  their 
approved  annual  budget.  At  the  pilot  stage,  monitoring  of  the  requirement  to  keep  at 
most a 15-day liquidity buffer in commercial banks (24) will be performed by the GAO 
on an ad hoc basis, but a proper IT support for the monitoring of all general government 
entities cash buffers has been required by GAO.  

The Bank of Greece payment platform is fully operational and could increase the 
efficiency  of  payments  and  help  tackle  the  excessive  amount  of  cash  payments 
made  by  the  general  government.  The  current  Bank  of  Greece  platform  allows 
electronic transfers of funds between cash management accounts and commercial bank 
accounts.  The  bulk  of  the  transactions  on  behalf  of  general  government  entities  is 
carried out electronically, but the initiation of the transaction still relies on paper orders. 
The new “Portal” platform is expected to provide a promising alternative, which avoids 
the need for paper orders. It could also tackle the excessive amount of cash payments. 
For  reasons  of  efficiency  and  to  ensure  compliance  with  legislation  on  anti-money 
laundering  and  combatting  the  financing  of  terrorism,  cash  as  a  means  of  payment  is 
allowed only for payments via cheques to be cashed-in. However, cheques are used in 
7% of general  government transactions, or 5.5% of their total volume. This is deemed 
excessive  by  the  Bank  of  Greece  and  signals  high  tolerance  levels  embedded  in  the 
existing  regulatory  framework.  The  introduction  of  the  “Portal”  platform  could  help 
reducing  the  use  of  these  cheques  and  deserves  support  of  the  authorities  supervising 
general government entities. 

3.4.3. Chart of Accounts 

The  authorities  are  broadly  on  track  with  implementing  the  Unified  Chart  of 
Accounts  (UCoA)  in  all  general  government  entities  and  moving  to  accrual 
accounting by 2023. The UCoA is a key step forward for improving fiscal monitoring, 
decision-making  and  reporting.  It  is  also  a  crucial  element  in  increasing  transparency 
and  reliability  of  fiscal  and  financial  data.  The  substantial  progress  achieved  over  the 
recent  years,  also  benefitting  from  technical  support,  has  put  a  strong  foundation  for 
delivering  the  remaining  and  most  challenging  part  of  the  UCoA.  The  newly  defined 
digital  governance  policy,  together  with  public  finance  management  and  accounting 

(24) Law 4549/2018. 

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reforms, appears among the priorities of the new administration, which signals a strong 
political  commitment  towards  the  remaining  reform  agenda.  The  new  administrative 
and  financial  classification  of  the  State  budget,  which  was  introduced  in  2018 (25), 
defines single analytical codes for recording expenditures. As for the State budget, the 
changes  were  implemented  successfully  alongside  the  release  of  the  first  audited 
double-entry  financial  statement.  The  2019  and  2020  budget  preparations  took  place 
under the new UCoA.  

GAO remains at a crossroads and crucial decisions still have to be made. By mid-
2020,  Greece  will  need  to  complete  the  UCoA  requirements  with  deeper  economical, 
administrative  and  functional  classifications.  The  implementation  of  the  UCoA  by 
general government entities other than line ministries requires progress on the ambitious 
IT  project.  The  European  institutions  welcome  that  the  development  of  a  single 
Enterprise  Resource  Planning  (ERP)  common  to  all  central  state  budgetary  entities  is 
among GAO’s priorities for 2020 since it a prerequisite for the success of the reform. In 
effect,  the  implementation  of  the  UCoA  is  a  culture-changing  reform  that  has  far 
reaching spill-over effects across general government namely in terms of policy-making 
and  management  and  offers  an  opportunity  to  move  towards  a  better  management  of 
public finance.  

The governance structure of this major public finance management reform is to be 
reinforced with the appointment of a dedicated Steering Committee, which should 
begin  to  operate  by  the  end  of  2019.  Establishing  a  governance  structure  fully 
dedicated  to  the  UCoA  was  considered  as  one  of  the  precondition  for  successfully 
rolling  out  the  accounting  reform.  The  European  Institutions  would  however  strongly 
encourage  the  authorities  to  align  with  international  best  practices  by  avoiding  policy 
makers  to  be  in  a  position  to  decide  on  accounting  standards  or  policies  and  by 
providing assurance that deliberations regarding the UCoA abide by generally accepted 
governance  principles.  This  is  a  critical  issue  touching  upon  the  credibility  of  the 
financial statements that are to be delivered. Technical support therefore recommended 
either  instituting  a  public  sector  accounting  standards  board  comparable  to  the 
Accounting  Standardisation  Board  for  the  private  sector  or  adopting  and  abiding  by  a 
code of good practice.  

The  implementation  of  the  UCoA  by  the  Public  Investment  Budget  (PIB)  was 
previously  identified  as  meriting  progress  by  end-2019  and  was  addressed, 
although  greater  clarity  is  needed  as  to  its  full  implementation  in  this  area.  The 
overall  implementation  of  the  UCoA  by  the  PIB  is  slowly  progressing,  in  particular 
thanks to closer cooperation between the Ministry of Development and GAO. While the 
ordinary State budget is executed through individual commitments, the PIB is executed 
via a multi-beneficiary commitment with a view to maximising spending on investment. 
Subjecting  the  PIB  to  individual  commitment  rules  would  be  detrimental  to  this  goal, 
and the European institutions took note of the Ministry of Development’s concerns that 
the  implementation  of  the  UCoA  in  the  preparation  of  the  PIB  could  increase 
administrative burden. However, PIB expenditures have to be recorded and reported in 
accordance  with  UCoA  standards,  through  the  single  Enterprise  Resource  Planning 
(ERP) for the whole of the State. According to the action plan drafted by the Ministry of 

(25) Presidential Decree 54/2018. 

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Development and GAO, the execution of the PIB will follow the new administrative and 
financial  classification  by  end-March 2021.  However,  this  action  plan  is  not  very 
specific about the full implementation of the UCoA in the PIB and does not foresee a 
way forward to integrate the ERP common to all State budgetary entities, whereas this 
should  be  a  priority.  The  Ministry  of  Development  responsible  for  the  PIB  intends  to 
seek technical support with a view to identifying measures that could possibly be taken 
in  order  to  align  the  PIB  budget  preparation  and  its  execution  with  the  new 
administrative  and  financial  classifications  set  out  in  the  Presidential  Decree  that  put 
into force the new national accounting framework. 

41 

 
4. 

SOCIAL WELFARE 

4.1.  PENSIONS 

The Council of State (CoS) has declared unconstitutional some aspects of the 2016 
pension  reform.  The  CoS  has  ruled  unconstitutional  the  contributions  for  self-
employed  (20%)  in  comparison  with  that  paid  by employees  (6%).  Furthermore,  the 
provisions cutting part of the supplementary pensions for overall pensions higher than 
€1  300  has  been  found  unconstitutional  because  it  violated  the  principle  of 
proportionality and equality. Also, the replacement rate of pensions especially for high 
pensions and pensioners who have worked for many years was found unconstitutional. 
The  authorities  are  elaborating  proposals 
these  aspects  of 
unconstitutionality  and  have  committed  to  find  solutions  that  contain  the  cost  of  the 
necessary  amendment  within  the  budget  of  the  Ministry  of  Labour  for  2020  though  it 
will be challenging. At this stage, as there is no specific proposal, is too early to assess 
if this will be the case.  

for  addressing 

Nonetheless,  the  key  parts  of  the  2016  pension  reform  were  found  constitutional. 
On  the  positive  side,  the  CoS  has  found  constitutional  the  creation  of  EFKA  and  the 
integration of all pension funds (including the one for civil servants) into EFKA, and the 
recalculation of all pensions with the new rules (and thus the recalibration of pensions in 
payment  and  the  recalculation  of  acquired  rights  of  future  pensioners).  Moreover,  for 
the aspects of the reform that were found unconstitutional the CoS has not granted the 
affected persons a right for a retrospective financial compensation. 

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 above, which creates an additional uncertainty. Based on 
the ruling, the solidarity levy for public sector pensioners, the replacement rates of 2016 
pension  reform  and  the  integration  of  civil  servants  and  public  sector  pensioners  to 
EFKA  were  found  unconstitutional.  Although  the  Court  of  Auditors  extensively 
presented  the  grounds  for  considering  unconstitutional  the  relevant  provisions  of  the 
2016 pension reform, it abstained from adjudicating the case, choosing instead to refer 
the  matter  to  the  plenary  formation  of  the  Court.  Should  the  plenary  reach  the  same 
conclusion  as  the  chamber  and  rule  that  the  pension  reform  law  is  unconstitutional  in 
this  respect,  the  matter  will  be  submitted  before  an  ad  hoc  Supreme  Special  Court  of 
Article 100 of the Greek Constitution, so that the conflict created by the two mutually 
exclusive precedents may be resolved. 

The  authorities  have  decided  to  confirm  legislation  passed  by  the  previous 
government  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. 
This  pertains  to  the  repeal  of  the  2016  reform  of  the  survivors’  pensions  that  had 
modernised  and  aligned  the  pension  entitlements  to  standard  practices  of  other  EU 
Member  States  and  the  reinstatement  of  a  permanent  13th  pension,  which  had  been 
eliminated  in  2012.  It  will  be  paid  once  a  year  at  a  level  of  30%-100%  of  current 
pensions (the highest percentage for pensions below €500 per month and the lowest for 
pensions  above  €1 000  per  month)  and  will  cost  as  much  as  €0.8 bn. These  measures 

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Chapter 4 - Social welfare 

will decrease the relative share of social benefits spent on the  young and working age 
population where the risk of poverty is much higher.   

As regards the implementation of the action plan for the completion of the setup of 
the  unified  main  pension  fund  EFKA,  which  is  a  mid-2020  commitment,  delays 
have accumulated, and the new administration is launching corrective action.  The 
authorities  have  planned  a  revision  of  the  action  plan  and  intend  to  accelerate  the 
process of digitalisation of the pension award system. They have also started to address 
delays in the full integration of EFKA local offices, the integration of the different  IT 
systems  of  the  previous  pension  funds,  in  the  launch  of  the  tender  for  new  IITS,  the 
completion  of  the  full  insurance  history  for  social  security  contributions,  all  elements 
that are key for the completion of the EFKA reform.  

4.2.  HEALTHCARE 

The  authorities have  accumulated  non-negligible  delays  with  the  collection  of  the 
2018 clawbacks,  a  specific mid-2019 commitment, which has been delayed  due to 
the introduction of the new repayment schedule, though the needed legislation will 
enter into force shortly. The delays in the start of the collection are due to the decision 
of the authorities to amend the legislation regarding the maximum repayment period for 
the  clawback,  to  extend  it  from  an  initial  maximum  duration  of  24  to  120  monthly 
instalments.  The  authorities  have  preserved  the  feature  of  a  minimum  floor  to  the 
instalments,  which  are  set  as  a  fixed  share  of  companies’  turnover,  and  instalment 
schemes  are  intended  for  clawback  amounts  above  a  certain  threshold.  Although  the 
longer  envisaged  duration  for  the  repayment  plan,  above  5  years,  is  reserved  to  a 
relatively small share of providers and represents only 15% of pharmaceutical clawback 
amounts,  the  legislative  change  still  results  in  an  overall  dilution  of  payments,  aside 
from  the  delay  in  the  start  of  the  procedure,  and  in  an  avoidable  deterioration  of  the 
liquidity  situation  of  the  National  Health  Fund.  The  necessary  secondary  legislation 
(Ministerial Decision) to start the process of collection and clearance of the uncollected 
amount over the period  2012-2018 (approximately €900 m,  with  collection to  start  by 
30  November  2019)  was  signed  and  will  enter  into  force  shortly.  Overall,  progress  in 
this  area  is  thus  to  be  considered  satisfactory  but  the  European  institutions  have 
encouraged the authorities to step up the efforts in this area.  

Progress  towards  achieving  a  share  of  centralised  procurement  in  total  hospital 
expenditure of 30%, a mid-2020 commitment, has been very limited and a planned 
reconfiguration of the central procurement body (EKAPY) may enable progress at 
the  expense  of  additional  delays.  The  commitment  to  strengthen  EKAPY  so  as  to 
reach increasing targets of items to be centrally procured, for instance by appointing the 
permanent  board  and  completing  the  staffing,  has  not  been  met  and  the  likelihood  of 
reaching the targets  under the initially agreed timeline is  increasingly unlikely  (so far, 
only about 10% of total spending value of €1.6 bn has been centrally tendered in 2019). 
Although  the  authorities  have  confirmed  their  intention  to  proceed  with  centralised 
procurement,  they  are  currently  reconsidering  the  features  of  the  recently  established 
EKAPY  and  are  leaning  towards  the  framework  of  a  private-law  legal  entity  with 
similar  features  to  other  agencies  (TAIPED,  Enterprise  Greece,  Public  Properties 
Company etc.). Proceeding with the transition from the current status to that of a private 
legal entity, which it is  expected by the authorities to enable EKAPY to  operate more 

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Chapter 4 - Social welfare 

flexibly  and  efficiently  in  the  future,  may  nonetheless  lead  to  additional  delays  in  the 
coming months, thereby adding to what was originally an already challenging progress 
towards the targets.  

Consolidation of the existing primary health care network by opening the planned 
240 primary health care centres (TOMYs), a mid-2020 commitment, does not seem 
feasible based on current progress. Similarly to the area of centralised procurement, 
the authorities have so  far frozen the opening of additional TOMYs, to  reconsider the 
most suitable structure of delivery of primary health care over the territory. In the next 
six months, the authorities consider feasible only the opening of at most 10 additional 
TOMY.  This  will  result  in  the  almost  certain  failure  to  meet  the  deadline  for  the 
completion of the TOMYs by mid-2020. As for the fundamental features of the model 
of primary care, such as compulsory registration with a family doctor and gatekeeping, 
these  would  be  only  gradually  introduced,  at  a  pace  that  is  not  yet  known.  The  likely 
delay  in  setup  of  a  comprehensive  primary  health  care  network  with  compulsory 
registration  with  a  family  doctor,  coupled  with  the  preservation  of  a  prevalent  side-
system based on contracted private family doctors (providing maximum 200 visits per 
months).  This  essentially  seems  to  replicate  the  old  model,  may  undermine  the 
achievement of full coverage and with that, patients’ access to primary care. Lastly, any 
reconfiguration of the currently planned network has the potential to generate waste as 
the TOMYs are currently being financed by the Commission.  

The authorities are considering a number of actions to support the rationalisation 
of  health  care  spending.  Amongst  these  are  the  development  of  a  National  Cancer 
Registry,  the  establishment  of  a  Health  Technology  Assessments  (HTA)  Agency  to 
support the existing HTA Committee, the strengthening of the already established Drug 
Negotiating Committee, stepping up the work on the development of clinical protocols 
and further building on progress made in updating the hospital reimbursement scheme 
(DRGs). In addition, the authorities intend to strengthen the role of the National Health 
Fund  as  an  active  purchaser  and  to  commission  services  efficiently,  amongst  other 
things  by  adopting  best  practice  and  rationalising  its  structure,  legal  framework  and 
operations. Many of these measures are a continuation of past actions and all represent 
steps in the direction of a reduction of the clawback, though their impact is expected to 
materialise only over the medium-long run.  

In  the  area  of  pharmaceuticals,  the  authorities  are  delaying  further  the  yearly 
update of the price bulletin (due in February/March 2019), which usually leads to 
a downward revision of pharmaceutical prices. The regular publication of the price 
bulletin has historically been one of the most important tools to reduce pharmaceutical 
prices. In addition, the authorities intend to eliminate the 25% entry fee for innovative 
drugs.  Both  these  measures  go  in  the  opposite  direction  than  of  reducing  excess 
spending and thus, potentially increase the amount of clawback in the coming months. 

4.3.  SOCIAL SAFETY NETS 

The new housing benefit for persons living in a rented accommodation introduced 
at the beginning of 2019 is operating smoothly. The scheme provides a means-tested 
subsidy to low-income households to cover rental costs. The benefit ranges from €70 to 
€210  per  month,  depending  on  the  household  size.  As  of  30  September  2019,  some 

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Chapter 4 - Social welfare 

232 700  households  were  receiving  the  benefit,  corresponding  to  more  than  600 000 
individuals (about  5.6% of the Greek population).  In terms  of household  composition, 
the  largest  groups  are  single  individuals  (about  one  third  of  approved  applications), 
followed  by  households  with  4  members  (23%),  3-member  households  (20%)  and  2-
member  households  (16%).  About  half  of  the  beneficiary  households  belong  to  the 
lowest income group (with equivalent incomes of less than €7 000). About 20% of the 
applicants  (46 500  households)  are  also  beneficiaries  of  the  SSI  benefit.  The  average 
benefit amount is €120.60 per month, for an average total monthly expenditure of just 
over €28 million, broadly in line with the annual budget allocation foreseen.  

The  reform  of  the  system  of  disability  benefits  is  advancing  but  with  significant 
technical-related delays, outside the control of the authorities. While upgrading and 
simplification  of  the  administrative  processes  to  determine  disability  status  is 
progressing, the new approach to determine the disability status based on both medical 
and functional assessment (specific commitment for mid-2019) is still to be adopted. 
The  Authorities  have  provided  a  summary  report  of  the  improvements  made  so  far  in 
administrative processes and intend to work closely between the Ministries of Labour, 
Health  and  Digital  Governance  to  further  digitalise  and  update  procedures.  The  new 
disability benefit methodology should have been developed on the basis of an analysis 
of the results of a pilot project. Unfortunately, delays in the implementation of the pilot 
have  meant  that  the  pilot  evaluation  has  not  yet  been  finished  by  the  World  Bank, 
though it should be received shortly. A revised timeline, detailing the intermediate steps 
and a final deadline for adoption, will be agreed once the evaluation is received.  

The  implementation  of  the  social  inclusion  and  labour  market  (re-)integration 
elements of the Social Solidarity Income (SSI) scheme, an end-2019 commitment, is 
progressing. The SSI is based on three pillars: (i) income support; (ii) social inclusion; 
and,  (iii)  labour  market  reintegration.  With  respect  to  the  second  pillar,  a  network  of 
Community Centres has been established throughout the country with the support of the 
European  Social  Fund,  expanding  the  provision  of  social  services  at  local  level  in  a 
coordinated way. The third pillar relies on the provision of active labour market services 
(ALMPs)  to  help  SSI  recipients  (re-)enter  the  labour  market,  and  is  still  being 
developed. Between October 2018 and June 2019, about 14 000 SSI beneficiaries (5.8% 
of  registered  unemployed  beneficiaries)  have  drawn  up  or  updated  their  individual 
action  plan,  based  on  individual  profiling,  and  75%  of  them  were  included  in  some 
active labour market programme. To improve on this, the authorities are shifting from 
an ad hoc and irregular to a more systematic approach to the design and management of 
the  ALMPs.  Concretely,  this  entails:  i)  a  shift  to  a  new  delivery  model  for  ALMPs, 
whereby  a  menu  of  options  and  programmes  is  continuously  made  available  to  the 
unemployed;  ii)  a  strengthened  provision  of  counselling  services;  and,  iii)  a  better 
mapping  of  the  needs  of  the  labour  market  which  in  turn  informs  the  design  of  new 
programmes. The new system is being tested in a pilot project in one local office of the 
public employment service covering three municipalities, and the business processes for 
its national  expansion will  be determined following a process  evaluation  in  December 
2019. The gradual expansion will take place between February and July 2020. 

The  specific  end-2019  commitment  on  the  review  of  subsidies  for  local  public 
transport  remains  on  track.  Ten  different  categories  of  people  such  as  students, 
persons over 65, the unemployed, the disabled and members of large families currently 

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Chapter 4 - Social welfare 

benefit  from  subsidised  fares  for  local  public  transport.  Thanks  to  the  recent 
introduction of electronic ticketing  on the public transport network of Athens, data on 
actual transport usage by each category of beneficiaries has become available, allowing 
a  more  precise  costing  of  these  policies  in  the  Attica  region.  The  Greek  authorities 
confirmed  their  commitment  to  carry  out  a  study  to  review  the  appropriateness  of  the 
current system of subsidised fares for local public transport across Greece by the end of 
2019,  and  to  follow  up  on  eventual  recommendations  to  improve  the  system.  To  this 
end, they have created a working group which will come up with relevant findings by 
15  December  2019,  the  conclusions  of  which  will  lead  to  a  new  draft  law  addressing 
among  others  the  following  issues:  i)  clarification  of  definitions  of  the  different 
categories of beneficiaries; ii) the technical failures of the current electronic systems and 
interoperability  with  the  databases  of  the  disabled  and  the  unemployed  to  address  the 
issue of the fictitious increase in the number of beneficiaries; iii) streamlining costing. 

47 

 
 
5. 

FINANCIAL SECTOR 

5.1.  FINANCIAL SECTOR DEVELOPMENTS 

5.1.1. Financial sector overview and financial stability assessment 

The  liquidity  situation  of  Greek  banks  has  further  improved  and  there  are  signs 
that the banks’ market access may be gradually re-established but legacy risks and 
challenges remain high. The banking sector’s profitability has slightly improved but it 
is  constrained by poor asset quality  and a low differentiation of products and  revenue 
sources. The liquidity situation of Greek banks has further improved while banks have 
tapped  the  market  for  the  first  time  since  2015  with  two  subordinated  bond  issuances 
during the summer. Overall, access to long-term unsecured funding is only slowly being 
re-established  and  still  at  a  relatively  high  cost.  As  a  result,  banks  continue  relying 
primarily on their internal capacity to generate capital, which remains very challenging. 
Going  forward,  the  Greek  banking  sector  is  faced  with  the  challenge  of  boosting  its 
resilience and accelerating NPL reduction, while improving its ability to finance growth 
via an on-going flow of new business, with a sustainable risk-adjusted return profile. 

The  improving  liquidity  situation  of  Greek  banks  and  increased  depositor 
confidence led to the complete lifting of capital controls as of September  2019. In 
the first nine month of 2019, banks’ private sector deposits increased by about 3.5% and 
the  total  central  bank  funding  significantly  decreased  (see  graph  5.1)  as  emergency 
liquidity  assistance  (ELA)  was  fully  repaid  in  the  beginning  of  the  year.  Whilst  the 
abolition of capital controls normalises the functioning of the Greek economy within the 
Economic and Monetary Union (EMU) and is supportive for confidence building in the 
Greek  market,  this  move  places  even  more  importance  on  accelerating  efforts  to 
strengthen the banking system and underpin depositor confidence. 

Graph 5.1: Bank deposits (left) and total borrowing from the Eurosystem (right) 

Source: European Central Bank, IMF   

The  quality  of  capital  of  Greek  banks  remains  a  concern,  as  the  high  level  of 
deferred tax credits (DTCs) in banks’ Common Equity Tier 1 (CET1) contributes 
to the strong sovereign-bank nexus in Greece. According to ECB data as of the end 
of June 2019, the Greek banking system had a CET1 ratio of 15.6% on a consolidated 
basis, about the same as a year earlier and still broadly comparable with the EU average. 

49 

050100150200250300201420152016201720182019Central GovernmentNFCHouseholdsMFIsbn EUR051015202530354045020406080100120140160180Borrowing from the ECBEurosystem liquidity as % of liabilities (rhs.)bn EUR%  
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Chapter 5 - Financial sector 

Although  preliminary  data  suggest  that  the  average  CET1  ratio  has  increased  in  the 
second quarter of 2019 due to a combination of a strong performance of the marked-to-
market sovereign portfolio, and the reduction of risk-weighted assets due to the sales of 
non-performing  exposures  (NPEs),  the  banks’  capital  position  is  constrained  by  low 
recurring  profitability  and  the  still  high  cost-of-risk.  The  share  of  DTCs  in  the  banks’ 
capital has only marginally decreased over the first half of 2019 and still exceeds 57% 
of the CET1 capital on average for the four systemic banks as of end of June 2019 (26). 
Furthermore,  future  NPL  securitisations,  for  example  under  the  new  government 
sponsored  ‘Hercules’  scheme,  might  increase  the  average  share  of  DTCs  in  CET1 
capital, if NPE sales are undertaken at less than book value. Moreover, the fully loaded 
CET1 ratio (27) is still well below the EU average (12.8% vs. 14.4%), which shows that 
Greek  banks  will  need  to  deal  in  the  near  future  with  the  gradual  phasing  out  of 
beneficial  transitional  arrangements,  particularly  related  to  the  transition  to  the  new 
IFRS9 accounting standard (28). In addition, Greek banks will need to issue bail-inable 
debt in the coming years in order to meet the minimum requirement for own funds and 
eligible liabilities (MREL) (29) as per the EU legislation. 

Profitability has slightly improved but it is constrained by poor asset quality and a 
low  differentiation  of  products  and  revenue  sources.  Greek  banks  have  returned  to 
profits  in  the  second  quarter  of  2019  but  their  return  on  equity  (ROE)  remains  at  low 
levels (2.6% on an annualised basis against the euro area average of 6.4%). Moreover, 
results have been partly  boosted in  some cases by  non-recurrent  trading  gains,  mainly 
reflecting the positive revaluation of Greek sovereign bond holdings. With net fee and 
commission income accounting for 14.6% of operating income vs a euro area average of 
30% as of end June 2019, Greek banks are particularly exposed in case of a narrowing 
of their net interest spread in the current low interest rate environment.  

Going forward, further differentiation of banks’ sources of income and efforts to 
contain  operating  expenses  and  reduce  headcount  costs  are  warranted.  These 
efforts have already allowed them to reach an average cost-to-income ratio for the four 
systemic  banks  significantly  lower  than  the  respective  euro  area  average  (50.4%  vs 
66.2%  respectively  as  of  June  2019).  Moreover,  Greek  banks  aim  to  increase 
commission  and  fee  income  generation  from  bancassurance  and  asset  management 

(26) Deferred  tax  credits  for  the  four  systemic  banks  amounted  to  €15.5  billion  as  of  end  of  June  2019, 
representing a share of 57.3% of CET1 capital, approximately 3.5 pps less than at the end of 2018. 
(27) The fully loaded CET1 ratio is an estimate of the ratio of the CET1 capital of a credit institution over 
its total risk weighted exposure, as if the beneficial transitional arrangements under the CRR/CRD IV 
framework, affecting both the amount of CET1 capital and the risk weighted exposure, did not apply 
(i.e. had already been phased-out).  

(28) IFRS  9  replaced  the  previous  accounting  standard  for  financial  instruments  (IAS  39)  and  was 
endorsed in the EU in November 2016. It is effective for periods beginning on or after 1 January 2018. 
IFRS 9 moves from an incurred loss model (under IAS 39) to an expected credit loss (ECL) model. 
Given that this change could lead to a significant capital, the EU legal framework allows for a five-
year transitional arrangement for banks who choose to make use of it. 

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

50 

                                                           
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activities.  However,  the  still  high  level  of  NPLs  coupled  with  weak  pre-provisioning 
profit  generation  creates  challenges  for  Greek  banks,  especially  due  to  the  need  to 
swiftly  reduce  NPL  levels  and  comply  with  the  forthcoming  provisioning  calendar,  in 
line with the ECB Banking Supervision Guidance and also in view of the application of 
the prudential backstop in the coming years (30).   

The pace of NPL reduction accelerated in 2019 but levels remain very high. NPLs 
in the Greek banking system peaked in March 2016 at €107.2 billion or 48.8% of total 
customer loans. Since then, both the stock and ratio of NPLs started declining, and the 
pace  of  decrease  has  accelerated  since  2018,  with  the  ratio  of  NPLs  to  total  customer 
loans reaching 45.4% and 43.6% at end-2018 and mid-2019 respectively. By end-June 
2019, the stock of NPLs were lower by €13.5 billion or 15% year-on-year and stood at 
€75.4 billion (see graph 5.2). This was overall in line with the operational targets set by 
the four systemic banks, under the oversight of the supervisory authority. By segments, 
the  rate  of  non-performing  residential  loans  decreased  only  by  1.2  percentage  points 
over the year to 43.1% by mid-2019, also on account of protection schemes of primary 
residence currently in place, while non-performing consumer and business loans saw a 
larger  reduction  of  4.2  percentage  points  and  5.7  percentage  points  in  their  respective 
ratios  over  the  same  period (31).  During  the  second  quarter  of  2019,  according  to  the 
Bank  of  Greece,  the  banks  recorded  new  NPEs  and  cured  loans  roughly  at  the  same 
volume (€1.4 billion). They managed to  sell gross  NPLs of €2.7 billion and wrote off 
€1.3  billion.  Collateral  liquidation  reduced  gross  NPLs  by  about  €0.5  billion  and 
repayments  amounted  to  €0.4 billion.  The  coverage  of  NPLs  by  provisions  decreased 
year-on-year by 2.6 percentage points to 46.0%. The coverage by collateral is at 57.1%, 
up  by  0.3  percentage  points.  According  to  ECB  data,  the  NPL  ratio  in  Greece  on  a 
consolidated basis for the four systemic banks (39.6% of total gross loans and advances) 
remained the highest in the euro area at end June 2019, twelve times larger than the euro 
area average (3.4% of total gross loans and advances).  

For the coming years, the four systemic banks plan substantial reduction in NPLs 
but the levels of the latter will still stay very high. According to the current plans of 
the four systemic banks, their average NPL ratio would decline from 43.1% at mid-2019 
to  19.2%  by  end-2021  (still  more  than  five  times  higher  than  the  current  euro  area 
average), with large differences among banks. The stock of NPLs of the four systemic 
banks is planned to decrease from €72 billion to €26 billion at solo level by end-2021. 
Banks plan to achieve such an NPL reduction mostly by moving these loans out of their 
balance sheets using various securitisation and sales techniques.  

(30) Regulation  (EU)  2019/630  amending  Regulation  (EU)  No  575/2013  as  regards  minimum  loss 
coverage for non-performing exposures aims to accelerate the reduction of NPLs in the banking sector 
by  providing  for  a  statutory  prudential  backstop  against  any  excessive  future  build-up  of  NPLs 
without sufficient loss coverage on banks' balance sheets. It establishes common minimum levels for 
the  amount  of  money  banks  need  to  set  aside  to  cover  losses  caused  by  future  loans  that  turn  non-
performing. In case a bank does not meet the applicable minimum level, deductions from own funds 
would apply. 

(31) Data extracted from Bank of Greece: https://www.bankofgreece.gr/Pages/en/Statistics/loans.aspx. 

51 

                                                           
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Graph 5.2: Evolution of NPL ratio as a % of total customer loans (left) and NPL stock  

within second quarter 2019 (right: m EUR) for the Greek banking system 

Source: Bank of Greece 

Systemic initiatives, like the Hercules asset protection scheme can help clean up the 
balance  sheet  of  Greek  banks.  Under  the  scheme,  banks  may  transfer  NPLs  to 
separately managed, private securitisation vehicles (Special Purpose Vehicles or SPVs), 
which may issue junior, mezzanine and senior notes. The state would provide a public 
guarantee for the senior, less risky notes of the SPVs. The state guarantee on the senior 
tranche  would  become  effective  only  after  the  originating  bank  has  sold  to  private 
investors at  least  50% plus  one share of the junior tranche at  a positive  value and has 
sold at a positive price a part of the junior and mezzanine tranches which is sufficiently 
large  to  achieve  accounting  de-recognition  of  the  sold  NPLs.  Furthermore,  the  senior 
note  needs  to  reach  a  risk  rating  of  minimum  BB-  by  one  or,  in  some  cases,  two 
independent rating agencies. In exchange for the guarantee offered, the state will receive 
remuneration at market terms from the SPVs. Furthermore, external servicer companies 
will need to manage the assets. In October 2019, the European Commission concluded 
that the scheme, which is similar to the Italian GACS scheme, does not constitute State 
aid within the meaning of Article 107 (1) TFEU.  

The  focus  now  falls  on  completing  the  design  of  the  asset  protection  scheme  and 
commencing  its  swift  implementation.  The  current  market  environment  and  the 
historically  low  interest  rates  for  the  sovereign  provide  an  opportunity  for  banks  to 
achieve a relatively low price for state guarantee. However, the price of guarantee may 
increase  in  the  future  in  case  of  negative  market  sentiment  toward  the  Greek  state. 
Furthermore,  the  success  of  the  scheme  will,  inter  alia,  depend  on  the  balance  of 
regulatory capital gains, guarantee related expenses and losses stemming from the sale 
of notes to the investors. Participation in the scheme is will be voluntary for all Greek 
banks while the envelope of guarantees could support a substantial NPL derecognition 
for all banks. The scheme would run over an 18-month period, with  the possibility of 
renewal.  

To  reduce  NPLs  faster  to  even  lower  levels,  additional  efforts  will  be  needed  by 
both banks and the authorities to clean  out banks’ balance sheets. The authorities 
could  explore  additional  measures,  including  complementary  schemes,  to  further 
support the health of the banking  sector.  Banks  will need to  accelerate ‘organic’  NPL 
resolution  activities,  and  to  strengthen  efforts  to  identify  and  adequately  address  the 
issue of strategic defaults, since the moral  hazard behaviour had significantly  affected 
payment  discipline  in  Greece.  The  process  could  be  facilitated  by  the  authorities  by 

52 

25303540455055606570Dec 2014Mar 2015Jun 2015Sep 2015Dec 2015Mar 2016Jun 2016Sep 2016Dec 2016Mar 2017Jun 2017Sep 2017Dec 2017Mar 2018Jun 2018Sep 2018Dec 2018Mar 2019Jun 2019%% NPL ratioConsumer LoansResidential LoansBusiness Loans7989614691484383444045727121278475378010 00020 00030 00040 00050 00060 00070 00080 00090 000   
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ensuring that NPL servicers and banks operate in an effective legal environment. These 
include  a  modern,  post-crisis  insolvency  framework  for  households  and  corporations, 
the  enforceability  of  collateral  also  through  electronic  auctions,  as  well  as  an  active 
secondary market for non-performing loans as further discussed in Section 5.2. Key to 
the  success  of  any  reform  of  the  insolvency  regimes  will  be  the  effectiveness  of  the 
judicial system. Reducing the legacy NPLs, but also dis-incentivising the inflow of new 
NPLs  are  key  priorities.  At  the  same  time,  merely  removing  the  NPLs  from  banks 
balance  sheet  will  not  be  enough  to  restore  the  viability  of  the  borrowers.  Economic 
recovery with the support of new lending can only take place when a significant number 
of borrowers will have found sustainable solutions to their over-indebtedness.   

Table 5.1: Main financial stability indicators 

(1) Annualized data 
Source: ECB - CBD2 - Consolidated Banking data; own calculations 

5.1.2. Financing of the economy 

In  the  first  semester  of  2019,  net  bank  lending  to  non-financial  corporations  has 
further improved, while credit growth to households remained negative. From 2011 
until late 2018, the annual growth rate of loans extended to non-financial corporations 
(NFCs) had either hovered in negative territory, or, from mid-2016 onwards, was close 
to zero (Graph 5.3). Most recently, the gradual recovery in lending to NFCs that started 
in  December  2018  has  picked  up  pace  on  the  back  of  a  declining  credit  risk,  positive 
economic  growth  and  a  generally  declining  average  cost  of  funding  on  the  part  of 
commercial  banks.  Credit  to  NFCs  recorded  seven  consecutive  months  of  positive 
growth  and  reached  2.5%  year-on-year  growth  in  June  2019,  a  pace  last  observed  in 
mid-2010.  Most  of  this recovery  in  credit  growth  to  NFCs  is  driven  by  loans  to  large 
NFCs, with new loans to large NFCs as a share of total NFC loans increasing in 2017 
and 2018. According to the Bank of Greece, a large part of the credit growth is driven 
by  the  increased  contributions  of  loans  to  energy,  transport  and  tourism  sectors. 
Regarding  households  on  the  other  hand,  although  the  growth  rate  of  loans  to 
households,  has  been  slowly  recovering  since  July  2016,  it  still  remained  in  negative 
territory  as  of  the  end  of  the  second  quarter  of  2019,  slightly  deteriorated  relative  to 
second half of 2018. At a more granular level, growth in consumer loans has remained 
broadly  unchanged  since  late  2016  at  close  to  zero  while  housing  loans  have  been 
contracting at  a slightly increased pace in the first six months of 2019, in spite on the 
increase  in  demand.  Survey  data  suggest  that  demand  has  been  growing  for  all 
categories  of  credit  throughout  2018  and  in  the  first  semester  of  2019.  In  particular, 
better  housing  market  prospects,  improving  consumer  confidence  and  spending  on 
durables  have  contributed  to  increasing  demand  for  credit  by  households.  Increased 
demand  for  corporate  credit  since  the  third  quarter  of  2018  has  been  motivated  by 

53 

2014q42015q42016q22016q32016q42017q12017q22017q32017q42018q12018q22018q32018q42019q12019q2Non-performing loans39.746.847.247.446.346.646.946.745.045.444.943.541.641.639.6o/w NFC & HH sectors41.849.550.150.350.450.350.650.449.449.248.447.346.345.643.8o/w NFC sector44.752.553.253.953.953.453.352.651.451.149.447.946.144.542.8o/w HH sector38.545.946.546.246.346.847.547.947.147.047.346.646.546.845.1Coverage ratio43.548.548.148.248.248.147.447.246.749.549.047.848.047.746.7Return on equity(1)-10.6-24.2-15.8-9.9-7.51.3-0.4-0.3-1.30.7-2.4-0.8-0.41.62.6Return on assets(1)-1.0-2.8-1.9-1.2-0.90.1-0.10.0-0.20.1-0.3-0.1-0.10.20.3Total capital ratio14.116.518.018.217.016.817.217.217.116.416.416.316.015.616.5CET 1 ratio13.816.317.818.116.916.717.117.217.015.815.815.715.314.915.6Tier 1 ratio13.816.317.818.116.916.717.117.217.015.815.815.715.314.915.6Loan to deposit ratio79.172.374.575.575.977.278.281.883.578.878.476.074.775.874.3 
  
 
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greater  needs  for  fixed  and  working  capital  investment  as  well  as  mergers  and 
acquisitions activity. 

Graph 5.3: Bank credit to non-financial corporations and households 

Source: Bank of Greece 

Lending  rates  to  non-financial  corporations  have  broadly  followed  a  downward 
trend,  stabilising  close  to  historical  lows,  while  interest  rates  for  credit  to 
households have largely remained at high levels (Graph 5.4). The bank lending rate 
for non-financial corporations has been on a downward trend since the end of 2011 and 
has  shown  signs  of  stabilising  below  4%  in  recent  months,  still  above  the  euro  area 
average  but  reflecting  diminished  risk  perceptions.  By  contrast,  lending  rates  to 
households  have  broadly  remained  at  the  high  level  they  have  reached,  following  the 
upward  trend  of  the  past  four  years.  As  a  result,  in  the  first  semester  of  2019,  the 
average  lending  rate  for  households  was  more  than  100  basis  points  above  the 
corresponding rate for corporations, with the gap reaching on average 159 basis points 
in June. This divergence mainly reflects credit risk developments, as the NPL ratio for 
consumer  loans  remains  particularly  high,  albeit  diminishing,  and  the  NPL  ratio  for 
mortgage  loans  has  proved  quite  impervious  to  NPL  reduction  efforts  from  banks, 
deteriorating  throughout  2018,  unlike  other  loan  categories.  On  a  positive  note,  bank 
surveys  indicate  that  competitive  pressures  have  led  to  a  narrowing  in  the  margin  on 
average-risk loans to  NFCs  for seven consecutive quarters, while this narrowing trend 
was  observed  for  the  first  time  also  for  loans  to  households  in  the  second  quarter  of 
2019.  Overall,  the  persistently  high  lending  rates  facing  households  and  the  ongoing 
contraction of credit for housing loans are indications that government policies directly 
affecting the banks’ loan portfolios most notably in the context of insolvency legislation 
imply  a  cost  to  the  banks,  as  they  cannot  seize  the  collateral  and  provide  sufficient 
incentives  to  borrowers  to  agree  to  loan  restructurings.  This  adverse  effect  is 
exacerbated  by  delays  in  the  judicial  process  linked  with  the  very  high  backlog  of 
pending cases related to insolvency procedures as well as an overall lengthy procedure 
linked  with  collateral  seizure  and  liquidation.  This  appears  to  have  contributed  to 
accumulation  and  persistence  of  high  mortgage  NPLs,  partly  due  to  a  more  general 
deterioration of payment discipline, while exerting upward pressure on average lending 
rates in the economy. 

54 

Jan.2014: -5.3%Jun. 2019: 2.5%Jun. 2019: -2.6%-7-6-5-4-3-2-10123%Νοn-financial corporationsHouseholdsJun.2019:-3.1%Jun.2019:-0.9%-7-6-5-4-3-2-10123%Housing loansConsumer loans   
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Graph 5.4: Bank interest rates on new loans 

Source: Bank of Greece 

Small  and  medium-sized  enterprises  (SMEs)  in  Greece  continue  to  be  adversely 
affected by constraints to access to finance. According to the Survey on the Access to 
Finance  of  Enterprises  (SAFE),  the  external  financing  gap  for  SMEs  is  still  high  in 
Greece,  although  it  has  been  contracting  mainly  from  the  part  of  the  supply  of  credit. 
SME access to credit is gradually recovering, albeit at a slower pace than credit to large 
NFCs,  as  overall  SMEs  are  still  disproportionately  affected  by  limited  access  to  bank 
financing.  This  is  also  reflected  in  the  high  spread  between  the  interest  rate  on  small 
bank  loans  (up  to  €250 000)  and  on  larger  bank  loans  (above  €1  million)  to  non-
financial  corporations,  which  was  on  average  150  basis  points  during  the  first  seven 
months  of  2019,  unchanged  from  the  2018  average.  The  importance  of  financial 
instruments  from  the  EU  programme  for  the  Competitiveness  of  Small  and  Medium-
Sized Enterprises (COSME), the Hellenic Fund for Entrepreneurship and Development 
(HFED),  the  European  Bank  for  Reconstruction  and  Development  (EBRD)  and  the 
European  Investment  Bank  (EIB)  in  SME  lending  remains  significant,  as  loan 
disbursements supported by the instruments offered by these organizations amounted to 
44% of total loan disbursements to SMEs in the first half of 2019.  

5.2.  FINANCIAL SECTOR POLICIES 

The  authorities  are  working  on  a  range  of  initiatives  to  strengthen  the  NPL 
is  scope  to  accelerate  the  pace  of 
resolution  framework,  though  there 
implementation.  The  actions  outlined  below  are  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 NPL 
resolution efforts”. 

Electronic auctions 

Despite progress  in the first semester of 2019, the  majority of electronic auctions 
continue to be cancelled or suspended, or have failed due to lack of interest among 
bidders  and  many  successfully  auctioned  real  estate  assets  are  still  acquired  (re-
possessed)  by  banks.  According  to  data  collected  by  the  e-auctions  platform 
throughout 2019 (32), approximately 58% of launched auctions were eventually aborted 

(32) Up to 12 November 2019.  

55 

Jun.2019:3.61%Jun. 2019:5.20%012345678%Loans to non-financial corporationsLoans to households  
                                                           
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Chapter 5 - Financial sector 

or cancelled for various reasons, reportedly due in part to procedural issues and filings 
under  the  household  insolvency  law.  From  the  1 928  auctions  conducted  in  the  first 
semester  of  2019,  1 186  (or  61.5%)  proved  unsuccessful,  while  the  banks  ended  up 
purchasing the collateral in 76% of the successful auctions, i.e. of those terminated by a 
transaction.  On  the  basis  of  such  results  it  appears  that  e-auctions  have  not  as  yet 
performed as a fully effective tool to reduce NPL levels. 

Despite the effective addressing of hindrances to the physical conduct of auctions 
(mainly activism against auction officials) that had affected the performance of the 
mechanism in its beginnings, the impact of e-auctions on NPL resolution continues 
to  fall  short  of  expectations.  The  conduct  of  e-auctions  was  repeatedly  suspended 
pursuant  to  the  applicable  legal  provisions (33).  As  a  result,  the  number  of  auctions 
decreased  markedly  until  end-July  2019,  when  the  August  summer  recess  started. 
Finally, the penal protection of notaries officiating as e-auction officials, first introduced 
in December 2017 in the Penal Code and subsequently abolished by the Penal Code that 
entered into force on 1 July 2019, was reinstated by the adoption of amendments to the 
relevant  provisions  of  the  Penal  Code, on  disruption  of  the  performance  of  a  public 
service and on bodily harm (34), currently under discussion in Parliament.   

Identified impediments leading to the cancellation or suspension due to procedural 
abuse are currently under assessment. The main adverse factors cited by the Hellenic 
Banking Association relate to the strategic behaviour of debtors resorting to last-minute 
filings under the household insolvency law after the launch of enforcement proceedings 
and shortly before the auction, in an effort to block the process, and the filing of reserve 
price revision requests with a similar motivation. The Greek authorities have established 
a  working  group  to  assess  the  extent  of  the  problem  as  well  as  other  potential 
impediments,  and  to  define  and  recommend  the  necessary  mitigating  measures  that 
could be taken in the context of the ongoing review of the implementation of the Greek 
Code  of  Civil  Procedure.  On  29 October 2019  and  10 November 2019,  the  authorities 
provided  a  number  of  preliminary  findings  and  proposals  of  the  working  group  and 
stated that they would provide its full report shortly. 

Clearing of the household insolvency backlog 

The elimination of the backlog of cases in the context of the household insolvency 
framework,  a  specific  end-2021  commitment,  remains  significantly  behind 
schedule,  notwithstanding  the  expiry  of  the  Household  Insolvency  law  protection 
framework  in  end-February  2019.  The  collection  and  processing  of  data  on  the 
clearing of court backlogs is progressing, but is adversely affected by a high percentage 
of  statistically  unreliable  input  from  around  one-third  of  the  magistrate’s  courts 
involved. The completion of data collection and consolidation is necessary to establish a 
revised  action  plan  by  the  authorities  by  end-December  2019.  The  impact  of  the  new 
mechanism  for  the  protection  of  primary  residences (35)  on  new  filings  should 
materialise  in  the  last  quarter  of  2019  at  the  earliest.  While  recently  received  data 
pointed to  an increase in new cases through the first  quarter of 2019, it is  most likely 

(33) Article  959  para.  8  of  the  Greek  Code  of  Civil  Procedure;  Communication  of  the  Coordination 

Committee of Notarial Associations under protocol number 219 issued on 13-5-2019. 

(34) Article 168 para. 3 and article 308 para. 2 of the Penal Code. 
(35) Law 4605/2019 (OJ 52/Α/01.04.2019), articles 69 ff. 

56 

                                                           
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attributable to  last-minute filings  by debtors under the household  insolvency law.  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 
regime,  by  end-2021,  via  the  elaboration  of  above  action  plan.  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 the end of 
2021. 

The  latest  data  received  (October  2019)  confirm  the  tenacity  of  the  backlog 
situation.  Recent  data,  although  partial,  indicate  that  the  number  of  pending  cases 
remains  high  though  incoming  cases  have  decreased  substantially  since  the  second 
quarter of 2019. Overall, the number of pending cases at the end of the third quarter of 
2019  (100 906  pending  cases  against  a  target  of  61 910  for  December  2019)  is  well 
above  a  trajectory  that  would  allow  the  elimination  of  the  backlog  of  cases  by  2021. 
Since the elimination of the backlog is a specific commitment undertaken by the Greek 
authorities to the Eurogroup, sustained efforts will be necessary to realistically cut the 
latency period between the filing of a case and its hearing by the court, which currently 
exceeds 12 months in three-quarters of cases, and to increase the processing capacity of 
magistrate’s  courts.  A  number  of  problematic  issues  and  contemplated  preliminary 
solutions  were  highlighted  by  the  authorities  in  a  working  document  provided  to  the 
institutions  on  29  October  2019; 
the  revised  action  plan  should  however 
comprehensively  and  systematically  complete  the  identification  of  problems  and 
propose  the  appropriate  solutions.  Going  forward,  it  will  be  necessary  to  extend  the 
backlog monitoring to  the newly  adopted primary  residence protection scheme, taking 
into account the rescheduling of hearings achieved either under the electronic platform 
procedure or further to litigation ensuing from unsuccessful platform procedures.  

The addition of a new function to the electronic platform created for the Primary 
Residence Protection (PRP) scheme and providing creditors with data on debtors’ 
assets  should  facilitate  the  identification  of  strategic  defaulters  and  the  design  of 
tailor-made solutions to bona fide debtors while contributing to restoring payment 
culture,  limiting  moral  hazard  and  assisting  the  judiciary  in  ruling on  household 
insolvency cases. The usefulness of the feature in question will depend on the capacity 
of the judiciary to make use of it. The authorities reported that the platform went online 
on 1 November 2019 and draws on the state tax database containing data on taxpayers’ 
income  and  assets.  Institutional  creditors  will  henceforth  be  able  to  identify  strategic 
defaulters  and  take  appropriate  legal  action  to  have  the  protection  provided  by  courts 
rescinded.  Bona  fide  debtors  would  also  profit  as  banks  can  use  the  data  provided  to 
design  and  extend  tailor-made  restructuring  proposals  based  on  actual  repayment 
capacity and the liquidation value of debtors’ assets.   

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. 

57 

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Chapter 5 - Financial sector 

Primary residence protection  

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,  the  launch  of  the  electronic  platform  and 
the  approval  of  the  state  subsidy  scheme  by  the  Commission  under  the  state-aid 
rules,  debtors  have  started  submitting  restructuring  requests.  The  volume  of 
completed requests that were submitted and received a restructuring proposal remained 
small up to the beginning of November 2019. According to data provided by the Greek 
authorities  on  4 November 2019,  of  44 446  users  who  accessed  the  platform  29 895 
started drafting an application, of whom only 267 eventually concluded and submitted it 
to the relevant bank. Over the same period, banks extended 56 proposals to debtors, 10 
of which were accepted.  

In  an  effort  to  facilitate  the  submission  of  applications  through  the  platform,  the 
authorities issued new secondary legislation. A recent Joint Ministerial Decision (36) 
abolished  the  obligation  of  applicants  to  attach  an  encumbrance  certificate  to  their 
application.  The  dispensation  from  this  requirement  was  decided  because  it  was 
ascertained that applicants could not receive the certificate due to a long ongoing strike 
of land registrars. On 14 November 2019, the authorities adopted a number of projected 
amendments  to  the  law (37),  to  address  inefficiencies  and  remedy  to  a  number  of 
identified shortcomings. 

A  number  of  important  upgrades  to  the  platform  took  place  since  its  entry  into 
service. The first upgrade in July added the capability for the automatic retrieval of tax- 
and bank-related data. The second upgrade in  September allows for the submission  of 
an  application  without  the  uploading  of  an  encumbrance  certificate,  and  the  third 
upgrade,  concerning  the  state  subsidy,  was  tested  by  the  relevant  stakeholders.  As  a 
result, the Ministry of Finance announced that on 15 October 2019 the first State loan 
subsidy was  approved.  The General  Secretariat  for Private Debt  assured the European 
institutions  of  its  intention  to  continue  updating  the  platform  on  a  monthly  basis  in 
cooperation  with  the  General  Secretariat  for  Information  Systems,  in  order  to  further 
address the needs of all stakeholders of the Primary Residence Protection procedure. 

The  authorities  intend  to  prolong  the  scheme  by  four  months  and  terminate  the 
scheme 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 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. 

(36) Joint Ministerial Decision 245/28.8.2019 “Amendment of the list of supporting documents required by 

the filing of the petition under the article 72 of law 4605/2019” (OJ B-3331/28.8.2019). 

(37) Ministry of Finance Bill on the Ratification of Cabinet’s Act of25.09.2019, article 6, as shown on the 

Hellenic Parliament’s website. 

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Harmonisation of the personal insolvency framework 

Preparatory  work  on  the  harmonization  and  integration  of  the  bankruptcy  and 
insolvency regimes has started. Given that the multiplicity of frameworks addressing 
corporate  and  personal  insolvency  makes  their  monitoring  harder  and  exacerbates  the 
risk  of  an  erroneous  choice  of  framework  or  even  of  procedural  abuse  (by  means  of 
parallel  or  consecutive  recourses  to  several  mechanisms),  the  elaboration  of  a  well-
defined  and  systemically  consistent  unified  framework  is  highly  desirable.  For  this 
reason,  the  harmonization  should  be  entrusted  to  a  law-drafting  committee  and  be 
effected without undue haste but in a holistic and technically thorough manner. The aim 
should be to adopt a revised personal insolvency law that would provide for a discharge 
of consumer  (non-mortgage) debt  upon liquidation  of a debtor’s assets,  while limiting 
moral hazard issues. 

On  30  October  2019,  authorities  shared  with  the  institutions  a  concept  paper, 
which  serves  as  a basis for the elaboration of a new single insolvency framework 
by  end-April  2020  and  sets  out  the  basic  objectives  of  this  reform.  The  concept 
paper  was  drafted  jointly  by  the  Ministries  of  Finance,  Development  and  Justice.  The 
effectiveness  of  any 
insolvency  procedures  hinges  on  providing 
accompanying  measures  to  guarantee  that  the  judiciary  would  be  in  the  position  to 
effectively implement any new framework. 

reform  of 

Evaluation of the implementation record of the reformed 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.  A  working 
group was formed in February 2019 (38) for assessing the implementation record of the 
reformed Code of Civil Procedure is currently conducting a comprehensive evaluation 
of the reform. The dispatch of questionnaires to stakeholders took place in August 2019 
(compared with the initial deadline of May) and feedback received up to the beginning 
of  November  covers  all  topics  save  the  chapter  on  liquidation  proceedings,  also 
imminently  expected  according  to  the  authorities.  The  working  group  is  currently 
conducting  a  comprehensive  evaluation  of  the  reform  based  on  information  received, 
collated  and  processed  so  far.  The  intention  is  to  quantify  the  influence  on  the 
achievement  of  targets  and  to  elaborate  new  proposals,  taking  into  consideration 
relevant  legal  precedent  in  view  of  completing  the  final  stage  of  its  work,  i.e.  the 
formulation of proposals for the adoption of potentially needed legislative amendments 
by the end of 2019. This will be followed by the formation of a law-drafting committee 
that will examine said proposals and draft the requisite amendments by the end of June 
2020.  

Training of judges and appointment of court clerks 

The authorities reported further progress in the provision of financial training to 
judges,  notably  in  the  area  of  household  insolvency.  The  two  Presidential  Decrees 
drafted by the Ministry of Justice, Transparency and Human Rights under the previous 
administration were revised by the authorities and are due for submission to the Council 

(38) Ministerial Decision No. 5542/φ.325/24.1.2019, of the Minister of Justice, Transparency and Human 
Rights  (OJ  YODD-56/11.22019).  The  working  group  consists  of  judges,  academics,  legal 
professionals such as lawyers, notaries, bailiffs and representatives of stakeholders. 

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of State for a constitutionality assessment that should be completed approximately two 
months following submission.  

The authorities are also proceeding with the appointment of successful candidates 
for clerical court positions based on recently completed Supreme Council for Civil 
Personnel  Selection  (ASEP)  competitions (39).  The  authorities  reported  that  the 
completion of this action is delayed due to lengthy delays attributable to co-competent 
entities  and  to  the  fact  that  a  significant  number  of  successful  candidates  eventually 
refuse appointment or resign shortly thereafter, thus requiring a replacement procedure.  

Out-of-court workout framework 

Despite  the  numerous  amendments  and  improvements  that  followed  its  initial 
adoption, the out-of-court workout (OCW) scheme has not attained its main goal, 
i.e.  the  conclusion  of  successful  multilateral  restructurings  of  viable  businesses’ 
debt. Given the overall performance of the OCW since its inception, the authorities are 
currently  designing  a  unified  insolvency  regime  that  may  become  a  more  effective 
platform for restructuring viable businesses.  

The situation has not changed materially in the second quarter of 2019. According 
to  the  data  provided  by  the  authorities  in  September  2019,  the  use  of  the  out-of-court 
workout  mechanism,  which  had  recorded  a  modest  increase  up  to  the  first  quarter  of 
2019, remained more or less stationary in the second quarter of the year. No significant 
increase  was  recorded  in  the  number  of  new  applications.  Successful  multilateral 
business  restructurings  remain very  few (approximately 5% of applications submitted) 
while  bilateral  restructurings  fare  better  (37.5%  of  cases  submitted).  However,  the 
highest  percentages  of  successful  restructurings  continue  to  be  those  involving  self-
employed 
is 
predominantly to the State and social security funds. The recent adoption of legislative 
amendments  to  the  framework,  which  extended  for  the  second  time  its  cut-off  date 
regarding the time limit set to the inclusion of debt in the restructuring, does not seem to 
have given the mechanism an impetus. 

individuals  (37%)  and  farmers  (50%),  whose  outstanding  debt 

The  authorities  attributed  the  situation  to  a  variety  of  causes,  ranging  from  the 
rigidity  of  the  OCW  framework  to  the  availability  of  competing  schemes.  More 
specifically,  the  authorities  cited  the  strictness  of  eligibility  criteria,  the  inherently 
complicated  character  of  the  procedure,  the  unwillingness  of  banks  to  participate,  and 
the  availability  of  the  new  120-instalment  scheme  (see  Section  3.1).  They  intend  to 
adopt  a  number  of  envisaged  amendments  to  the  law  shortly  and  are  contemplating  a 
further extension of its  duration. However, short of an  innovative proposal  that would 
also entice the banks to endorse the OCW, it is unlikely that a further extension would 
reverse  this  picture.  It  might  make  better  sense  to  concentrate  efforts  on  the  effective 
harmonization of the insolvency regimes and their integration into one consistent whole.  

Legal safeguards for bank officials dealing with debt restructuring cases: 

The authorities adopted an amendment to the relevant provision of the Penal Code 
aiming  at  addressing  the  issues  of  pending  court  cases  against  bank  officials 

(39) Competitions  1K/2017  and  8K/2017  for  the  appointment  of  Court  Clerks,  2K/2017  for  the 

appointment of IT employees. 

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involved  in  past  debt  restructurings,  and  the  protection  of  these  officials  in  the 
context of ongoing and future restructurings. According to a statement by the Special 
secretary  for  the  management  of  private  debt,  approximately  600  such  cases  are 
pending. The new provision (40) states that penal charges for disloyal behaviour directly 
against a banking institution may only be pressed pursuant to the filing of a complaint 
by  the  injured  party,  as  opposed  to  ex  officio.  A  pre-existing  transitional  provision  of 
the  Penal  Code (41)  stipulates  that  already  pending  cases  may  proceed  if  such  a 
complaint  is  filed  within  4  months  from  its  entry  into  force.  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 
stock of guaranteed loans called by commercial banks reached €2 bn. Such guarantees 
were  granted  by  the  state  in  the  last  decade  on  loans  to  private  companies  and 
individuals, mainly for social and humanitarian reasons. The slow clearance process has 
resulted  in  a  considerable  administrative  backlog  at  the  Ministry  of  Finance,  which 
faced  bottlenecks  in  its  cooperation  with  banks  and  the  responsible  department  was 
understaffed.  

In  March  2019,  the  authorities  drafted  an  action  plan  to  improve  the  clearance 
rate, which is facing minor implementation delays. The plan focuses mainly on the 
improvement  of  the  electronic  repository  of  claims  and  the  interoperability  of  IT 
systems  with  local  tax offices with  a view to  fully automatise the assessment process. 
The migration of data to the system was smoothly performed. The necessary legal steps 
were also successfully completed. As regard the IT part of the project, it is experiencing 
some delays  since a key tender did  not  receive any offer. However, it was  relaunched 
successfully  since  it  received  two  offers.  In  the  authorities’  view,  providing  the 
commercial  banks  would  proceed  with  their  part  of  the  action  plan,  the  new  system 
should  still  be  ready  by  end-2020  as  initially  foreseen. However,  in  spite  of  these 
efforts,  the  clearance  path  envisaged  in  the  action  plan  would  not  allow  for  a  full 
clearance of the backlog in a foreseeable future without additional measures. 

The  authorities  have  presented  an  updated  action  plan  to  clear  the  backlog  in  a 
shorter  period,  which  aims  to  deal  with  bottlenecks  in  cooperation  with  banks, 
while  strengthening  the  General  Accounting  Office  and  upgrading  the  IT 
framework.  The  department  of  the  General  Accounting  Office  responsible  for  the 
clearance  of  called  guarantees  (currently  employing  10  full  time  staff)  will  be 
reinforced. At first, they would recruit ten external staff by the last quarter of 2020 for a 
six years period, another dozen of permanent employees would join the department in 
2022  and  a  last  dozen  of  external  staff  would  reinforce  it  during  three  years  in  2023. 
From  early-2021,  the  department  would  then  be  employing  approximately  the  same 
number of people than it was back in 2014. Furthermore, a steering committee, with the 
participation  of  commercial  banks,  was  established  to  strengthen  cooperation  with 

(40) Article 405 para. 1 of the Panel Code. 
(41) Article 464 of the Penal Code. 

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banks  and  to  address  operational  issues  related  to  the  clearance  process.  It  is  already 
examining  IT,  managerial  and  legal  issues  in  order  to  make,  by  the  end  of  the  year, 
proposals to speed up the clearance. The additional capacity of the General Accounting 
Office  combined  with  the  efforts  to  improve  collaboration  with  banks  could  facilitate 
the completion of the interoperable IT system projects, which is likely to speed up the 
clearance of the backlog.  

The action plan is accompanied by a seven-year payment plan to clear the backlog 
of called guarantees though the authorities are exploring the possibility to expedite 
payments. Under  the  seven-year  plan  the  payments  would  gradually  increase,  from 
€4.2 m  in  2020  to  €133 m  in  2026.  The  plan  includes  €522 m  from  a  recovery  of 
revenues by taking into account the information on the debtor’s credit profile provided 
by  commercial  banks.  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. 

5.3.  HELLENIC FINANCIAL STABILITY FUND 

(HFSF)  continued  exercising 

The  Hellenic  Financial  Stability  Fund 
its 
shareholding  rights  in  the  four  systemic  banks,  contributed  to  NPL  resolution 
polices and improved their governance. In 2019, the HFSF as shareholder evaluated 
and approved several divestments of subsidiaries and NPE portfolios and in order also 
to  improve  corporate  governance  and  to  introduce  international  best  practices, 
challenged  bank  strategies  and  policies.  To  help  NPL  resolution,  the  HFSF  among 
others  (i)  actively  contributed  to  the  elaboration  of  important  structural  and  technical 
details  of  the  asset  protection  scheme,  (ii)  took  part  in  interbank  NPE  reduction 
initiatives by participating as an observer in the NPE Coordination Committee and NPL 
Forum,  and  (iii)  challenged  banks’  NPE  resolution  plans.  The  HFSF  also  regularly 
evaluates  the  performance  of  the  Boards  of  Directors  of  the  systemic  banks  and  their 
governance arrangements. By October 2019, these banks have mostly implemented the 
HFSF’s recommendations from the 2017 board performance & governance review that 
focused  primarily  on  risk  management  culture,  compliance  and  internal  control 
frameworks.  

The HFSF  continued implementing  its divestment strategy for the  HFSF’s stakes 
in the systemic banks approved in November 2018. Its implementation is in the first 
phase where the HFSF challenges the banks’ strategies and business models to promote 
value-enhancing initiatives. In the next, preparatory phase, the HFSF will among others 
define  and  assess  the  banks’  performance  versus  key  performance  indicators  and 
develop a potential timetable. In the final phase, the actual divestments will be initiated 
and  implemented.  The  discussions  between  the  HFSF  and  the  Ministry  of  Finance  on 
the potential involvement of the authorities in the final stage of the divestment and the 
legal  protection  for  the  HFSF  governing  bodies  and  staff  have  not  been  finalized  yet. 
The  preservation  of  the  HFSF  independence  is  a  cornerstone  in  the  process  toward 
restoring the health of the banking sector. 

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63 

 
 
6. 

LABOUR AND PRODUCT MARKETS 

6.1.  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. The statutory minimum wage was increased by 10.9% in February 
2019.  The  next  increase  will  take  place  after  June  2020,  following  a  consultation 
process  that will start  in February 2020. The  government  has agreed to  conduct  an ex 
post assessment of this year’s minimum wage increase and to improve the information 
base  available  to  monitor  labour  market  developments,  relying  on  technical  support 
from the World Bank provided through the European Commission.  

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  action  plan  promoted  an  integrated  approach  to  undeclared  work,  including 
measures to reinforce the cooperation among different institutions, improve the capacity 
to detect undeclared work, strengthening incentives and reinforcing the capacity of the 
labour inspectorate. Results from  labour inspections have shown  a constant  fall in the 
incidence  of  undeclared  work  since  the  implementation  of  the  action  plan.  The  Greek 
authorities will elaborate 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.  In addition,  a number of new measures have been 
recently  adopted:  to  limit  the  abusive  use  of  part-time  work  (which  is  considered  to 
often mask undeclared full-time work), the additional hours provided beyond the normal 
part-time schedule have to be remunerated at an extra 12% of the agreed remuneration. 
Furthermore, the ERGANI system for the registration of employment contracts is being 
enhanced  to  cover  also  non-standard  forms  of  employment  such  as  work  vouchers 
(‘ergosimo’) and ‘contracts of independent services’, while a digitalised system for the 
recording of working time will enter into force in 2020.  

The  new  Development  Bill  adopted  on  24  October  2019  introduced  a  number  of 
changes in the collective bargaining system. While sectoral-level bargaining remains 
in  principle  the  predominant  level  of  bargaining,  the  possibility  of  opting  out  is 
introduced,  in  particular  for  businesses  facing  economic  problems  (bankruptcy, 
restructuring,  liquidation,  non-performing  loans),  or  in  businesses  operating  in  areas 
with high unemployment rates, or in start-ups and social economy firms. The procedure 
for the extension of sectoral agreements is also changed substantially: the process is no 
longer  automatic,  but  the  decision  is  now  at  the  discretion  of  the  Minister  of  Labour, 
following an explicit request introduced by one of the signatory parties, which needs to 
be accompanied by an analysis of the estimated economic and labour market impact, in 
addition  to  the  existing  criterion  of  representativeness  (50%  of  labour  force  already 
covered  by  the  agreement).  In  practice,  these  new  requirements  are  likely  to  limit 
significantly the extension of collective agreements. Furthermore, the new bill provides 
for the creation of a Public Registry for, respectively, employer associations and trade 
unions,  in  order  to  verify  their  representativeness  to  conclude  collective  labour 
agreements and to conduct a strike. Finally, the unilateral recourse to arbitration (which 
is  constitutionally  protected)  is  restricted  to  collective  agreements  concerning  public 

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Chapter 6 - Labour and product markets 

utility companies and to collective disputes ‘whose resolution is essential for reasons of 
general  social or public  interest’.  It  remains to  be seen how these  changes brought  by 
the new Development  Bill  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.  

Education 

Τhe Greek educational system faces long-standing challenges, including inefficient 
low  autonomy,  poor  educational  outcomes,  skill 
allocation  of  resources, 
mismatches,  and  weaknesses  in  the  governance  of  higher  education  institutions. 
These challenges have been identified in the 2018 OECD review of the Greek education 
system  and are reported  in  the education monitor published annually by the European 
Commission. Some measures taken in recent years undermine consistency with the past 
reforms. 

A  matter  of  concern  remains  the  mismatches  between  the  education  system  and 
labour  market  needs,  which  risk  that  the  emigration  of  recent  graduates  to  other 
countries  continues,  contributing  to  the  ageing  of  the  country’s  labour  force.  In  the 
private  sector,  employment  prospects  for  technological  institutes  graduates  improved 
much more than those of than their university peers (42). Equally, employment of VET 
graduates has risen since 2015 and labour market projections predict possible shortages 
of medium-qualified workers until 2030 (43). 

The  new  government  has  embarked  on  an  ambitious  programme  of  reforms 
aiming at addressing the specific challenges and modernizing the education system 
and  bringing  it  closer  to  good  practice.  On  higher  education,  the  declared  goals 
include introducing performance-based funding, strengthening of quality assurance, and 
enhancing  internationalisation  by  opening  up  bachelor-level  programmes  in  English. 
The  Ministry  of  Education  also  intends  to  improve  links  to  the  labour  market  by 
expanding  work  placements  for  vocational  students  and  improving  higher  education 
institutions’ autonomy by amending the governance structure.   

6.2.  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. 
These  broad-based  structural  reforms  have  contributed  to  significant  improvements  in 
the functioning of Greece’s product markets and have helped support exports and attract 
investment. Export performance was buoyant in 2018, registering an annual growth rate 
of 8.7%, while export market shares increased significantly for a second year in a row. 
According to the Commission 2019 Autumn Forecast however, the subdued outlook for 
the euro area economy is set to dampen export growth in the coming years, though this 

(42) IOBE (2018), Education and labour market in Greece: Impact of the crisis and challenges. 
(43) Cedefop 

forecast 

(2018), 

skills 

2018 

– 

Greece. 

http://www.cedefop.europa.eu/files/cedefop_skills_forecast_2018_-_greece.pdf 

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effect is likely to be cushioned somewhat by the solid market share gains being made by 
Greek  exports.  Meanwhile,  despite  a  fall  in  gross  fixed  capital  formation  (-12.2%  in 
2018 partly due to public investment), net inﬂows of Foreign Direct Investment (FDI) to 
Greece  increased  by  13.8%  in  2018,  and  reached  some  2%  of  GDP.  This  follows  the 
gains in net FDI inflows recorded in the previous two years, albeit starting from a low 
level. As domestic savings appear insufficient to meet the significant investment needs 
of the Greek economy, stepping up on efforts to  attract  FDI will be key, including by 
proceeding with key privatisation transactions and improving the management of state 
assets. 

This  is  evidenced  also  in  a  number  of  non-cost  competitiveness  indicators,  which 
still remain relatively weak. Greece has one of the lowest levels of business dynamism 
in  the  EU,  as  measured  by  firm  churn  rates,  which  points  to  difficulties  in  business 
for  aggregate  productivity  and 
implications 
creation  and  growth,  and  has 
competitiveness. According to the recently released 2019 Global Competitiveness Index 
of the World Economic Forum, Greece has slipped two places to 59th compared to last 
year (out of a total 141 countries). Greece’s deteriorating relative performance is largely 
due to its credit system (115th, from last year’s 114th), given the persistently high NPL 
levels  and  financing  constraints  for  SMEs.  In  the  same  vein,  the  World  Bank  ranks 
Greece 79th among 190 countries in its 2020 Doing Business report (seven places down 
compared to its previous assessment), pointing to persisting weaknesses in the areas of 
accessing  credit,  registering  property  and  enforcing  contracts.  Meanwhile,  Greece  has 
the  third  least  advanced  digital  economy  in  the  EU,  according  to  the  latest  (2018) 
Digital  Economy  and  Society  Index  (DESI)  (see  Graph  6.1)  and  its  product  markets 
continue  to  be  heavily  regulated  in  comparative  terms,  according  to  the  latest  OECD 
assessment.  Lastly,  according  to  the  Commission’s  newly  released  2019  Regional 
Competitiveness Index, five out of the ten lowest ranked regions across the EU (out of a 
total of 268) are Greek (44), indicating low ability of such regions to offer an attractive 
and sustainable environment for businesses and residents. 

(44) These correspond to Notio Aigaio (259th), Dytiki Ellada (262nd), Dytiki Makedonia (263rd), Anatoliki 

Makedonia, Thraki (265th), and Voreio Aigaio (268th). 

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Graph 6.1: Digital Economy and Society Index (DESI) 

Source: European Commission, Digital Scoreboard 

The positive momentum in economic indicators provides an opportunity to tackle 
the  remaining  structural  weaknesses.  Despite  a  slight  decline  in  September  and 
October  2019,  the  Economic  Sentiment  Indicator  reached  a  12-year  high  in  August 
2019  at  108.40  index  points,  whilst  consumer  confidence  is  at  its  highest  level  since 
2000.  Meanwhile,  Greek  bond  yields  are  at  historical  lows,  with  10-year  yields  well 
below  2%,  while  Greece  has  managed  to  borrow  with  a  negative  interest  rate  at  the 
three-month  T-bill  auction  of  9  October  2019.  Addressing  remaining  structural 
weaknesses  of 
in  public 
administration  and  the  justice  system,  would  be  key  to  sustain  this  positive  trend. 
Further  steps  towards  fostering  competition  in  network  industries,  transitioning  to  the 
new  energy  model,  and  completing  the  spatial  planning  framework  for  industrial  and 
business sites are also warranted. Moreover, there is room to improve the effectiveness 
and  labour  market  relevance  of  the  education  system,  notably  in  vocational  education 
and training, given the high and increasing degree of skills mismatches. 

the  business  environment, 

inefficiencies 

including 

6.2.1. Business environment 

The new administration has signalled its intention to pursue a strongly pro-growth 
and investment policy agenda, maintain and strengthen reform momentum where 
needed, and meet the policy commitments made towards its European partners. It 
is  welcome  that  the  government  is  oriented  towards  an  ambitious  package  of  growth-
supporting policies and measures to be adopted progressively over the next four years. 
To this end, the authorities are working on a new National Growth Strategy that places 
greater  emphasis  on  investment-and  export-led  economic  policy,  accentuated  by 
measures  that  aim  at  creating  a  more  favourable  taxation  system  and  economic 
environment.  A  national  high-level  Committee  composed  of  renowned  experts  and 
chaired  by  Nobel  Prize  economist  Christopher  Pissarides  will  be  set  up  and  work 
towards policy proposals to be included in the National Growth Strategy. 

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Since entering into office, the government has taken a number of initial steps that 
pave the way towards improving the business landscape. The new administration has 
adopted  legislation  to  promote  the  transition  to  a  digital  State,  including  through  the 
establishment of a new Ministry of Digital Governance, as well as to modernise justice 
and  public  administration.  The  latter  includes  the  establishment  of  a  framework  to 
promote  better-targeted  and  effective  legislation  via  structured  regulatory  impact 
assessment and legal codification. These steps are expected to help create a more stable, 
predictable  and  transparent  legislative  framework  in  the  medium  term  and  facilitate 
transactions between the state and businesses. In addition, with the adoption of the law 
amendment  that  lifted  remaining  restrictions  on  the  movement  of  capital  as  from  1 
September 2019, a significant burden on the credibility and confidence building in the 
Greek economy was removed, sending positive signals concerning the robustness of the 
economy. 

through 

Further  measures  have  been 
the  recently  adopted 
introduced 
Development  Law  of  24  October  2019,  which  are  expected  to  contribute  to  the 
improvement  of  framework  conditions  and  the  business  climate.  Amongst  others, 
these include the alignment of the nuisance classification system to  the environmental 
classification which is harmonised with relevant EU legislative acts (45), the reduction of 
licensing requirements in specific cases – especially for businesses established in zoned 
areas with defined industrial uses for land and in business parks – and the development 
of  a  Single  Digital  Map  to  record  all  geospatial  data  and  criteria  against  which 
construction  and  investment  projects  will  be  evaluated.  The  law  also  provides  for  the 
establishment  of  a  National  Programme  for  Administrative  Simplification  to  cut  red 
tape,  an  Observatory  for  measuring  and  monitoring  the  impact  of  regulation  on  the 
administrative burden, and a National Development Plan that sets out the framework for 
the  management  of  the  national  component  of  the  Public  Investment  Budget.  Further, 
legislative  provisions  are  also  included  to  accelerate  the  preparation  of  local  spatial 
plans  and  the  approval  of  special  spatial  plans,  which  are  expected  to  have  a  direct 
impact on investment.  

The new government places the promotion of the digital economy high on its policy 
agenda,  as  part  of  the  enlarged  mandate  of  the  new  Ministry  of  Digital 
Governance. The Ministry is expected to lead key policy-specific IT projects, including 
on  pensions  and  property  valuation,  as  well  as  a  number  of  horizontal  initiatives. 
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. An action plan is being prepared to set out measures for 2020, along with a 
study that identifies stakeholders, roles and industrial policy issues. 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.  Further,  the 
authorities are currently working on a ‘Digital Bible’ with a view to finalising it by the 
end  of  the  year.  This  will  revise,  and  eventually  replace  the  existing  National  Digital 

(45) The  environmental  classification  in  Greece,  which  is  used  for  the  environmental  permit  system,  is 
harmonised  with  the  Environmental  Impact  Assessment  Directive  (85/337/EEC)  and  the  Industrial 
Emissions Directive (2010/75/EU). 

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the  framework  for 

Strategy,  setting 
the  public 
administration and the economy as a whole. Progress will be monitored on a quarterly 
basis, whilst targets will also be set for each area of digital performance as captured by 
the Digital Economy and Society Index (DESI) in order to bring Greece in line with the 
EU average.   

transformation  of 

the  digital 

The new administration is also taking first steps towards a coordinated approach 
to  promoting  the  outward  orientation  of  the  Greek  economy.  Despite  broad-based 
reforms  pursued  over  the  last  decade  and  recent  macroeconomic  improvements,  the 
trade openness of the country, as well as the stock of FDI remain amongst the lowest in 
the  EU.  With  a  view  to  facilitating  coordination  in  overlapping  domains  and 
responsibilities, the authorities are drafting a bill to set out a new structure and mandate 
for the Ministry of Foreign Affairs. The bill, which is expected to be completed by the 
end of the year, will gather all actions and policies aimed to promote exports and attract 
FDI under the remit of this Ministry. In addition, within the new single organisational 
structure,  ‘Enterprise  Greece’  will  constitute  the  main  vehicle  of  the  Greek  State  to 
implement the National Strategy for Extroversion that is currently under preparation by 
the government. 

The new administration has presented a revised Action Plan setting out economic 
diplomacy  initiatives  for  the  next  years,  but  there  is  scope  to  further  enhance  its 
ambition. Building on the previous government’s Action Plan, a number of follow-up 
initiatives  are  being  pursued.  These  include  efforts  to  set  up  a  unified  IT  platform 
(AGORA+) for providing information to potential exporters and investors by end-2021, 
upgrade  the  Help  Desk  services  of  Enterprise  Greece  by  mid-2021,  develop  business 
guides by October 2021, and upgrade the functioning of the Economic and Commercial 
Offices by July 2023 through the standardisation and certification of related procedures. 
Whilst  these measures  are relevant  for supporting  extroversion, they  appear limited in 
scope.  Specifically,  the  Action  Plan  is  largely  based  on  existing  initiatives  and  lacks 
concrete  policy  tools  to  support  non-price  competitiveness,  innovation  and  smart 
specialisation in promising exporting sectors, such as agro-food, tourism, transport and 
logistics,  and  high-tech.  Moreover,  the  Action  Plan  does  not  establish  the  necessary 
links with trade facilitation and investment promotion strategies. 

Lifting  remaining  administrative,  regulatory  and  institutional  barriers  to  exports 
would be key to support the government’s efforts to enlarge Greece’s export base. 
Based  on  the  latest  Product  Market  Regulation  assessment  of  the  OECD,  barriers  to 
trade  facilitation  were  higher  in  Greece  compared  to  EU  peers  as  a  whole  at  the 
beginning  of  2018.  Reforms  with  the  greatest  benefit,  both  in  terms  of  bilateral  trade 
flows  and  trade  costs,  relate  to  information  availability,  advance  rulings,  fees  and 
charges,  and  automation  and  streamlining  of  procedures.  In  addition,  the  take  up  of 
privileged  trade  statuses  (e.g.  Authorised  Economic  Operator)  which  allow  for  less 
control and swifter customs procedures, remains particularly low. To this end, it would 
be  advisable  for  the  authorities  to  review  the  current  administrative,  regulatory  and 
institutional framework that applies to exporters, with a view to identifying and lifting 
remaining administrative impediments to exports. Moreover, it would be encouraged to 
expedite  the  pace  of  ongoing  trade  facilitation  reforms  which  are  facing  persistent 
delays,  notably  the  setting  up  of  the  integrated  IT  platform  on  import  and  export 

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procedures  (Single  Window)  that  is  supported  by  EU  funds  (€1.6  m),  and  to  ensure 
interconnectivity with relevant IT systems. 

Progress with rebalancing the economy towards promising export-oriented sectors 
would help strengthen the current account and the deteriorating net international 
investment  position.  There  is  considerable  export  potential  in  sectors  such  as 
agriculture and agro-food where product quality is relatively high, and the development 
of  smart  specialisation  strategies  would  be  warranted  to  exploit  Greece’s  comparative 
advantage. Policies to support tourism and export sectors with a higher value added and 
innovation  component  are  also  needed  and  could  benefit  from  knowledge  transfer  via 
inward FDI and privatisation. 

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  it  will  continue  to  prioritise  further  actions  on  tackling  procedural 
impediments  and  rationalising  the  licensing  process,  especially  in  relation  to 
environmental licensing. This would be particularly important for boosting investments, 
especially in  activities of high economic impact.  It  would also  be important  to  review 
the framework on the land use and conditions for the licensing of industrial activities in 
Attica, a core region with access to high-quality human capital resources, good logistics 
and transport connections, with a view to further promote the sustainable development 
of this region. Greater emphasis on establishing appropriate mechanisms to ensure the 
actual enforcement of positive legislative measures, such as licensing deadlines and the 
use of intervention tools to expedite processes, would also be a priority. Furthermore, it 
is  important  for  the  government  to  promptly  proceed  with  the  completion  of  flagship 
reforms  such  as  the  Hellinikon  project  and  the  concession  agreement  on  Egnatia,  and 
take  swift  action  towards  the  transitioning  to  the  new  energy  market  model.  Such 
actions would send a strong positive signal to investors and markets. 

Investment licensing 

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 with a timeline for intermediate actions. According to the revised action 
plans, the authorities commit to meeting the deadlines for the outer years set out under 
the enhanced surveillance framework. Nonetheless, previous delays and staffing issues 
have made conforming to some reform  elements more challenging, notably  as regards 
the extension of the simplification of legislation in the 24 sectors not yet covered by the 
investment  licensing  reform  and  one  of  the  domains  of  the  inspection  framework  (i.e. 
environmental  protection).  It  will  be  key  that  the  government  commits  adequate 
resources  to  the  process,  notably  for  the  Better  Regulation  Delivery  Directorate 
responsible for the coordination and monitoring of the licensing reform, to ensure that 
the timeline of the  abovementioned reform  is  met.  As regards the commitment on the 
review and revision of the nuisance classification, the new action plan is in line with the 
provision  introduced  in  the  recently  adopted  Development  Law,  which  foresees  the 
alignment  of  this  system  with  the  environmental  classification  system  by  mid-2020,  a 
year  earlier  than  the  commitment  deadline.  In  addition,  the  authorities  committed  to 

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issue  the  relevant  Presidential  Decree  for  the  certification  of  External  Environmental 
Assessors by mid-2020, a pending requirement since the ESM programme, and also to 
review  environmental  licensing  rules  by  March  2019,  with  a  view  to  facilitate  the 
expedition of the environmental permit process. 

The  new  administration  has  committed  to  safeguarding  the  integrity  of  critical 
reform gains achieved and to this end it is expected that a formalised mechanism 
will be established.  This is a much welcome development  given that the adequacy of 
control mechanisms to contain the risk of potential policy reversal was relatively weak. 
Speeding up the reinforcement of the Better Regulation Delivery Directorate would help 
ensure continuity of the reform and accelerate the pace of implementation. The state of 
play on specific commitments is as follows: 

The tendering procedure on the relevant IT system (ILIMS), due to be completed 
by end-2019, appears to be largely on track, despite some delays in the technical 
and financial evaluation of the tenders that seem to be outside the authorities’ 
control. The authorities envisage awarding the contract by the end of the year, still in 
line with  the commitment deadline, save for  any appeals  against the final  decision. 
According  to  the  revised  Action  Plan,  project  implementation  is  expected  to 
commence in February 2020 (and to be completed over the course of 34 months, as 
provided for in the tender documents). The first deliverable of the contractor, i.e. the 
implementation  study,  should  be  made  available  within  six  months  from  the 
awarding  of  the  contract.  In  light  of  the  legislated  responsibilities  of  the  new 
Ministry  of  Digital  Governance,  it  would  be  helpful  to  clarify  the  roles  and 
responsibilities of the aforementioned Ministry and the Ministry of Development and 
Investments regarding the design and implementation of the system, so as not to risk 
losing focus on the project due to lack of clarity on ownership. 

Work on the implementation of the inspections framework law, and specifically in 
the  development  of  sector-specific  actions  in  the  environmental  protection 
domain, is experiencing some delays. However, in accordance to the revised Action 
Plan,  the  authorities  have  committed  to  completing  the  work  in  line  with  the 
objective to  finalise the  inspection legislation by mid-2020, as per the commitment 
deadline. This appears to be rather ambitious, given that all actions pertinent to the 
last inspection domain (i.e. product safety) have been pushed back to be completed 
within  the  three-month  period  prior  to  the  mid-2020  deadline.  The  work  on  the 
development of sector-specific tools in the food safety and environmental protection 
domains will be completed with Commission technical support provided through the 
World Bank. 

Regarding the extension of simplification, by mid-2020, of the investment licencing 
procedures  in the 24 remaining sectors,  the authorities have produced a set of 
proposals on the simplification of most primary production sector activities (i.e. 
livestock  installations,  fish  farming,  and  veterinary  clinics  installations)  and  are 
expected to finalise soon their proposals on the last remaining activities pertaining to 
this  sector  (i.e.  forestry).  Progress  on  this  reform  component  appears  rather  limited 
since  the  last  assessment  round,  in  part  affected  by  the  change  of  government. 
Specifically,  delays  are  experienced  both  in  the  passing  of  primary  and  secondary 
legislation in  relation  to  the primary sector  (which is  expected to  take place by the 

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end of 2020), and also in the first phase of simplification of the next sector (i.e. the 
assessment  of  the  licensing  procedures  for  the  transport  sector).  Nonetheless, 
according to the revised Action Plan, the new government has committed to meeting 
the mid-2020 deadline. This, however, is considered challenging taking into account 
the current level of staffing of the Better Regulation Delivery Directorate, given that 
the  review  and  reform  of  the  last  two  sector  activities  (i.e.  transport  and  post-
secondary  education  and  vocational  training)  would  essentially  have  to  run  in 
parallel. 

As regards the revision of the nuisance classification, which is due to be completed 
by mid-2021, the authorities have provided a revised action plan. This includes 
intermediate  actions  that  need  to  be  taken  to  align  nuisance  classification  with  the 
environmental  classification  system  by  mid-2020  through  the  issuance  of  a  Joint 
Ministerial  Decree,  as  per  the  provision  introduced  in  the  recently  adopted 
Development  Law.  As  per  the  revised  Action  Plan,  work  will  resume  on  this  area 
following the reconstitution of the relevant Steering Committee and Working Group 
through  the  issuance  of  a  new  inter-ministerial  decision  and  Secretary  General 
decision  respectively,  starting  with  a  comparative  analysis  of  the  legislation  and 
regulatory  barriers  on  the  categorisation  of  activities.  The  authorities  have  also 
committed  to  the  continued  engagement  of  social  partners  in  the  process  on  a 
monthly basis, which is highly encouraged. 

Cadastre and Land Use 

The  authorities  committed  in  June  2018  to  complete  a  number  of  reforms  in  the 
area  of  land  use.  Specifically,  the  authorities  committed  to  complete  the  cadastre 
project by mid-2021 and as intermediate steps to complete the remaining forest maps by 
mid-2019  and  fully  establish  the  cadastral  agency  and  complete  45%  of  the  cadastral 
mapping by mid-2020. The authorities have adopted a comprehensive road map in order 
to achieve these objectives.  

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. Out 
of  these,  53.3%  have  been  uploaded  for  public  consultation  and  44.5%  have  been 
ratified,  and  thus  became  definitive.  The  remaining  2.1%  of  the  country's  forest  maps 
has been contracted in  May 2019 and will be finished by February 2020. To this end, 
100 specialists (forestry and agronomists) have been recruited on eight-month contracts 
to strengthen the local forestry offices and the committees on objections are ongoing. 

Cadastral mapping proper has been completed for around a third of the property 
rights  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. Following previous delays due to consecutive extensions of 
deadlines,  and  a  limited  campaign  to  boost  public  awareness  to  the  project,  the 
declaration  pace  regained  strength  in  September,  and  the  authorities  have  decided  to 
limit  the  extensions  of  the  declaration  period  and  are  considering  starting  applying 
penalties  from  January  2020.  As  a  result,  the  critical  mass  of  declarations  of  rights 
necessary  to  process  the  maps  has  been  reached  in  twenty-one  Regional  Units.  In 
September,  declarations  were  successfully  completed  in  the  Regional  Units  of 

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Thessaloniki,  Pieria,  Arta,  Preveza,  Lefkada,  Korinthia  and  Larissa  as  well  as  the 
islands  of  Kalymnos,  Karpathos,  Kos  and  Rhodes.  The  rate  of  declarations  for  these 
areas  goes  beyond  the  technical  and  contractual  target  of  55%  initially  set  with  the 
contractors, with the latest compilation showing that the overall rate reaches 68%. This 
trend  continued  in  October,  where  declarations  for  another  fourteen  Regional  Units 
were  completed  with  an  anticipated  rate  of  65%  of  declarations.  In  absolute  terms,  in 
October 950 000 individual property rights were recorded, the highest number so far for 
a single month. In summary, of the estimated 39.1 million total active titles in  Greece, 
for 12.9 million (33%) the cadastral mapping has been completed, 22.7 million (60%) 
are in progress (out of which 8.5 million or 37.5% have already been declared), and for 
2.7 million (7%) titles, the contracts are currently suspended due to court procedures. 

The  government  has  appointed  the  President,  Vice  President,  Board  of  Directors 
and General Manager of Hellenic Cadastre. The government has committed to adopt 
legal  provisions  to  establish  an  open  selection  process  for  the  senior  management 
positions  in  the  future.  A  draft  Business  Plan  and  Corporate  Strategy  have  been 
prepared with the help of the World Bank and are currently under scrutiny by the new 
management. The shortage of staff in  the legal  department  risks  causing  delays in  the 
processing of the ongoing contracts, which will result not only in delay of completing 
the contracts but also to additional costs. The Hellenic Cadastre intends to address this 
problem by contracting temporary staff and outsourcing to cover the immediate needs, 
but there is need to address it in a more permanent way. Equally, the shortage of staff in 
the IT department needs to be tackled. 

According to the Cadastre Law, 396 mortgage offices need to be consolidated and 
merged  into  the  new  structure,  which  will  consist  of  17  regional  cadastral  offices 
and  75  branches.  This  transition  has  been  very  slow.  The  first  three  offices  were 
established  in  April,  May,  and  September  respectively  and  a  major  regional  office  is 
planned  to  open  in  November  2019.  However,  the  revised  schedule  of  January  2019, 
which foresees the establishment of 45 offices by December 2019 and the remaining 47 
in 2020, is clearly no longer realistic. Slow implementation of the action plan to migrate 
existing  offices  into  Hellenic  Cadastre  is  in  part  due  to  the  lack  of  staff  to  guide  the 
institutional transition, while the national elections have also delayed decision-making. 
As it stands, there is high risk that the transition to the new agency will not be achieved 
within  the  two-year  timeframe  established  by  the  legislation.  The  most  important 
downside  of  this  situation  is  that  cadastral  information  continues  to  be  registered  in 
different places and through different systems, resulting in incomprehensible situations 
for the citizen.  

The authorities have committed to take measures to accelerate the transition to the 
new entity. These measures include setting up a realistic time frame for the migration 
process based on the progress achieved so far, initiate the hiring procedures for all the 
available positions of scientific staff of the regional  structure of the Hellenic Cadastre 
and  the  hiring  of  a  temporary  50-person  taskforce  to  support  the  migration. 
Furthermore, the authorities have committed to speed up the development of electronic 
services  and  establish  programmatic  agreements  with  regional  bar  Associations  to 
overcome  operational  problems.  The  World  Bank  is  providing  technical  support  to 
assist  the  Hellenic  Cadastre  to  complete  the  transition  to  the  new  structure  by 
consolidating  and  merging  the  National  Cadastral  Mapping  Agency  (EKXA)  and  the 

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396  mortgage  offices  into  one  single  agency,  and  to  advance  the  completion  of  the 
cadastre and property registration for the country in general. 

On  spatial  planning,  the  government  has  amended  the  spatial  planning  Law 
4447/2016 in order to accelerate the implementation of local spatial plans and the 
approval of major investments. The main changes are: (a) the local spatial plans can 
be  drawn  at  municipal  unit  level  (fraction  of  the  municipal  area)  and  (b)  the  pre-
approval  of  the  special  spatial  plans  has  become  optional,  as  it  proved  that  the 
mandatory  pre-approval  did  not  lead  to  either  legal  certainty  or  an  acceleration  of  the 
process. 

The  authorities  also  plan  to  simplify  the  technical  specifications  for  the  Local 
Spatial Plans to reduce steps and red tape but a faster implementation of the land 
use reform is hindered by low administrative capacity. The Local Spatial Plans will 
be tendered at smaller scale and the authorities are preparing a first set of 200 such plans 
to  be  tendered  in  January  2020.  There  will  be  three  criteria  of  prioritization: 
development  pressures,  serious  environmental  problems  and  downgraded  areas  to 
facilitate  the  regeneration  of  disadvantaged  and/or  de-industrialized  zones/areas  (as 
foreseen  in  annex  D  of  the  Greek  Country  Report).  The  capacity  of  the  Ministry  to 
implement  the  land  use  reform  remains  low  and  should  be  strengthened.  Institutional 
strengthening is also needed at municipal level. 

6.2.2. Network industries 

Energy 

The  Greek  authorities  have  announced  ambitious  plans  for  energy  market 
reforms, which will affect the timeline for the implementation of the target model 
for electricity (a specific  mid-2019  commitment).  A large amount of  focus over the 
last  months  was  placed  on  the  incumbent  energy  player,  Public  Power  Corporation 
(PPC) after its annual financial results for 2018 included a warning about its status as a 
going  concern.  Regarding  the  implementation  of  the  antitrust  commitments,  Greece  is 
currently  in  breach  of  this  commitment.  The  Target  Model  for  the  electricity  market 
seems  on  track  for  delivery  by  the  new  deadline  of  June  2020;  since  the  last  report, 
progress  was  made  with  stakeholder  meetings  and  the  clearing  rulebook.  The  last 
NOME  (Nouvelle  Organisation  de  Marché  de  l’Electricité)  auction  was  cancelled  by 
the  authorities.  The  authorities  have  proposed  an  ambitious  plan  that  modernises  the 
energy  market  and  addresses  its  main  issues,  including  the  dominant  position  of  PPC 
and the impact  that this might  have. The cornerstone of its new energy strategy is  the 
early  decommissioning  of  lignite  capacity,  which  is  an  ambitious  plan  that,  combined 
with the implementation of the revised anti-trust remedies and of the target model, could 
see a transformation of the energy market. 

The  authorities  have  undertaken  efforts  to  stabilise  the  PPC’s  financial  position. 
On  the  back  of  the  PPC  rescue  plan  involving  energy  policy  and  PPC  structural 
changes,  certain  measures were taken in  the  run-up to  the publication of  the half-year 
financial report in September. Action by the authorities included pricing changes such 
as the reduction of VAT on energy bills to allow for increased tariffs while keeping the 
same price level for consumers, and settling of amounts owed under the Public Service 
Obligation  to  be  returned  to  PPC.  Several  key  actions  were  also  taken  by  PPC,  inter 

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alia:  adding  a  CO2  price  component  to  low  voltage  invoices,  securing  long-term 
borrowing to the amount of about €230 million, and securitising some of its consumer 
arrears.  Following  of  these  measures,  the  financial  report  in  September  was  positive. 
Arrears remain a great challenge for the company, though measures are being taken to 
address this, such as putting further pressure on cutting the power of strategic defaulters, 
and the introduction of new instalment schemes. There are signals that PPC will sell its 
remaining  stake  in  the  distribution  grid,  which  would  help  both  its  financial  situation 
and with market opening. 

The failure of the tender for the lignite plants resulted in a breach of the anti-trust 
commitment, and an alternative remedy hast to be found. The first round tender for 
the divestiture of the plants launched by PPC in June 2018 attracted several investors, 
three of which carried out an extensive due diligence and expressed an interest to submit 
offers.  Upon  requests  by  the  authorities,  the  end  of  the  divestiture  process  was 
significantly  postponed  from  October  2018  to  February  2019.  Offers  were  made  but 
PPC  rejected  them  based  on  a  valuation  of  the  plants  commissioned  by  PPC  itself. 
However,  the  valuation  used  by  PPC  violated  the  principles  set  forth  in  the 
commitments  for  the  preparation  of  such  a  valuation  and  was  based  on  unrealistic 
assumptions.  Following  the  failure  of  this  first  tender,  a  fast-track  second  tender  was 
organised  with  the  divestiture  process  closing  end-June  2019.  However,  PPC  did  not 
follow the agreed timeline and unilaterally postponed the bidding date to mid-July 2019. 
This  final  round,  already  outside  the  agreed  timeline,  led  to  no  bids,  against  the 
background  of  the  legal  uncertainty  and  lack  of  transparency.  Since  the  enduring 
distortions  on  the  wholesale  market  in  favour  of  PPC  due  to  its  exclusive  access  to 
lignite-fired  generation  persist,  the  authorities  are  engaging  in  the  preparation  of 
alternative anti-trust remedies aiming at granting PPC’s competitors access to that that 
lignite-based generation. The access would last until the full phase out of lignite in the 
country. As indicated by the Greek authorities to the Commission, following technical 
discussions  with  the  Commission  services,  Greece  formally  communicated  their 
intention to submit revised remedies in January 2020. Given the importance of this issue 
for proper functioning of the Greek wholesale market, the effectiveness of other reforms 
will be impacted by progress in this respect. 

The target model for electricity has been underlined as a political priority, and the 
goal  to  go-live  by  June  2020  is  on  track  for  now.  Whilst  a  lot  of  the  regulatory 
preparation has been carried out, technically demanding project delivery remains to be 
undertaken  by  the  Transmission  System  Operator,  ADMIE  (Greek  Electricity 
Transmission  System  Operator)  and  the  market  operator,  HENEX  (Hellenic  Energy 
Exchange).  The  original  commitment  was  for  April  2019  but  this  has  been  missed, 
partially related to the technical complexity of the project, leading to a formal hearing of 
the parties by the regulator RAE; the new proposal of delivery by June 2020 has been 
acknowledged as feasible by all relevant parties and it seems that any new delay would 
be difficult to justify. Given the importance of this delivery, RAE has been encouraged 
to exercise its authority to ensure prompt delivery. Since the previous report, progress 
has  been  made  on  issues  such  as  the  clearing  rulebook  being  sent  to  RAE  for 
submission,  and  outreach  through  stakeholder  workshops  with  market  participants. 
Adherence  to  the  day-ahead  coupling  governance  structures  took  place  and  work  is 
ongoing between Greece-Italy and Greece-Bulgaria to implement the coupling as soon 

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as possible after the go-live of the markets in Greece. As a replacement for NOME, the 
authorities recently announced they would speed up the delivery of the forward market 
component  of  the  target  model.  Originally  planned  to  follow  the  day-ahead,  intraday 
and balancing markets, plans are now to put in place some derivative financial products 
by  February,  prior  to  the  main  target  model  launch.  Whilst  much  is  positive,  a 
monitoring system still needs to be established so that RAE is able to monitor and take 
measures in case of dominance abuses. 

The  administration  decided  to  cancel  the  planned  October  NOME  auction.  This 
was the last scheduled auction as per the original plan, which had been set out under the 
assumption  of  the  lignite  divestiture  and  target  model  being  completed  by  that  time. 
Thus, the auction system was operating in a different environment than was envisaged, 
due to internal factors to the Greek energy market. Prior to this the July auction started 
at  a  reserve  price  of  €58.12  per  MWh  (megawatt-hour),  higher  than  the  April  reserve 
price of 36.34. The July auction saw 763 MW (megawatt) product put on sale with 549 
taken  up;  essentially  only  two  thirds  of  the  offered  quantities  were  taken  up  by  the 
market.  As  noted  above,  the  authorities  are  currently  working  on  making  up  for  the 
withdrawal  of  the  NOME  system  by  speeding  up  the  delivery  of  a  forward  market 
organised by HENEX as a replacement. Whilst this may help to keep new entrants into 
the market, further information regarding the nature of the offered products is needed. It 
will  be  challenging  work  to  deliver  such  a  project  in  a  short  amount  of  time,  thus 
determined efforts are required. 

PPC’s share in the retail market has been declining slightly but is still high at 72% 
in September, down from some 77% in March. At the wholesale level, PPC is still 
responsible for about 70% of generation, excluding renewable energy sources which do 
no  exert  competitive  pressure  on  the  wholesale  market  as  they  benefit  from  priority 
dispatch;  with  intermittent  RES  included,  PPC’s  installed  capacity  is  closer  to  55%. 
Greek wholesale electricity prices are amongst the highest in Europe; recent data shows 
Greece prices at €65.5 per MWh (compared to €43.3 per MWh in the EU on average), 
driven by an increase in EU ETS (Emissions Trading Scheme) costs. Retail prices are 
closer to the EU average. 

Renewable  Energy  Sources  (RES)  are  important  for  Greece’s  energy  future.  On 
this front there are concerns that the RES Special Account may be negatively affected 
by  the  lowering  of  the  ETMEAR  supplier  surcharge,  which  was  the  main  revenue 
stream, without a replacement. Moreover, administrative issues, such as the issuing of 
fees for the production licenses that have to be paid during project delays that are not 
the fault of RES producers, are harmful to investment in RES projects. RES consistently 
took  up  a  share  of  around  25-30%  of  the  monthly  generation  mix  in  2019,  In  the  EU 
context, this is broadly a median figure; some Member States have much higher levels, 
others  are  lower.  Wind  projects  provide  around  3  GW  capacity  whilst  solar  projects, 
both large and small, provide about 2.5 GW. Greece’s total installed capacity is about 
17 GW. The July RES auction auctioned 143 MW final capacity of solar at €62.77 per 
MWh and 187 MW final capacity of wind stations at €67.31 per MWh. The revision of 
Greece’s  Spatial  Plan  and  improvements  to  the  licensing  system  will  be  crucial  for 
making the most out of investments. 

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Greece’s  gas  market  is  still  small,  but  growing.  The  final  certification  by  RAE 
concerning the transmission grid, DESFA (Natural Gas Transmission System Operator), 
has  been  signed.  Attention  will  now  be  on  investors  coming  in  and  the  protection  of 
unbundling rules. Regarding the state-owned DEPA (Public Gas Company of Greece), 
the  planned  sale  stalled  as  the  new  administration  focused  on  the  PPC  rescue  plan. 
Legislation relaunching the sale, on slightly different terms but still in full accordance 
with  the  agreed  term-sheet,  is  expected  soon.  The  new  plans  to  accelerate  the  de-
escalation  of lignite suggest  that gas-fired generation will play  a large role in  the new 
future,  which  assumes  that  plants  will  have  to  be  built.  The  construction  of  new  gas-
fired  capacity  in  Greece  is  being  envisaged,  with  five  applications  for  new  gas  units 
with a combined capacity of 3 460 MW recently submitted to the Greek regulator. Gas 
currently provides about 35% of generation capacity, and its share has seen significant 
increased in recent years. The consumer market for natural gas is still quite small, and 
Greece lags behind European averages in terms of connected households; indeed some 
areas of Greece have no connection. Investment in grids should help this share to grow, 
and  there  are  some  encouraging  signs  with  the  successful  sale  of  DESFA,  the 
transmission grid, to investors. 

Greece has made progress with its work towards becoming an ‘energy hub’, as a 
transit  point  for  energy.  Regarding  the  Bulgaria-Greece  Interconnector,  a  joint 
agreement  was  signed  between  the  two  countries.  On  the  LNG  (liquefied  natural  gas) 
front,  Greece  saw  a  threefold  increase  in  LNG  imports,  through  the  Revithousa 
terminal. A noticeable amount was from the US, showing that supplier diversification is 
taking place.  

Overall,  recent  events  have  been  a  precursor  to  ambitious  announcements  for  a 
planned change to the Greek energy outlook, revolving around an early exit from 
lignite,  with  decommissioning  to  be  completed  by  2028.  Such  an  ambitious  plan, 
involving the closing down of a substantial  part  of its lignite capacity in  the next  few 
years,  needs  strong  political  commitment  and  clarity,  but  is  in  principle  a  highly 
commendable  way  forward.  Greece  will  deliver  its  National  Energy  and  Climate  Plan 
(NECP)  at  the  end  of  this  year  which  will  be  consistent  with  this  strategy.  In  this 
respect,  Greece  will  have  to  show  strong  political  commitment  for  its  planned 
closedown of lignite, and inter alia show that this package of reforms, and in particular 
the  revised  anti-trust  remedies  that  the  authorities  committed  to  proposing  in  January 
2020, will ensure that the market will finally open up so that the unaddressed issue of 
PPC’s  lignite  dominance  is  no  longer  a  blocking  issue.  Much  remains  for  Greece  to 
show that its energy commitments are being tackled directly. Solutions to issues such as 
the interconnection of Crete with the mainland, the new plans for a permanent capacity 
mechanism  in  line  with  new  EU  rules,  and  the  breach  of  the  Industrial  Emissions 
Directive will also need to be found. At the time of going to press the authorities have 
sent  proposals  regarding:  the  sale  of  DEPA,  PPC  reform,  and  a  timeline  for  the 
alternative  forward  market.  In  line  with  the  programme,  the  authorities  have 
demonstrated their political commitment to the lignite closure and are engaging with the 
Commission  to  identify  alternative  structural  measures  to  remedy  the  anti-trust 
commitment. 

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Water 

In the water sector, an information system was set up in January 2019 to monitor 
the performance of water companies throughout  the country. The functioning and 
objective of the system is to ensure the sustainability, quality and affordability of water 
provision  in  Greece,  which  is  currently  suffering  from  a  lack  of  transparency, 
accountability  and  coordination  across  different  actors  in  the  sector.  All  water  service 
providers are expected to fill in the required information. The system was set up by the 
Special  Secretariat  of  Water,  a  service  within  the  Ministry  of  Environment  entrusted 
with  some  regulatory  tasks.  It  includes  information  on  cost  recovery,  infrastructural 
investments,  planned  human  resources,  and  drinking  water  quality  across  the  country, 
among  others.  A  strategic  plan  was  finalised  in  June  2019  and  an  operational  plan  in 
October 2019 to streamline its supervisory activities among other things. 

There are 456 registered users representing water supply service providers in total. 
Out of these, there are 297 municipalities, 128 Municipal Water Utilities (DEYA) and 2 
water companies (concessionaires) for the cities of Athens and Thessaloniki. The total 
number of entities that provided data for 2017 is 128, representing approximately 28% 
of  the  registered  entities,  which  is  far  below  expectations.  Moreover,  the  information 
received  was  not  comprehensive  and  reliable  enough  to  be  able  to  draw  meaningful 
conclusions. The same applies with regard to waste water data. Here too, municipalities 
and  DEYAs  are  obliged  to  feed  the  central  database  with  data  on  quantities  of  waste 
water treated, quality of discharged water, quantities of sludge, etc., but many of them 
do not, and the data is often delayed and unreliable. 

The  information  system  needs  to  continue  being  maintained  and  the  Ministry  of 
Environment must allocate sufficient qualified and dedicated staff to run it. In July 
2019, the Special Secretariat for Water was abolished and its tasks were merged into the 
structure of the Ministry of Environment. It will be critical to ensure a smooth transition 
to  the  new  setup.  The  strategic  and  operational  plans  must  now  be  put  in  practice.  In 
addition,  many  municipalities  lack  the  appropriate  staff  and  competence  to  be  able  to 
feed the system with valuable information and the Ministry needs to provide support to 
them if the information system is to become operational and fulfil its purpose.  

Transport and Logistics 

A  Strategic  Transport  Master  Plan  for  Greece  to  identify  future  policies  and 
investments  in  the  transport  sector  has  been  prepared  by  the  Ministry  of 
Transport  with  the  support  of  the  Commission’s  Structural  Reform  Support 
Service and the European Investment Bank. The plan covers all transport modes for 
the  years  2027  and  2037,  the  necessary  supporting  planning  tools  as  well  as 
accompanying  capacity-building  activities.  The  Master  Plan  is  a  powerful  tool  for 
policymaking and now needs to be adopted by the Government and implemented. For 
this,  the  role  of  the  Strategic  Planning  Unit  in  the  Ministry  of  Transport  should  be 
enhanced.   

Several  contracts  for  new  projects  continue  to  be  delayed  (Athens  metro  line  4, 
Patra-Pyrgos  motorway,  Amvrakia  –  Aktio  highway,  Athens  and  Thessaloniki 
busses). Among the reasons of the delays are the abnormally low prices and the lack of 
capacity  of  contractors.  Greece  also  urgently  needs  to  start  with  the  elaboration  of 

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sustainable urban mobility plans as these will be the condition for investment in urban 
transport.  No  progress  has  been  made  either  with  the  development  of  projects  for  the 
accessibility of the port of Thessaloniki. While the port has great potential as a freight 
gateway  to  the  Balkans  and  Eastern  Europe,  and  has  recently  been  privatised,  its 
functioning is seriously hampered by bad or inexistent rail and road connections to the 
hinterland. 

On  logistics,  little  progress  was  made  in  the  "Thriasio  logistics  complex"  which 
remains  unutilised.  Once  fully  operational,  this  investment  –  co-financed  with  EU 
funds  –  could  give  a  big  boost  to  rail  freight  and  the  overall  competitiveness  of  the 
country.  However,  the  concession  contract  for  the  private  freight  centre  has  not  been 
activated and the tender for the management and operation of the park of 1 450 hectares 
is  severely  delayed.  The  European  Commission  has  started  the  procedures  for 
recovering EU structural funds and hence determined action by the authorities would be 
warranted. 

The  situation  of  the  public  transport  company  of  Thessaloniki  (OASTH)  raises 
concerns. The government had nationalised the company in 2017 in order to undertake 
a substantial restructuring and generate savings on an expensive private concession. The 
number  of  operational  buses  has  decreased  since  then  from  550  to  215.  All  buses  are 
more than 15 years old, quality and reliability of service are very low and the negative 
impact  of  the  environment  and  air  quality  is  particularly  high.  According  to  law 
4482/2017  the company  should have been liquidated and replaced by  a new entity by 
the end of 2019, but this did not take place. Regarding the financial situation, OASTH 
has  in  2019,  €24  million  of  income  to  which  a  subsidy  of  €44  million  is  added.  The 
expenses  for  staff  salaries  are  €66  million  per  annum,  allowing  little  space  for  fuel, 
maintenance  and  replacement  of  equipment.  In  this  respect,  the  absence  of  a  business 
plan with cost containment measures remains a source of concern. The authorities have 
expressed their intention to prepare a restructuring plan in order to reduce the operating 
costs to  a sustainable level.  There is  also  a plan for procurement of new busses using 
EU structural funds. 

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7.  HELLENIC CORPORATION OF ASSETS AND 

PARTICIPATIONS (HCAP) AND PRIVATISATION 

7.1.  HCAP 

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  (a  continuous  commitment).  In  addition,  the 
authorities  committed  to  support  HCAP  in  completing  the  review  and  replacement  (if 
required)  of  all  State-Owned  Enterprises’  (SOE)  Boards  by  mid-2019  (a  specific 
mid-2019 commitment). Furthermore, the authorities committed to transfer the Olympic 
Athletic Centre (OAKA) to HCAP (a specific end-2018 commitment).   

The authorities have engaged meaningfully with the institutions and with HCAP to 
address immediate challenges and to support the intentions of the HCAP reform. 
The authorities have coordinated initial engagement between line ministries and HCAP, 
have  re-launched  the  Coordination  Mechanism  to  enable  further  dialogue  while 
preserving  HCAP’s  independence,  and  have  materially  improved  the  situation  of  low 
caps on SOE director remuneration. There are three vacancies on HCAP’s Supervisory 
Board.  These  vacancies  need  to  be  filled  with  independent,  senior  experts  so  that 
HCAP’s work can continue and develop. The process for filling the vacancies should be 
fully in line with the letter and spirit of the HCAP law and its internal regulation.  

HCAP’s  work  on  the  key  areas  covered  by  the  Eurogroup  commitments  is 
continuing. The implementation of the strategic plan is ongoing and the Board review 
is  progressing.  The  transfer  of  OAKA  will  be  delayed  due  to  practical  complexities, 
which are unavoidable due to the status of the asset. Since the publication of the third 
enhanced  surveillance  report  in  June  2019,  progress  has  been  made  in  improving 
corporate  governance  in  the  SOEs.  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 HCAP regarding the mandates and objectives of 
the  SOEs  under  HCAP,  was  relaunched  in  October  with  the  reconstitution  of  the 
competent committees provided for in the relevant internal regulation. 

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

improvement  of 

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monitoring the KPIs set for each SOE in which it has majority participation (and which 
is not listed) on a regular basis. 

HCAP’s  real  estate  portfolio  is  managed  by  its  subsidiary  ETAD,  which  was 
restructured  during  2018  with  a  view  to  increasing  its  effectiveness  in  the 
management  of  real  estate  assets.  Achieving  the  full  potential  of  the  real  estate 
portfolio remains  a key  challenge  for  HCAP and should be  a primary  source of value 
creation.  As  yet  ETAD’s  performance  is  not  reaching  this  potential.  Given  the 
importance of the real estate portfolio, a thorough set of performance targets have been 
set  for  ETAD  in  2019  in  order  to  consolidate  and  test  the  effectiveness  of  the 
restructuring. These targets include asset registry, maturation and exploitation, portfolio 
management  (existing  and  new  contracts  for  commercial  assets)  and  revenue 
enhancement  objectives  and  will  be  monitored  by  HCAP.  If  necessary,  corrective 
actions will be taken in order to achieve the expected operational performance. Over the 
past  months  more  progress  has  been  made  in  relation  to  real  estate  valuations  and 
increasing  the  book  value,  as  well  as  on  improvement  of  lease  revenue  collection.  It 
should be noted that HCAP is in the process of filling the executive posts of ETAD in 
the  Board  of  Directors  of  ETAD,  with  experienced,  high  calibre  professionals  as  they 
will  be  key  in  the  efforts  for  a  significant  enhancement  in  the  utilisation  of  the  real 
estate portfolio.  

The authorities have  made some progress in evaluating a further package of real 
estate for transfer to HCAP. A large package of real estate was identified for transfer 
in 2018, although screening indicates that many properties are ineligible for transfer to 
HCAP. The authorities expect the screening process to be completed by February 2020. 

HCAP continues its work on SOEs governance, in particular regarding the review 
(and  replacement,  if  needed)  of  the  boards  of  the  SOEs  (a  specific  mid-2019 
commitment),  and  improving  internal  and  external  audit  capabilities.  The  HCAP 
Board has completed the review/replacement of the Boards of Directors in the following 
SOEs: ELTA (Hellenic Post), GAIAOSE (SOE active in the fields of railway real estate 
property and rolling stock exploitation, management and development), OASA (Athens 
Urban  Transport  Organization),  AEDIK  (Corinth  Canal),  KATH  (Central  Market  of 
Thessaloniki), PPC (Public Power Corporation), the water companies EYDAP (Athens) 
and EYATH (Thessaloniki), and ETVA VIPE (SOE whose main activity is the sale of 
plots  of  land  for  industrial  use).  It  is  noted  in  this  context,  that  HCAP  proceeded  in 
August  and  September  respectively  to  the  appointment  of  new  executive  and  non-
executive  directors  in  PPC  and  ELTA,  operating  in  highly  specialized  sectors,  with  a 
view to facilitating the required changes in both companies, which will be key for their 
medium-  and  long-term  performance.  The  assessment  of  the  Board  of  Directors  of 
OKAA (Central Market of Athens) by an external advisor has been completed. Pending 
is  the  assessment  of  the  Board  of  Directors  for  Helexpo  (Hellenic  Exhibition 
Organisation)  and  the  Greek  Saltworks  as  well  as  for  the  subsidiaries  of  OASA 
(OSY/buses and STASY/metro), in cooperation with OASA’s management. Candidates 
for the Chairs of the Audit Committees have been selected for almost all subsidiaries of 
HCAP,  and  in  total  12  Chairs  of  Audit  Committee  have  been  appointed  (pending: 
Helexpo  and  OKAA).  Furthermore,  the  on-boarding  of  all  new  Board  of  Directors 
members  has  been  completed  with  an  induction  programme  prepared  by  HCAP  in 
relation  to  the  strategic  and  business  priorities  for  each  company.  Up  to  the  present, 

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HCAP  has  appointed  52  Board  members  (executive  and  non-executive)  in  its  SOE 
subsidiaries through open, professional and transparent procedures. 

 HCAP  has  also  focused  on  improving  the  compliance  functions  and  on 
implementing  a  standardised  method  for  monitoring  reporting  of  financial 
information  of  the  SOEs  with  the  purpose  of  preparing  the  consolidated  financial 
statements  as  well  as  monitoring  performance  on  the  specific  KPIs  set  by  HCAP.  In 
September 2019, HCAP prepared and submitted to the General Assembly for approval 
for the first time the consolidated financial accounts for the group, for the financial year 
2018. The consolidation required a significant amount of work and technical expertise 
due to the fact that SOEs were used to different accounting standards and their financial 
departments had to be trained to prepare advanced and timely financial reporting. 

The  authorities  have  materially  improved  the  situation  of  low  legislative  caps  on 
SOE  directors’  remuneration.  Appointing  professional  members  in  the  Boards  of 
Directors in the bigger non-listed SOEs – in particular executive members – had proved 
to be challenging for HCAP due to the low legislative caps on the remuneration of SOE 
board  members  (both  executive  and  non-executive).  The  low  caps  limited  the 
remuneration  that  could  be  offered  to  prospective  members  of  SOE  boards  to 
uncompetitive levels, considering the level of responsibility and the business activity of 
some of the SOEs. This has been a serious issue affecting HCAP’s ability to sustainably 
attract and retain new board members for the bigger non-listed SOEs, with implications 
for  the  improvement  of  SOEs’  operations  and  performance,  and  delays  in  finding 
suitable candidates, as manifested for example in the difficulties to renew the board of 
OASA.  The  authorities  proceeded  in  October  2019  to  a  substantial  increase  in  the 
maximum level of remuneration for the members of the boards of the bigger non-listed 
SOEs.  This  is  a  positive  development  in  effectively  dealing  with  the  challenge  of 
appointing  professional  members  in  the  boards  of  the  bigger  non-listed  SOEs.  There 
may be a need for revisiting the new arrangement should it not prove to be adequate in 
ensuring a sustainable long-term solution.   

In September 2019, HCAP prepared principles and guidelines for the elaboration 
of a remuneration policy for the listed SOEs, in parallel with the request to set up 
remuneration committees at Board level of the listed companies. The elaboration of 
the  overall  remuneration  policy  will  be  the  responsibility  of  the  Remuneration 
Committees  as  per  the  provisions  of  the  respective  legal  framework  for  the  listed 
companies.  

In addition to the extensive work on governance, HCAP is increasing its focus on 
operational  improvements  in  SOEs,  following  the  development  of  new  business 
plans in 2018. A key challenge will be to effectively address the significant operational 
and financial issues in the Hellenic Post, which also faces a serious liquidity problem. 
Discussions  should  progress  with  its  new  management  (new  Chief  Executive  Officer 
appointed  at  the  end  of  September  2019),  HCAP  and  the  competent  Ministries.  The 
company  will  need  to  be  restructured  to  reduce  its  cost  base  and  ensure  sustainable 
revenue  streams  over  the  medium  to  long  term.  The  government  needs  to  provide 
funding  for  the  restructuring  plan,  including  full  payment  of  universal  service  costs, 
adequately justified and approved by the Commission in line with state-aid rules.  

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The implementation of the Coordination Mechanism, which is a key focus area and 
challenge  in  2019,  was  relaunched  in  October  2019  and  is  ongoing.  The 
Coordination  Mechanism  sets  out  the  procedures  and  deliverables  for  coordination 
between the State, the HCAP  and SOEs, in  relation to  (i) the SOEs’ mandates, which 
will define the main activities of each public enterprise, (ii) a statement of commitments 
for each SOE, which will include the operational and financial objectives that each SOE 
must  adopt  to  achieve  its  strategic  goals,  and  (iii)  a  performance  contract  that  will 
clearly  reflect  the  objectives  and  financing  of  any  special  obligations  required  by  the 
State.  

The authorities have taken important steps to coordinate effective implementation 
of  the  Coordination  Mechanism  across  relevant  parts  of  the  government,  and 
relevant  line  ministries  are  engaging  meaningfully  with  HCAP.  The  authorities 
proceeded  to  reconstituting  the  Cabinet  Committee  provided  for  in  the  Coordination 
Mechanism  and  HCAP  law,  with  a  view  to  operationalising  the  mechanism.  The 
General Secretariat for Coordination and the Ministry of Finance and the management 
of the HCAP met in October 2019 and agreed on the schedule and the prioritisation for 
dealing with the SOEs for the prompt implementation of the Coordination Mechanism. 
The  implementation  of  the  coordination  mechanism  has  commenced  and  priority  has 
been  given to  four SOEs, namely the central  markets  of Athens  and Thessaloniki, the 
Corinth Canal and Helexpo. The mandates and deliverables for these SOEs are expected 
to be finalised soon since significant preparatory work has been done by the HCAP and 
discussed  with  the  competent  authorities.  With  the  reconstitution  of  the  Cabinet 
Committee, it should be possible for the government to ‘speak with one voice’ on the 
priorities regarding activities of SOEs under the Coordination Mechanism and expedite 
the procedural steps.  

The transfer of the Olympic Athletic Centre OAKA, which was a specific end-2018 
commitment, proved to be very complex, involving multiple stakeholders as well as 
a series of administrative (including maintenance requirements) and procurement 
steps. These include procurement for the repair or overhaul of significant facilities, in 
order to ensure that the asset is provided in a satisfactory condition. The authorities have 
taken  a  number  of  steps  to  proceed  with  this  work,  which  include  the  hiring  of  a 
technical advisor in July 2019 to review the current status of all the infrastructures and 
the  preparation  of  the  tender  documents  for  a  main  technical  study,  scheduled  to  be 
undertaken  through  2020,  ending  in  early  2021.  Given  the  complexities  and 
involvement  of  third  parties,  the  date  of  transfer  will  need  to  be  determined  upon  the 
completion of the main technical study. The process should continue to be pursued as 
diligently as possible.  

The  20  year  concession  agreement  between  EYDAP  and  the  Hellenic  Republic, 
which was due to expire on 25 October 2019, was extended for a six months period. 
This is intended to provide sufficient time to the parties to finalise the negotiations. 

7.2. 

IMPLEMENTATION OF THE ASSET DEVELOPMENT PLAN 

Implementation  of  the  Asset  Development  Plan  (ADP)  of  the  Hellenic  Republic 
Asset  Development  Fund  (TAIPED)  is  key  to  stimulate  private  investment, 
increase efficiency, and provide financing to the State. In June 2018, the authorities 

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made a specific commitment to Eurogroup partners to implement the ADP, 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, a specific 
end-2018 commitment) remained pending.  

Hellinikon  (a  specific  end-2018  commitment):  The  authorities  have  attached  great 
emphasis  and  strong  engagement  on  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.  The  current  state  of  play  on  key 
elements is as follows:  

Award  of  the  casino  licence:  The  tender  process  for  awarding  the  casino  licence  is 
ongoing. Binding offers  were submitted on 4 October by two international  bidders. 
The due diligence exercise of the documentation submitted by the bidders has been 
launched.  

Metropolitan park: Shortly before the change of government there were complications 
on  the  Joint  Ministerial  Decision  (JMD)  on  the  metropolitan  park.  Specifically  the 
said  JMD  was  issued  without  the  consensus  of  the  investors,  creating  potential 
additional obstacles to the investment. A revised JMD on the metropolitan park and 
the  JMD  on  the  development  zones  for  the  casino  were  issued  in  late  August.  The 
JMD for the development zones for the areas beyond the casino was issued in early 
September, while the last JMD, on urban planning zones, was issued in early October 
2019. Thus, the specific condition precedent has been completed. 

Relocation of public and private users: the relocation of public users still on the site can 
be  completed  soon  without  any  problems;  there  is  a  problem  with  one  private  user 
against whom two civil court litigations were pending, one of which resulted at the 
beginning of September in a second instance court decision in favour of Hellinikon 
SA, the Greek State and TAIPED, paving the way for its enforcement and hopefully 
the resolution of the issue. 

Partition of  the site:  Preparatory  work regarding the partition of the Hellinikon site is 
further progressing (open issues related to the Cadastre were resolved by August).  

Marina of Alimos (a specific mid-2019 commitment): the marina of Alimos is one of 
the  largest  marinas  in  the  South-Eastern  Mediterranean,  located  on  the  South-Eastern 
waterfront of Athens. 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 – HELPE (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  HELPE)  of  a  majority  stake  (50.1%)  and  thus 
there was no positive outcome of the specific transaction. The financial closure is thus 

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inevitably  subject  to  significant  delays.  Within  the  framework  of  the  third  enhanced 
surveillance  round  and  with  a  view  to  minimising  the  time  delays,  an  agreement  was 
reached  between  the  Greek  authorities  and  the  institutions  that  TAIPED  is  given  the 
technical  mandate  to  explore  all  options  available  towards  proceeding  with  the 
transaction.  The  transaction  was  discussed  between  the  Greek  authorities  and  the 
institutions in the context of the 4th enhanced surveillance cycle. 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.   

Sale  of  30%  of  Athens  International  Airport  –  AIA  (a  specific  end  2019 
commitment): According to the Airport Development Agreement in place, any transfer 
of  shares  exceeding  25%  of  AIA’s  share  capital  requires  the  consent  of  all  existing 
shareholders. In this context, the complications which had arisen from a decision of the 
Governmental  Council  for  Economic  Policy  (KYSOIP)  in  February  2019  and  delayed 
the process, have been resolved. The Greek authorities and the private shareholders of 
AIA have also reached agreement on the Waiver Agreement to be executed, which has 
been  approved  by  the  Governmental  Council  for  Economic  Policy  on  11  September. 
The Waiver Agreement between AIA’s shareholders provides for: a) Consent requested 
by the Airport Development Agreement of the existing shareholders’ for the sale of the 
30% stake of TAIPED to AIA through the privatisation process b) Collaboration of AIA 
towards  the  provision  of  all  required  information  in  the  context  of  the  privatisation 
process and c) Corporate governance rights (i.e. Board of Directors members etc.) that 
will  be  accompanying  the  30%  of  shares  under  sale.  The  agreement  is  expected  to  be 
executed  in  a  timely  manner,  in  order  to  facilitate  the  smooth  development  and 
completion of the tender process. The tender process is thus proceeding. Ten investment 
schemes expressed on 29 October 2019 their interest (Phase A) to acquire the 30% stake 
in AIA. Following the evaluation of the investors’ proposals, the eligible investors will 
proceed either to a Non-Binding Offers Phase, provided that TAIPED selects to include 
such an intermediate phase to the tender, or directly to the Binding Offers Phase. Should 
a Non-Binding Offers phase take place, the binding offers are expected to be submitted 
by April 2020, and the financial closing of the transaction is expected by the end of the 
year.  In  case  TAIPED  proceeds  directly  with  the  Binding  Offers  Phase,  the  deadlines 
are expected to be brought forward by around two months. 

Public Gas Corporation – DEPA (a specific end 2019 commitment): The authorities 
are  considering  changes  to  DEPA’s  corporate  restructuring  (Law  4602/2019).  The 
approach to be followed, based on the current information provided during the technical 
meetings and according to the draft legislative amendment submitted to the institutions 
in mid October by the Ministry of Energy for consultation, is that the Government will 
proceed with the demerging of DEPA into DEPA Commercial (wholesale and retail gas 
supply) and DEPA Infrastructure (gas distribution networks), while DEPA’s interests in 
the  previous 
international  strategic  gas 
administration  to  be  transferred  under  DEPA  Infrastructure)  are  contemplated  to  be 
transferred  to  a  new  corporate  entity  and  remain  under  state-owned  control.  These 
international projects are fundamentally separate from the rest of DEPA's activities but 
have a strategic value for the country. The new proposed corporate structure should be 
in  accordance  with  the  principles  of  the  agreed  term  sheet  of  June  2018.  The  Greek 

infrastructure  projects  (envisaged  by 

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authorities have also reviewed the labour issues related to the corporate restructuring of 
DEPA with a view to achieving a balance between securing employees’ rights and the 
attractiveness  of  the  transaction  for  investors.  The  legislative  amendment  of  Law 
4602/2019 is expected to be enacted by the end of November.  

The authorities have indicated their intention to increase the stakes subject to sale 
in both DEPA Commercial and DEPA Infrastructure. The authorities, according to 
the draft legislative amendment submitted, will proceed with the full divestment of their 
stake  in  both  activities  (65%)  and  thus  increase  the  expected  privatisation  proceeds, 
while also facilitating the unbundling of the gas market, which has been identified as a 
priority  by  the  authorities.  Given  that  the  two  tender  processes  are  expected  to  be 
running in parallel, it is  important to practically ensure that the unbundling provisions 
envisaged in the draft Law are enforced.  

Egnatia (a specific end-2019 commitment): The privatisation process for the Egnatia 
motorway  entails  the  award  of  a  long-term  concession  for  the  operation  and 
maintenance  of  the  motorway  and  its  three  vertical  axes.  The  transaction  has  been 
characterised  by  systematic  delays  and  problems,  showing  a  lack  of  ownership.  The 
authorities have stressed their commitment to proceed with the transaction. However, it 
is  important  to  pay  due  attention  to  the  timetable  for  the  completion  of  the  various 
actions  that  are  needed  before  the  submission  of  binding  offers,  which  is  currently 
scheduled for 21 February 2020; i.e. all actions (including construction and operation of 
toll  stations  and  the  implementation  of  the  approved  by  the  Commission  toll  pricing 
policy)  have  to  be  completed  on  time  and  prior  to  submission  of  binding  offers  in 
February  2020  and  the  respective  timetable  for  these  actions  has  to  be  adjusted  to 
comply  with  this  constraint.  More  specifically,  the  following  actions  are  still  needed 
before  the  submission  of  binding  offers  in  order  for  the  Concession  Agreement  to  be 
adequately balanced without any of the two parties (Concessionaire or State) assuming 
excessive risks:  

Implementation of the new toll pricing policy approved by the Commission.  

Completion of  the construction and operation of  all remaining  frontal  and lateral  toll 
stations.  The  relevant  contracts  were  signed  in  early  May  2019,  but  construction 
progresses slowly. 

Licensing of all tunnels by the Tunnel Licensing Authority. For the tunnels that require 
large-scale works and are currently limited to obtaining restricted licenses excluding 
the  transport  of  dangerous  cargo,  the  Tunnel  Licensing  Authority  needs  to 
specifically define the necessary works for unrestricted licensing. Once this is done 
and the cost of necessary works is calculated, the concession agreement will specify 
who will implement the works and who will assume the relevant risk.  

Establishing clarity on what works need to be carried out for bridges to be classified as 
safe. In March 2019 some of the motorway’s bridges were classified by Egnatia S.A. 
as “potentially dangerous”. Egnatia needs to clearly define the measures to be taken 
as  well  as  the  cost  for  the  bridges  to  be  completely  safe.  Once  this  is  done,  the 
specification of the allocation of risk between the Concessionaire and the State will 
be set out in the concession agreement. 

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Commencement  of  operation  of  already  constructed  and  ready  to  operate  frontal  toll 
stations in Oreokastro (Thessaloniki), Asprovalta and Strymoniko is necessary and it 
will give a positive signal towards the success of the transaction. 

Resolution  by  Egnatia  S.A.  of  the  open  issues  related  to  the  motor  service  stations 
contracts regarding Eleftherochori, Oraiokastro, Ardanio and Sostis, that have been 
inactive  since  2011.  The  current  draft  of  the  Concession  Agreement  released  to 
Prequalified Bidders, specifies that all the motor service stations will be procured and 
constructed by the concessionaire.  

Completion of the necessary actions (advisor appointment) for all the preparatory work 
necessary  for  the  remaining  land  expropriations,  by  Egnatia  S.A.  While  the 
completion of the land expropriation process with issuance of Ministerial Decisions 
is not a prerequisite for binding offers or for Concession Commencement Date, and it 
is handled accordingly in the Concession Agreement, the process should be initiated 
promptly. 

Regional Ports (a specific end 2019 commitment): The privatisation structure agreed 
with the previous government was the granting of sub-concessions for selected activities 
in  each  of  the  ten  regional  ports.  The  tender  process  was  stalled  following  the  May 
elections.  Different  options  for  the  potential  privatisation  structures  are  available, 
namely (a) master concession – a long-term concession of all the activities of a port to a 
private  entity  (b)  sale  of  majority  share  capital  of  each  regional  Port  Authority  to  a 
private  party,  and  (c)  granting  of  the  right  to  operate  specific  and/or  combined  port 
activities/services for the ten Port Authorities i.e. sub-concession of specific activities of 
each port.  

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) so as to allow the best privatisation transaction structure to be chosen for 
each port. Within this framework, the consultants of TAIPED are working on the best 
privatisation  transaction  structures  for  each  port  and  they  are  expected  to  deliver  the 
relevant study shortly. Further, a legal amendment providing TAIPED the flexibility of 
choice  (i.e.  master  concession,  sub-concession,  sale  of  equity)  will  be  required.  The 
required legal amendment is expected to be enacted shortly, so that the tender procedure 
for Alexandroupolis and Kavala can be launched.  

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8. 

PUBLIC ADMINISTRATION AND JUSTICE 

8.1.  PUBLIC ADMINISTRATION 

8.1.1. Appointments of senior management positions 

An  independent  assessment  of  the  selection  process  for  the  Administrative 
Secretaries,  a  specific  commitment  for  mid-2019,  has  been  completed.  The 
independent  assessment  was  expected  to  take  stock  of  the  selection  process  and  to 
identify scope for improvements, in light of various delays and issues. For example, 22 
job  announcements  for  Administrative  Secretaries  posts  (out  of  69  in  total)  were  re-
launched in June 2018 due to a lack of clearly defined minimum eligibility criteria. The 
independent  assessment  was  completed  in  accordance  with  the  schedule.  It  concluded 
that, compared to other selection processes (e.g. for Director-Generals), the provisions 
of  Law  4369/2016  for  the  Administrative  Secretaries  was  generic  and  allowing  for 
manifold  interpretations.  The  assessment  also  observed  that  the  independence  and 
objectivity needed in the process was secured through the involvement of the Supreme 
Council  for  Civil  Personnel  Selection  (ASEP).  However,  at  the  same  time,  ASEP’s 
involvement made the process  heavy  and time-consuming for both  the candidates and 
the  evaluating  panel,  but  it  was  acknowledged  that  these  two  prerequisites  cannot  be 
sacrificed for the sake of speeding up the process. Based on the independent assessment 
the  authorities  had  been  expected  to  adopt  relevant  follow-up  measures  by  September 
2019. However, the adoption by the ‘Executive state law’ (46) removed the position of 
Administrative Secretary, which made the follow-up steps redundant. 

The  selection  process  for  Administrative  Secretaries,  a  specific  commitment  for 
end-2018, was cancelled with new provisions adopted for Secretaries-General. The 
completion of appointments of Administrative Secretaries (69 posts in total) was seen as 
a  key  element  for  the  depoliticisation  and  strengthening  the  institutional  continuity  in 
the  public  administration.  They  were  expected  to  support  execution  of  policy 
implementation  and  overall  administration  by  the  government  and  its  ministries. 
However,  the  selection  process,  which  was  launched  in  January  2018,  experienced 
significant problems and delays as has been reported in previous enhanced surveillance 
reports, thus diminishing its overall credibility. The new administration considered that 
the  role  of  the  Secretaries-General  remained  vital  and  that  a  prerequisite  for  these 
officials  to  be  effective  in  their  role  is  that  they  enjoy  the  full  trust  of  their  political 
leadership. The ’Executive state law’ reintroduced the right for the Prime Minister and 
the relevant line Minister to directly appoint the Secretaries-General and set some basic 
qualification criteria that need to be fulfilled (47).  

The  establishment  of  a  Permanent  Secretary  post  in  each  ministry (48)  to  be 
appointed through a more elaborate and time efficient selection process is expected 

(46) Law 4622/2019 (OJ Α/133/07.08.2019). 
(47) Law 4622/2019 (OJ Α/133/07.08.2019), Articles 41 (3) and 44. 
(48) Law  4622/2019  (OJ Α/133/07.08.2019),  Articles  36  and  37,  concerning  the  Permanent  Secretary  do 
not apply for the Ministry of Defence, the Ministry of Foreign Affairs, Ministry of Citizens Protection 
and Ministry of Shipping. The main reason for the exclusion of these four ministries is according to 
the authorities a possible inconsistency with specific provisions applied to uniformed officials. 

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the  adopted  provisions  for 

to  be  launched  shortly  and  be  completed  by  January  2020.  The  ’Executive  state 
law’ sets out that the Permanent Secretary will be responsible for human resources and 
the budget (incl. procurement) and will oversee policy coordination within the ministry 
as well with  other ministries on cross-cutting issues. The Permanent  Secretary will be 
appointed  through  a  selection  process  open  for  all  permanent  public  officials.  The 
selection process  will be overseen by ASEP and  based on a similar process  as for the 
Directors-General and compared to the legal provisions foreseen for the Administrative 
Secretaries, 
the  Permanent  Secretaries  are  more 
comprehensive. Importantly, the scoring criteria for these posts are much more detailed, 
thus addressing one of the key weaknesses identified by the independent assessment for 
the selection process of the Administrative Secretaries. Further, the job announcement 
will  be  the  same  for  all  ministries  and  prepared  by  ASEP,  which  is  also  addressing  a 
weakness  of  the  previous  process  where  69  separate  calls  had  been  issued  with 
significant deviations between them. The appointments of the 13 Permanent Secretaries 
are expected to be launched shortly and completed by January 2020. In preparation of 
the  launch,  the  following  actions  have  been  completed  to  date:  (i)  adoption  of  a 
Ministerial  Decision  concerning  the  validation  of  applicants’  documents  proving  their 
eligibility (49);  and  (ii)  development  of  an  IT  tool  for  the  submission  of  electronic 
submissions.  Although  the  Permanent  Secretary  posts  will  likely  contribute  to  the 
further  depoliticisation  and  facilitate  the  institutional  continuity  in  the  public 
administration,  the  scope  of  the  now  cancelled  Administrative  Secretaries  posts  was 
broader.  At  the  same  time  the  well-known  problems  and  significant  delays  of  this 
process,  which  damaged  its  credibility,  need  to  be  acknowledged.  In  order  to  make  a 
comprehensive  and  balanced  assessment  it  is  essential  to  also  consider  other  reforms 
included  in  the  ‘Executive  state  law’  that  are  linked  to  the  depoliticisation  and 
continuity agenda. These are presented in the following section (section 8.1.2).  

The authorities reiterated their commitment to continue with the selection process 
for  Directors  and  Heads  of  Division  in  accordance  with  the  approach  agreed 
during  the  programme  period.  It  should  also  be  noted  that  the  authorities  have 
confirmed that the new Director-General posts (50) for the recently established Ministry 
of Digital Governance will also be selected through a similar process that was applied in 
2018 (90 appointments in total). Due to the elections, no appointments of Directors have 
been  made  since  the  publication  of  the  third  enhanced  surveillance  report  (i.e.  101 
appointments have been made, out of 390). However, a circular has been published on 
the  re-establishment  of  the  selection  committees (51)  and  the  selection  process  is 
expected to be re-initiated shortly. The job announcements for Heads of Division posts 
are expected to be launched once all appointments for Directors have been made at the 
ministry  level.  According  to  the  authorities,  ASEP  has  indicated  that  considering  its 
current  capacity  it  will  probably  need  until  June  2020  to  complete  the  ongoing 
appointments  for  Directors.  The  authorities  have  indicated  that  they  are  considering 
targeted amendments  for the Director and Head of Division posts  yet to be published, 

(49) Law 4061/2019 (OJ B-4061/07.11.2019). 
(50) Exception foreseen for the Director-General for Cyber Security, who will be appointed directly by the 
Minister  (Law  4635/2019  (OJ  A-167/30.10.2019),  Article  50).  According  to  the  authorities  there  is 
lack of in-house capacity to restrict this post only for permanent public officials. The remaining five 
Director-General  posts  will  be  selected  through  the  process  set  out  in  Law  3528/2007  (OJ  A-
3528/09.02.2007). 

(51) Circular issued by the Ministry of Interior, 6 September 2019. 

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Chapter 8 - Public administration and justice 

such  as  changes  in  the  scoring  between  qualification  and  experience  and  a  number  of 
changes  to  speed  up  the  selection  process.  As  long  as  the  overall  principles  are 
maintained  and,  crucially,  ASEP  maintains  a  role  in  overseeing  the  selection  process, 
the  provisions  aiming  to  fine  tune  based  on  lessons  learnt  from  the  completed 
appointments  to  date  are  welcome.  Finally,  it  will  also  be  important  to  complete  as  a 
matter of priority the exercise of appointments of managers of ESPA-related structures 
which is unduly delayed (52).  

The  ‘Executive  state  law’  cancelled  the  selection  process  for  senior  management 
posts  in  the  legal  entities  of  public  and  private  law (53),  but  the  authorities  have 
committed  to  adopt  provisions  by  May  2020  to  reintroduce  a  more  elaborate 
selection process for these entities. It needs to be acknowledged that also this selection 
process had been faced with difficulties and significant delays, as evident in the failure 
to complete a single appointment to date. However, the reversal to the previous system 
where these posts are directly appointed by the relevant minister remains problematic. It 
is therefore welcomed that the authorities have committed to adopt legal provisions by 
May  2020 to  establish  an open selection process for these positions.  It is  encouraging 
that  the  authorities  are  considering  introducing  a  selection  process  that  will  be  setting 
out  the eligibility and scoring  criteria in  more detail  and in  accordance to the specific 
requirements  of  the  post,  thereby  addressing  one  of  the  key  criticisms  of  the 
independent  assessment.  The  selection  process  foreseen  for  the  legal  entities  of 
public/private law was broadly similar to the one for the Administrative Secretaries.  

8.1.2. The Executive state law 

The  government  has  adopted  a  codification  law  that  brings  together  and 
modernises  its  rules  of  procedure  through  a  set  of  new  provisions,  including 
delegation  of  signature  powers  of  individual  acts  to  the  administrative  level.  The 
first main  legislative  action  of  the  new  administration  was  the  law  entitled  “Executive 
state:  organisation,  operation  and  transparency  of  the  government,  government 
institutions  and  central  government  administration” 
(Law  4622/2019,  OJ Α-
133/07.08.2019).  This  law  consolidates  numerous  provisions  on  the  organisation  and 
the  operation  of  the  government  and  its  central  public  administration.  Further,  it 
includes provisions to strengthen the annual programming and overall monitoring of the 
government’s  work.  As  concerns  the  efforts  to  depoliticise  and  to  strengthen  the 
institutional continuity of the public administration, it is noteworthy that all individual 
administrative  acts  are  delegated  to  the  Permanent  Secretary  and/or  Director-General 
level  (Articles  37  and  109).  Given  the  tradition  of  all  decisions  being  centralized  and 
requiring the Minister’s signature, this provision assigns the vast majority of decisions 
adopted  by  the  Ministry  at  the  level  of  non-political  appointees.  In  order  to  ensure  its 
proper enforcement when the provision will come into effect (i.e. 7 February 2020), a 
circular was issued in  November 2019 (54) by the Ministry of Interior that requests all 

(52) Separate  selection  process  of  managerial  posts  as  set  out  in  Law  4314/2014  (OJ  A-265/2014.12.23) 

and Ministerial Decision 133426/2017 (OJ B-4273/06.12.2017). 
(53) Law 4622/2019 (OJ A-133/07.09.2019), Article 111 (point 14). 
(54) The  Circular  was signed by  the Minister on 12 November 2019 but had  not been  given a reference 

number by the time this report was finalised. 

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ministries  to  delegate  the  signature  powers  in  accordance  with  the  new  provisions (55) 
and thereafter proceed with the publication at the Government Gazette before the new 
the  Secretariat  General  for  Legal  and 
provisions  come 
Parliamentary  Affairs  will  issue  a  letter  requesting  each  ministry  to  list  the  various 
administrative/individual acts that will be delegated.  

into  effect.  Further, 

The  ’Executive  state  law’  includes  provisions  to  improve  the  programming  and 
monitoring  of  the  government’s  work  as  well  as  strengthening  the  government’s 
centralised coordination capacity. The law consolidates and clearly defines the role of 
the  Council  of  Ministers  while  also  setting  out  specific  provisions  for  the  annual 
programming and monitoring of the government’s priorities. It also strengthens the role 
and  capacity  of  the  Government’s  Presidency  Office  as  a  self-contained  structure 
attached  to  the  Prime  Minister,  whose  main  task  is  to  ensure  the  coherence  and 
effectiveness of the government’s work. The Presidency has the overall responsibility to 
monitor  and  coordinate  the  work  of  the  whole  government,  with  a  view  to  enhancing 
coordination, which has been a long-standing weakness for the proper functioning of the 
public administration. To further enhance the institutional continuity of the Presidency’s 
Office,  the  authorities  have  committed  to  adopt  measures  to  create  permanent 
organisational structures at the Presidency Office.  

8.1.3. Improving the human resource management in the public administration 

their 

completed 

entities  have 

The  new  administration  has  made  the  implementation  of  the  Human  Resources 
Management Strategy (HRMS) a main priority and adopted measures to facilitate 
this reform. Overall good progress has been made as concerns the specific commitment 
for  end-2019  relating  to  the  HRMS,  in  particular  regarding  the  completion  of  job 
descriptions  (140 788  out  of  192 878  posts).  To  date  close  to  half  of  all  general 
government 
respective  digital  organigrams. 
Encouragingly,  a  circular (56)  has  recently  been  issued  to  allow  for  the  link  between 
each  jobholder  and  a  specific  job  description.  Entities  not  complying  with  the 
instructions of the circular will not be eligible to participate in the mobility scheme or 
secure  hiring  of  new  permanent  staff.  Completion  of  the  overall  HRMS  remains  a 
priority  for  the  new  administration.  The  project  will  be  delivered  through  the 
implementation of a number of EU-funded sub-projects aiming to (i) ensure horizontal 
interoperability  with  public  administration  systems  (e.g.  ASEP,  Single  Payment 
Authority);  (ii)  prepare  an  action  plan  for  the  administrative  reform  and  process 
modelling for human resources; and (iii) enable storing of HRMS data. The various sub-
projects are expected to all be tendered during 2020 and completed by 2022-2023. The 
authorities  have  committed  to  a  detailed  road  map  in  order  to  track  the  progress  of 
implementing this important project. The next milestone is the launch of a consultancy 
support  contract  by  February  2020  to  provide  support  to  the  Secretary  General  for 
Human Resources of the Public Sector.  

The mobility cycle launched in August 2018, a specific commitment for mid-2019, 
experiences  minor  delays,  while  a  more  streamlined  mobility  scheme  is  in  the 
making.  Overall,  the  gradual  increase  in  the  number  of  entities  and  applications  for 

(55) Law  4622/2019  (OJ  Α-133/07.08.2019),  Article  13  and  Law  4365/2019  (OJ  A-167/30.10.2019), 

Article 174. 

(56) Circular issued by Ministry of Interior, 22 October 2019. 

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each cycle three cycles to date is encouraging and a clear signal that the public sector 
has embraced this public administration reform. However, the timeline as set out in the 
relevant  law  is  not  being  respected.  Indicatively,  for  the  mobility  cycle  that  was 
launched in August 2018 and was expected to be completed by mid-2019, to date 1 930 
posts (57) have been appointed out of 5 340 posts that were announced. For close to 50% 
of  the  announced  posts  the  selection  process  has  not  been  initiated  by  the  requesting 
entity. It is therefore estimated that ongoing selection processes remain for around 500 
posts, which are planned to  be completed in the next  months.  The new  administration 
has  indicated  its  commitment  to  the  mobility  scheme  reform  as  shown  by  proceeding 
with  the  preparations  in  order  for  the  first  cycle  for  2019  to  be  launched  soon,  with 
approximately  8 000  vacant  posts.  At  the  same  time  it  is  important  that  the  overall 
principles  are  maintained.  It  is  therefore  a  cause  of  concern  that  an  adopted  law 
amendment (58)  means  that  public  officials  in  certain  staffing  groups  employed  by 
municipalities need to receive an approval from their current employer to complete their 
transfer.  Although, it is  understood that the provision was adopted in  order to  address 
that the problems of some municipalities in replacing competent staff moving through 
the mobility scheme, it would had been preferable if more targeted solutions had been 
sought.  This  could  risk  setting  a  precedent,  as  one  of  the  mobility  scheme’s  key 
principles was that there is no need for the official’s current employer to agree with the 
transfer, as long as the set threshold for existing staff coverage is being respected. Given 
this,  the  authorities’  commitment  to  adopt  provisions  by  end-2019  to  enhance  the 
efficiency and relevance of the mobility scheme is particularly welcome. The provisions 
are  expected  to  introduce  measures  to  improve  the  compliance  with  the  set  timeline, 
reduce  the  number  of  annual  cycles  to  two  and  strengthen  the  mobility  scheme’s  link 
with the annual hiring system. 

Performance assessments for 2018, a specific commitment for mid-2019, has been 
completed. The assessment round was launched in March 2019 and completed in June. 
The  validation  of  the  electronic  performance  assessment  reports  was  completed  in 
October 2019. In terms of participation, 64% of the registered employees took part (59). 
On  the  negative  side  the  participation  rate  dropped,  as  it  had  stood  at  74%  last  year. 
According to an initial assessment by the authorities, the reason behind this decline was 
due  to  technical  problems  with  the  online  platform  experienced  during  the  previous 
year’s assessment resulting in public officials proceeding to fill the assessment in hard 
copy. The new administration has confirmed its support and intention to  proceed with 
the  annual  performance  assessment.  It  has  also  indicated  that  it  will  proceed  with  a 
review  of  existing  performance  assessment  systems  for  specific  categories  of  civil 
servants (e.g. teachers and uniformed personnel). It further plans to review performance 
criteria  for  specific  categories  of  civil  servants  that  belong  to  the  group  of  registered 
employees eligible for performance assessment, but whose tasks/duties fall outside the 
current scope of the performance assessment approach (e.g. nurses).  

The new administration is committed to proceed with the rationalisation of the job 
classification system. It also plans to enable a direct link between the job classifications 

(57) 1 224 transfers and 706 secondments. 
(58) Amendment introduced by the Ministry of Interior in Law 4635/2019 (OJ A-167/30.10.2019), Article 

229. 

(59) 175 799 registered (for the 2017 performance assessment round this number was 155 894). 

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and the general  job  descriptions (expected to  be 181 in  total). The streamlining of the 
job  classification  with  a  view  of  harmonising  it  with  the  functional  domains  of  the 
generic job description template is seen as an important action aiming to accelerate and 
modernise the recruitment process. For this purpose, the authorities intend to establish a 
legislative committee with the participation of ASEP. 

8.1.4. Strengthening the legislative process and legal codification 

The “Executive state law” includes provisions for improving the legislative process 
and the impact assessment carried out. The law sets out that the Secretariat General 
for  Legislative  and  Parliamentary  Affairs,  which  is  part  of  the  Presidency  Office,  is 
responsible  for  the  quality  assurance  and  subsequent  approvals  of  draft  laws  prior  to 
their  submission  to  the  Parliament.  As  part  of  this  mandate  it  will  ensure  timely 
publication  of  regulatory  acts  and  use  of  rules  of  good  law-making  across  the  central 
administration. There are also provisions relating to impact assessments: the Secretariat 
General  for  Legislative  and  Parliamentary  Affairs  is  expected  by  January  2020  to 
present a revised template and a detailed manual on how to complete the template. To 
enhance  the  capacity  of  the  public  administration,  a  new  job  classification  was 
established  for  lawyers  preparing  draft  laws.  The  selected  staff  are  expected  to  be 
assigned to the Presidency, but also across ministries.  

The codification of labour law is  progressing whereas the tender for the national 
gateway for legal codification is faced with delays. The ‘Executive state law’ includes 
a specific chapter that defines the legal codification framework. Provisions include the 
annual  programming/selection  and  mandates  of  key  bodies,  such  as  the  Central 
Codification  Committee.  In  what  concerns  the  specific  commitments  relating  to  legal 
codification, the unified Labour Law Code and Code of Labour Regulatory Provisions 
are expected to be completed on time by mid-2020. As concerns the national gateway 
for  legal  codification,  the  new  Ministry  of  Digital  Governance  has  been  assigned  the 
responsibility for this project. The same ministry has a mandate for simplification of the 
legislative framework and administrative processes. The tender process for this flagship 
project is currently being reviewed and it is likely that this project will not be completed 
by mid-2022. The authorities are encouraged to complete the ongoing review as soon as 
possible, in order to minimise the delay. 

8.1.5. Controlling the size and cost of public sector 

The  Executive  state  law’  introduces  a  detailed  process  for  preparing  the  annual 
hiring plan, which should improve the recruitment planning and increase control 
of  hires.  The  annual  cycle  is  set  to  start  in  May  each  year,  with  each  general 
government entity setting out the needs for permanent and temporary staff on the basis 
of  their  multi-annual  job  planning.  The  Ministry  of  Interior  then  formulates  a  draft 
annual  plan,  taking  into  consideration  the  requests  received  and  the  overall  strategic 
priorities  of  the  government  following  consultation  with  the  Ministry  of  Finance,  to 
ensure that the hiring ceilings are respected. By the end of July, the hiring plan will be 
presented to the Presidency as part of the draft action plan of the Ministry of Interior. In 
September,  the  Council  of  Ministers  approves  the  draft  action  plans  as  part  of  the 
consolidated government policy programme for the next year. The hiring plan will then 
be  part  of  the  preliminary  budget  submitted  to  the  Parliament  at  the  beginning  of 
October. The 2020 hiring plan is currently being updated, with the ministries expected 

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Chapter 8 - Public administration and justice 

to submit their requests by 18 November 2019. This should allow for the hiring plan to 
be approved by the end of the year. The authorities clarified that the adopted hiring plan 
for 2020 will not have any negative fiscal impact compared to the wage bill included in 
the budget for 2020. 

While hiring of permanent staff is proceeding in compliance with the 2019 hiring 
plan, the number of temporary staff has continued to increase sharply. The current 
hiring limit of permanent staff (i.e. one new entry for each exit) is being respected and, 
on current estimates, the hiring space for 2019 may not be fully utilized, partly due to 
the general and local elections that took place earlier this year, as no hires of permanent 
staff can be carried out for a certain period before and after the elections. In contrast, the 
number of temporary staff continued to rise since 2018. Not only has this trend not been 
reversed, but it further increased in the first half of 2019.  

Table 8.1: Evolution of public sector staff and wage bill (2009-2019) 

(1) Includes all temporary contracts in General Government entities and legal entities under private law. For 
2009-2013 the figure refers to the stock at the end of each year, whereas for 2014-2018 the figure is a yearly 
average (Jan-Dec) and for 2019 the figure is the Jan-Sept average. 
(2) General Government Imputed social contributions are not included. 
(3) General Government Imputed social contributions are not included. 
(4) 2014 figures are not comparable because data on personnel of legal entities of private law (permanent & 
temporary) are not available in census database. 
(5) Data on temporary staff not burdening the budget is not available for 2014. The figure of temporary staff 
for 2014 derived based on the census database comment that the number of temporary staff not burdening 
the budgets is 45 000 for 2014 (which equals the approvals of 2013 for this type of personnel). 
(6) Data for 2019 is for the period January-September 2019. 
Source: Apografi (census) database 

To  counter  the  increase  in  temporary  staff,  the  new  administration  has  adopted 
provisions to regain control over their hires, in order to ensure that the size of the 
public  sector  remains  stable.  More  specifically,  the  government  has  adopted  a  law 
amendment (60)  that  removes  previously  granted  exemptions (61)  which  allowed  for 
hiring of temporary personnel to proceed outside the normal hiring process foreseen. In 
practice,  this  enables  a  more  stringent  control  of  hires  of  temporary  staff,  as  both  the 
Ministry of Interior and the Ministry of Finance will be informed prior to the approval 
of such hires approved. The authorities currently estimate that the number of temporary 

(60) Law 4635/2019 (OJ A-167/30.10.2019), Article 186. 
(61) Examples for such exceptions: (i) contracts for the needs of cleaning, catering, security (Article 63 of 
Law  4430/2016);  (ii)  contracts  for  the  cleaning  of  central,  decentralized  and  all  buildings  of  the 
Ministry of Health (Article 97 of Law 4468/2016); (iii) and contracts for the needs of cleanliness and 
care (Article 8 of Law 4506/2017). 

95 

Permanent staffTemporary staff burdening the budget /1Elected staffOther categoriesTotal2009730 234153 08721 2863 366907 9732010700 962109 96821 2863 262835 4782011674 01257 85312 1133 088747 0662012654 78141 86912 0313 053711 7342013618 57222 62613 2523 103657 5532014 /4576 85612,833 /56 1882 891585 9352015600 48456 3857 1494 773668 7912016598 87058 0538 0574 851669 8312017602 90859 7318 2485 728676 6152018601 78964 9118 8876 027681 6142019 /6599 53671 6438 4755 306684 960Δ 2009-2019-17.9%-53.2%-60.2%57.6%-24.6% 
   
 
                                                           
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staff will need to be reduced by approximately 5 200 persons in order to  comply with 
the  benchmark (62),  compared  with  only  1 500  estimated  in  the  previous  enhanced 
surveillance report based on census figures until February 2019. Therefore, the adopted 
measures by the authorities are welcomed and is expected to result in a gradual decrease 
of temporary staff. 

Table 8.2: Hiring limits of permanent personnel and indicative ceilings for temporary 

personnel to be monitored in the enhanced surveillance reports (2018-2023) 

(1) Commission services’ projections of the number of permanent and temporary personnel for the period 
2019-2022 on the basis of the 2020 budget and the commitments made during the program.  
(2) 2020 figures include corresponding reductions of 7 757 persons due to the hirings of 4 500 teachers and 3 
257 persons in "Home assistance" programme. 
Source: European Commission 

The  2020  hiring  plan  for  permanent  staff  is  in  accordance  with  hiring  limits  in 
accordance  with  the  2020  Budget  and  the  Medium-term  Fiscal  Strategy.  During 
2020 a number of temporary posts (7 757 for teachers and ‘home assistance’ staff) are 
expected  to  be  converted  to  permanent  posts,  as  these  posts  have  been  assessed  as 
meeting  permanent  needs.  Given  that  these  permanent  hires  will  be  done  with  a 
corresponding reduction of temporary staff (i.e. with no or a very small fiscal impact), 
they  are not  considered  by the  authorities as  falling under the  current  hiring rule. The 
European  institutions  do  not  in  principle  agree  with  new  permanent  hires  not  being 
accounted  for  under  the  existing  hiring  rule.  At  the  same  it  is  acknowledged  that  the 
teachers constitute a special group, as a significant number that to a large extent cover 
permanent needs are currently on temporary contracts. 

A few recent salary provisions raise some concern about the integrity of the unified 
wage  grid.  For  example,  for  specific  categories  of  staff  the  so-called  ‘personal 
difference’  they  are  entitled  to  is  no  longer  reduced  in  accordance  to  their  salary 
progression (63)  while  a  previously  adopted  amendment  has  also  been  extended  in  its 
scope and coverage (64). It is worth recalling that the ‘personal difference’ was installed 
to  ensure  that  public  officials  employed  when  the  initial  unified  wage  grid  was 
introduced (1 November 2011) would not see their remuneration being reduced by more 
than  25%.  Further  a  number  of  provisions  have  been  adopted  that  places  specific 
categories of staff at the most senior remuneration grade (65). It is acknowledged that the 
constraints  of  the  unified  wage  grid  might  make  it  difficult  to  fulfil  new  government 
priorities,  in  particular  when  it  requires  new  staff  with  specific  qualifications,  who 
might not be attracted to the public sector with the remuneration offered. In these cases, 

(62) The  benchmark  used  is  the  ceiling  set  for  temporary  staff  in  2016  (yearly  average)  and  was  a 

commitment under the ESM programme. 

(63) Law 4622/2019 (OJ A-133/07.09.2019), Article 93. Concerns the National Transparency Authority. 
(64) Law  4635/2019  (OJ  A-167/30.10.2019),  Article  221.  Concerns 

the  Hellenic  Competition 

Commission. 

(65) Law 4635/2019 (OJ A-167/30.10.2019), Article 174. Concerns the Presidency’s office. 

96 

2 0182 0192 0202 0212 022Permanent staff - new hirings (as per Hiring Plan): compliance with attrition rule (1:3 for 2018 and 1:1 for 2019-2022) /14 8586 62819 33113 4369 223Ceiling of temporary staff burdening the budget - total number of staff contracted /1 /264 91171 64363 79663 79665 277of whichTemporary staff of General Government entities49 12652 77045 01345 01346 494Temporary staff of public entities of private law15 78518 87318 78318 78318 783 
   
 
                                                           
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it  would  be  preferable  to  establish  new  ‘special  wage  grids’  for  these  entities  and/or 
staff  categories,  instead  of  introducing  ad  hoc  exceptions  to  the  unified  wage  grid. 
While the immediate fiscal impact of these provisions is estimated to be small, it raises 
structural problems and creates fiscal risks going forward, as other ministries/authorities 
may seek similar salary provisions. In this regard, the European institutions encouraged 
the authorities to  consider moving towards a more position-based system compared to 
the  current  career  system  based  on  education  qualification  and  seniority.  The  human 
resources  reform  currently  being  implemented  by  the  IAPR  is  a  step  towards  this 
approach. However, it is acknowledged that this would indeed constitute a major reform 
and it would be essential that it is based on a comprehensive strategy by the Secretary 
General for Human Resource of Public Sector, while also considering the impact of the 
wage  bill.  Finally,  an  adopted  provision (66)  relating  to  the  ’Enterprise  Greece’  which 
sets  out  that  it  is  no  longer  seen  as  a  public  sector  entity  raises  questions  about  its 
consistency with the mandate of the Hellenic Statistical Authority to maintain a list of 
the general government entities. 

Aiming to consolidate the unified wage grid reform as well as ensuring compliance 
with  the  hiring  procedures  (incl.  the  mobility  scheme),  the  authorities  have 
committed  to  centralize  and  strengthen  controls  through  implementation  of 
specific  measures  by  January  2020.  More  specifically,  an  inter-ministerial  working 
group  will  be  established  with  the  participation  of  the  Ministry  of  Finance  (GAO  – 
Directorate for wages), Ministry of  Interior (Secretariat General for Human Resources 
of  the  Public  Sector)  and  the  Presidency  that  will  be  given  the  mandate  to  present 
specific measures by end-2019. 

Legal measures to firm up on the unified wage grid remain pending, but the new 
administration  has  committed  to  continue  the  work  initiated  as  concerns  the 
hazardous  allowance.  Secondary  legislation  to  set  up  a  coherent  and  transparent 
approach  on  eligibility  and  size  of  the  hazardous  allowance  is  yet  to  be  adopted, 
although  the  inter-ministerial  committee  is  continuing  its  work.  In  order  to  allow  for 
more  time,  an  amendment (67)  has  been  adopted  which  sets  out  that  the  committee 
should  conclude  its  work  and  provide  its  recommendations  to  the  ministers  by  mid-
2020. The authorities have committed for the Joint Ministerial Decision to be adopted 
by September 2020. The same amendment also sets out that members for this specific 
committee can receive a fee. It will be important to ensure that clear rules for committee 
work  where  the  members  are  entitled  to  a  fee  are  established  and  that  GAO  (payroll 
management  service)  is  fully  consulted,  in  order  for  all  such  committees  across  the 
public  sector  to  be  listed.  In  addition,  further  clarity  as  concerns  the  actual 
implementation  of  a  specific  allowance  granted  for  public  officials  carrying  out 
controlling tasks that was adopted earlier this year (68) would be welcomed. A circular is 
expected to be issued with guidelines concerning the beneficiaries and details regarding 
the payment of this allowance.  

The  new  administration  has  committed  to  proceed  with  the  third  phase  of  the 
Single Payment Authority (SPA) reform, which had been significantly delayed. The 

(66) Law 4635/2019 (OJ A-167/30.10.2019), Article 84. 
(67) Law 4635/2019 (OJ A-167/30.10.2019), Article 212. 
(68) Law 4613/2019 (OJ A-78/24.05.2019), Article 22. 

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completion of this phase would allow the SPA to carry out the clearance of salaries for 
all  general  government  entities  jointly  with  the  Directorate-General  for  Financial 
Services of each entity, as an integrated information system will be established. Today, 
the SPA’s mandate is confined to executing the payments of all salaries paid to public 
officials  employed at  general  government  entities. The authorities have committed for 
the Ministry of Finance to adopt a legal amendment by end-2019, in order to allow for a 
Presidential  Decree (69)  on  the  SPA’s  organisational  structure  to  be  updated.  This  is 
important as it will allow for the contract of a flagship IT project (€ 2.3 million) funded 
by the National Strategic Reference Framework to be signed by January 2020. The IT 
system is expected to be operational by mid-2022 and an implementation period of up to 
three  years is foreseen until all general  government entities will be covered. Finally,  a 
Governance Steering Committee and a working group with members from all relevant 
parties  (incl.  SPA  and  GAO’s  wage  directorate)  have  already  been  established.  The 
main responsibility of these structures is to look at all relevant issues (business and IT) 
regarding  the  preparation  and  implementation  of  the  new  IT  system.  One  of  the  most 
crucial  issue  that  the  working  group  will  tackle  is  the  preparation  of  the  user 
requirements which includes the review of the current clearing controls.  

8.2.  JUSTICE 

8.2.1. Electronic Justice 

Despite inherited delays, the authorities moved forward with the preparatory stage 
of the second phase of the Integrated Judicial Case Management System, which is 
a commitment for mid-2020. Following the completion, in January 2019, of the first 
stage  (covering  the  civil  and  criminal  courts  of  Athens,  Piraeus,  Thessaloniki  and 
Chalkis,  as  well  as  the  Supreme  Court),  the  second  phase  will  cover  all  judicial  and 
prosecutorial offices, as well as other justice bodies to be identified in the course of the 
implementation  study  for  the  project.  Its  key  objectives  are:  (a)  the  introduction  of  a 
uniform  IT  environment  in  all  criminal  and  civil  courts,  in  order  to  raise  the  quality, 
speed  and  efficiency  of  the  administration  of  justice  through  a  uniform  centralized 
system  and  (b)  the  creation  of  the  conditions  for  interoperability  of  this  environment 
with the IT systems of other entities of the State and the EU. Pursuant to the Decision of 
the  Minister  of  Justice  for  launching  the  public  consultation  procedure  regarding  the 
draft  tender  for  the  project (70),  the  latter  was  put  on  public  consultation,  which  was 
recently concluded. Following further processing in the light of the feedback received, 
the tendering procedure  was completed in  November 2019,  and the publication of the 
tender  is  due  by  December  2019,  upon  completion  of  ongoing  administrative 
proceedings at the Ministry of Digital Governance.  

The  gradual  switching  to  the  mandatory  electronic  filing  and  processing  of  legal 
documents  (writs,  memoranda,  means  of  evidence  and  related  documentation), 
which was  a commitment for 2019 (mid-2019 for the completion of the tendering 
procedure and end-2019 for the implementation), is progressing, starting from the 
administrative  jurisdictions.  Following  the  extension  of  the  possibility  of  electronic 
filing  of  court  documents  (legal  writs,  memoranda  and  means  of  evidence)  with  the 
first-instance  court  of  Athens,  in  October  2019,  the  authorities  adopted  provisions 

(69) Presidential Decree, 142/2017, Article 50. 
(70) Ministerial Decision 245/30.8.2019.  

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amending  the  Presidential  Decree  on  the  Council  of  State  and  the  Code  of 
Administrative  Procedure  to  introduce  a  mandatory  electronic  filing  of  legal  writs, 
memoranda, means of evidence and administrative documentation as of January 2021, 
as  well  as  allowing  for  remote  access  to  the  case  files  by  the  parties  to  judicial 
proceedings (71).  

8.2.2. Alternative dispute resolution  

The  mandatory  mediation  framework,  whose  entry  into  force  was  twice 
postponed (72),  will  soon  become  effective.  Following  the  recent  redrafting,  due  to 
inherited delays, of a number of provisions on mediation of law 4512/2018 (73) with a 
view to addressing objections raised in 2018 by the Administrative Plenary formation of 
the  Supreme  Court  as  to  the  constitutionality  of  certain  aspects  of  the  mediation 
framework, as well as to complying with decision C-729/2017 of the European Court of 
Justice and addressing issues of a practical and technical nature, the Ministry of Justice 
will  shortly  table  for  adoption  amendments  ensuring  conformity  of  the  mediation 
framework with the Greek Constitution and EU law. Most notably, the amendments will 
reduce  the  categories  of  disputes  subject  to  mandatory  mediation  as  well  as  the 
minimum cost of mediation, and modify a number of procedural and technical aspects 
of  the  framework,  introducing  a  number  of  changes  to  the  provisions  on  training  of 
mediators and the recognition of their professional qualifications. 

8.3.  ANTI-CORRUPTION 

In  August  2019,  the  national  anti-corruption  action  plan,  the  implementation  of 
which constitutes a mid-2021 commitment, became part of the mandate of the new 
independent  National  Authority  of  Transparency  (NTA).  The  NTA  replaced  the 
General Secretariat for Anti-corruption and should be endowed with greater institutional 
capacity  to  fight  corruption.  It  is  expected  to  become  fully  operational  by  2020.  The 
agency brings together a number of functions previously followed by different bodies: 
investigation of corruption, prevention, and improving public awareness.  As far as the 
investigation and audit role of the agency is concerned, it merges five sectoral inspector 
bodies  existing  until  now,  which  is  a  major  step  forward  considering  the  previous 
fragmentation of the different audit bodies and the need to streamline competences and 
allocate resources more efficiently. The prevention arm of NTA’s policies will broadly 
encompass  the  former  General  Secretariat  for  Anti-corruption.  Raising  awareness 
around the benefits of strengthening integrity in both public and private sectors is part of 
NTA’s mission in relation to corruption prevention.  

The  progress  report  on  the  national  anti-corruption  action  plan  for  the  first 
semester  of  2019  has  been  published  and  signals  that  a  great  majority  of  actions 
has been completed or launched. There are more than 100 NACPA actions. The vast 
majority  have  been  launched,  are  completed  or  are  continuous  actions.  Under  the  14 
pending  actions,  only  2  should  have  been  launched  before  end-2019.  They  deal  with 

(71) Law 4635/30.10.2019, OJ A 167/30.10.2019, articles 75 to 79. 
(72) By  virtue  of  article  19  of  law  4566/2018  (OJ  A  175)  and  article  3  of  law  4626/2019  (OJ  A 

141/16.9.2019).  

(73) Articles 179, 180, 182, 183, 184 para. 4, 185, 186, 188 para. 1, 194, 198, 199, 201 para. A, 202, 203 

and 206.   

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corruption  at  local  government  level  (follow  up  the  implementation  of  the  specific 
sectoral  strategy  and  annual  reporting  by  local  authorities  on  audits  related  to 
corruption). Their  relevance and feasibility will  be reassessed by the NTA by January 
2020.  In  effect,  in  view  of enhancing the efficiency  and the impact  of the plan,  while 
adopting  a  more  results-oriented  approach,  the  NTA  intends  to  update  the  action  plan 
and  propose  amendments  in  line  with  the  recommendations  of  the  United  Nations 
Convention  against  Corruption,  the  Group  of  States  against  Corruption  (GRECO)  and 
the  OECD.  It  should  be  pointed  out  that  issues  regarding  the  detection  of  money 
laundering by banks are not part of the NACAP. The regulation of such matters and the 
provision of prevention and treatment mechanisms are indeed undertaken by the Bank 
of Greece in cooperation with the financial institutions. 

Even  if  the  effectiveness  of  the  new  modern  system  of  party  financing  and  the 
reformed asset declaration system is not fully certain, steps have been taken on the 
matters  that  were  previously  identified  as  in  need  of  improvement.  The 
establishment  of  a  more  unified  framework  for  controlling  bodies,  asset  recovery  and 
asset  management (74)  and  the  political  party  financing  framework (75)  show  progress. 
The reformed asset declaration system  is  now fully operational (76) but  as for the  new 
modern  system  of  party  financing  implemented  after  a  series  of  reforms,  their  full 
implementation  is  a  matter  of  concern  since  their  control  mechanism  are  not  fully 
effective  yet.  In  effect,  the  competent  audit  committee  of  the  Parliament  has  not  yet 
imposed  administrative  sanctions  related  to  party  financing  to  date (77).  However,  in 
view of returning public assets obtained corruptly, a project has been drafted and will be 
implemented with technical support and external funding. Besides, on internal auditing 
services, the gaps have been partially filled with legislation regarding the internal audit 
function in line ministries, while measures have been taken to establish modern internal 
audit functions in local governments (for a more detail analysis see section 3.4.1). The 
NTA  plans  to  review  and  revamp  the  existing  internal  audit  arrangements  across  the 
public  administration,  which  also  address  a  statement  of  the  Hellenic  Court  of  Audit 
made in 2019 (78). 

However, the coordination mechanism for corruption and other financial crimes, 
which  is  part  of  the  NACAP  actions (79),  remains  a  pending  issue  in  need  of 
immediate attention. According to the evaluation submitted to the former responsible 
of  NACAP,  the  coordination  procedure  for  combating  financial  crimes (80)  is  reported 
by the authorities as fully operational but the number of cases and values reported from 
the tax administration to judicial authorities has decreased since March 2018. In view of 
improving  the  coordination  among  audit  and  accountability  institutions  for  corruption 

(74) Action number 1.3 NACAP. 
(75) Action number 9.3 NACAP. 
(76) Following  a  court  judgement  in  2019 the  provisions  of  Law  4571/  2018  are  in  line  with  the 

Constitution and the international obligations of Greece. 

(77) Gasparinatou,  M.  (2019),  “Political  Corruption  and  funding  of  political  parties”  in  S.  Vidali,  N. 
Koulouris,  Ch.  Papacharalampous  (eds.).  Crimes  of  the  Powerful:  Corruption,  Financial  and 
Organised  Crime,  Athens:  Hellenic  Open  University 
also 
https://vouliwatch.gr/actions/article/442e2bd7-40e4 

(under  publication),  See 

(78) Follow-up audit on arrears. 
(79) Action 13.2.1 NACAP. 
(80) Law 4512/2018, article 388. 

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cases and although this does not cover the criminal aspect of cases, the NTA hosts the 
National Coordinating Body of Audit and Accountability with an expanded mandate. 

The NTA plans to take important steps in the field of detecting and tackling fraud. 
It will be responsible for the fight against fraud in both the national and the European 
Union budget.  The NTA plans to  undertake four work streams,  including  a project  on 
enhancing the functioning of the European Anti-Fraud Coordination Office in Greece in 
accordance with EU regulations. For this project, the NTA is receiving technical support 
since  November  2019.  Before  progress  in  this  field  can  be  assessed,  the  NTA  would 
need  to  capitalize  on  the  support  provided  and  establish  a  holistic  action  plan  on  the 
Anti-Fraud Coordination Office. As regard protection of whistle-blowers, the authorities 
plan to adopt the national law transposing the EU Directive (81) by end-March 2020. 

The  Ministry  of  Interior  has  announced  plans  to  develop  a  coherent  national 
framework for integrity in public institutions jointly  with  the National  Authority 
for  Transparency.  As  part  of  establishing  this  framework,  various  existing  tools  will 
be reviewed (e.g. Code of Ethics) and introduction of new tools (e.g. establish a network 
of certified integrity advisors across the public administration, registry for lobbyists). In 
this  context  the  Executive  /  State  Law  (Articles  68-76)  includes  provisions  relating  to 
conflict of interest and other integrity issues for the posts held by political appointees, 
senior  officials  at  independent  authorities  and  other  legal  entities  as  well  as  for  non-
permanent officials. The same law also establishes units responsible for internal control 
(Article  39).  The  unit  is  divided  into  two  offices,  namely  (i)  Programming  office  and 
carrying out internal controls; and (ii) internal investigation office. 

Finally,  the  Group  of  States  against  Corruption  (GRECO)  and  the  OECD 
Working Group on Bribery expressed their great concern on a law amending the 
Criminal  and  Criminal  Procedure  Codes.  Following  the  amendments  passed  in 
June 2019, 
the  main  active  bribery  offence  was  converted  from  felony to  a 
misdemeanour, which is a less serious offence. This downgrading has a consequence a 
shorter limitation period for bribery offences and a direct impact on ongoing cases and 
on international  cooperation  procedures. The June amendments  also  abolished the law 
1608/1950,  which  stipulated  aggravating  circumstances  in  certain  conditions.  Finally, 
another  amendment  restricts  the  concept  of  the  civil  servant  to  exclude  employees  of 
legal  entities  which  do  not  have  the  civil  servant  status  but  are  assimilated  in  their 
functions.  The  NTA  has  been  encouraging  the  Ministry  of  Justice  to  reform  the 
provisions  of  both  the  Penal  Code  and  the  Code  of  Penal  Procedures  in  view  of 
addressing  all  issues  raised.  The  authorities  confirmed  that  the  Criminal  and  Criminal 
Procedures Codes will be promptly amended to align the necessary provisions with the 
OECD’S  Anti-Bribery  Convention,  but  it  should  be  noted  that  the  propositions  that 
should be adopted in November do not seem to sufficiently address these concerns. A 
joint mission by GRECO and the OECD is planned to take place before end-2019. Its 
findings would 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 

(81) Adopted on 16 April 2019.  

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former President and senior staff of the Hellenic Statistical Authority (ELSTAT). 
The  case  against  former  ELSTAT  President  A.  Georgiou  related  to  charges  filed  in 
connection  with  fiscal  statistics  has  been  irrevocably  dismissed.  Regarding  other 
pending  cases,  an  appeal  introduced  by  Mr  Georgiou  in  a  civil  defamation  lawsuit  is 
scheduled to be heard in January 2020, following an adjournment of the hearing of May 
2019.  In  the  case  against  the  Committee  of  Experts,  there  has  been  a  further  positive 
development  since  the  last  enhanced  surveillance  report;  namely,  the  ruling  by  the 
chamber formation of the Athens Court of Appeal that dismissed the charges against the 
Committee  of  Experts  was  not  appealed  by  the  Prosecutor  of  the  Supreme  Court,  and 
therefore stands irrevocably in force. 

9.1.  SOVEREIGN FINANCING 

Greece maintained 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 (PDMA) tapped the market for the third time this year in July by 
issuing  a  7-year  bond.  The  bond  reached  a  1.9%  reoffered  yield  with  a  coupon  of 
1.875%. This was the lowest yield ever achieved by the Greek government for a euro-
denominated  benchmark  syndication  up  to  that  day.  By  this  issuance,  the  PDMA 
completed  its  funding  plan  for  2019  by  issuing  bonds  worth  of  €7.5 bn  in  total. 
However, after the further moderation of the  yields,  the PDMA decided to  re-open its 
books for the 10-year bonds issued in March 2019 and accepted further offers by issuing 
another €1.5 bn in bonds. The re-offered yield dropped to 1.5%, registering yet another 
record low yield.  

Greece’s  bond  yields  decreased  markedly  since  the  last  report.  The  government 
bond  yield  spreads  started  to  slowly  moderate  after  the  successful  conclusion  of  the 
ESM  programme  in  2018.  After  some  volatility  in  May  and  the  announcement  of  the 
snap  elections,  the  difference  in  bond  yields  compared  to  Germany  decreased  further 
and  reached  2.5 percentage  points  on  the  10-year  tenure  in  July  2019,  down  from 
3.5 percentage  points.  a  year  earlier.  A  further  decrease  took  place  in  September,  and 
Greek bond yield spreads reached levels as low as 1.9 percentage points. The reduction 
in yield spreads was accompanied by a credit rating upgrade by Standard and Poor’s by 
one notch from BB- to B+ with a positive outlook. 

The  partial  early  repayment  of  the  IMF  loans  is  expected  to  take  place  by  end-
November. With the recent decline in market interest rates on bond issuances, Greece 
requested  a partial early repayment  of its  IMF loans. After the  completion of national 
procedures, ESM and EFSF governing bodies have waived their right for a proportional 
repayment  on  28  October.  In  particular,  the  amount  in  excess  of  SDR 4.6 bn,  which 
bears a higher interest rate would be pre-paid. The transaction will be financed through 
funds  raised  earlier  in  the  year.  This  early  repayment  has  limited  impact  on  debt 
sustainability, as most of that amount would have been due by the end of 2020 anyway. 
The transaction is nevertheless welcome, as it will reduce the foreign exchange rate risk 
that the sovereign faces, and will generate savings of approximately €70 m in 2020.  

Greece  maintains  a  substantial  cash  buffer.  State  cash  reserves  remained  high  at 
around €20.3 bn as of end-September 2019, of which €15.7 bn remain intact in the cash 

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buffer account.  The  available reserves are sufficient  to  cover financing needs of more 
than two years ahead, even after the IMF early repayment.   

Graph 9.1:Credit ratings (left) and 10-year government bond spreads to the Bund (right) 

Source: European Commission 

9.2.  DEBT SUSTAINABILITY  

An update (82) of the debt sustainability analysis has been carried out. As the draft 
budget  submitted  by  the  government  ensures  compliance  with  the  primary  balance 
target  in  2020,  the  current  DSA  assumes  full  compliance  with  the  primary  balance 
targets  in  the  outer  years  too,  reflecting  the  government’s  commitment.  This  update 
furthermore  assumes  the  full  implementation  of  all  medium-term  measures  agreed  in 
June 2018 to ensure debt sustainability. The income equivalents from the SMP-ANFA 
profits  are,  on  a  technical  basis,  assumed  to  be  disbursed  and  used  for  debt  service 
purposes only. The DSA also assumes that the partial early repayment of the IMF loan 
will take place as planned, as the ESM and EFSF governing bodies have waived their 
right for a proportional repayment. 

last  update,  market 

Since  the 
interest  rates  and  spreads  have  declined 
substantially. There is however considerable uncertainty around the persistence of the 
current low-interest rate environment and how this could be reflected in the analysis in a 
consistent way. To simulate the impact of a protracted period of low risk-free rates and 
compressed spreads, the current DSA includes an upside scenario, which builds on the 
macro  and fiscal  assumptions of the baseline scenario, but  its  assumptions on the risk 
free rate and the Greek interest rate are aligned with market expectations (forward rates) 
over the medium term. Over the long term, steady state interest rate assumptions have 
remained  unchanged.  As  the  macro  assumptions  underlying  the  DSA  do  not  build  on 
market  expectations in  the medium  term,  this scenario should be interpreted only as  a 
partial  impact  assessment  of  lower  interest  rates.  The  assumptions  underlying  the 
adverse  scenario  remain  unchanged,  capturing  only  risks  to  the  macro  and  fiscal 
developments. 

(82) The update includes: updated debt data for 2018, updated macroeconomic scenarios and assumptions 
on risk free rates, updated interest and amortization payments on Greek Loan Facility as well as other 
loans, new bond issuances and an updated privatisation schedule. 

103 

AAAAA+AAAA-A+AA-BBB+BBBBBB-BB+BBBB-B+BB-CCC+CCCCCC-CCCDAaaAa1Aa2Aa3A1A2A3Baa1Baa2Baa3Ba1Ba2Ba3B1B2B3Caa1Caa2Caa3CaC​2007200820092010201120122013201420152016201720182019Moody'sS&PFitchS&P,FitchMoody's00.511.522.533.544.55%PortugalIrelandGreeceItaly  
                                                           
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The baseline scenario shows that debt would remain on a downward trend (except 
for a level-shift due to the capitalisation of the deferred interest in 2033), but would 
remain above 100% of GDP until 2041. In the upside scenario, debt reduces fast and 
reaches 60% of GDP in 2055. An update of the adverse scenario shows that debt starts 
rising again after the early-2040s.  

Graph 9.2: Main results of the debt sustainability analysis 

Source: European Commission 

Under the baseline scenario, gross financing needs remain moderate, around 10% 
of GDP until 2032. Thereafter, the gross financing needs start to increase slowly, but 
are  projected  to  remain  around  14% of GDP  at  the  end  of  the  forecast  horizon.  In  the 
upside  scenario,  debt  remains  highly  sustainable  throughout  the  horizon  of  the 
simulation, as gross financing needs remain around 10% of GDP in 2060. In the adverse 
scenario,  the  gross  financing  needs  reach  20%  of  GDP  in  2042  and  increase  further 
thereafter. 

104 

040801201602002018202020222024202620282030203220342036203820402042204420462048205020522054205620582060%Gross government debtAdverse scenarioBaseline scenarioUpside scenario05101520253035201920212023202520272029203120332035203720392041204320452047204920512053205520572059%Gross financing needsAdverse scenarioBaseline scenarioUpside scenariosustainability  
ANNEX 1: IMPLEMENTATION OF COMMITMENTS 

Progress  with  the  implementation  of  mid-2019  and  continuous  specific  commitments  (Annex  to  the  Eurogroup  statement,  22  June 
2018) and follow-up issues (*) 

Commitment 

State of play and next steps 

1 

2 

3 

4 

Fiscal. Ensure that the annual budget achieves a primary surplus 
of 3.5% of GDP. 

Draft Budgetary Plan for 2020 was submitted on 15 October compliant with 
primary surplus targets in 2019 and 2020.  

Health  care  –  Clawbacks.  Complete 
collection of the clawback for 2018. 

the  offsetting  and 

The collection has been delayed due to changes  in the repayment schedule. 
The  Ministerial  Decree  implementing  the  collection  of  the  2018  clawback 
was signed and will enter into force shortly. 

Taxation – ENFIA. Undertake nationwide valuation exercises of 
property tax value based on market values. 

The  valuation  exercise  was  rescheduled  in  favour  of  a  major  reform  of  the 
objective  property  tax  values  system  by  mid-2020,  set  out  with  a  detailed 
timetable.  

the  accumulation  of  new  ones  and  complete 

Public  financial  management.  Reduction  of  arrears  to  zero. 
Avoid 
the 
implementation  of  reforms  identified  by  the  Hellenic  Court  of 
Auditors (HCA). 

At  end-August  2019,  the  stock  of  arrears  stood  at  €1.3  bn.  The  new 
administration adopted mid-October a broad clearance and non-accumulation 
plan  according  to  which  the  stock  of  arrears  is  foreseen  to  reach 
approximately €140 m by December 2020. 

* 

Tax administration. Progress with IAPR recruitment. 

Progress was made on most reforms identified by the HCA but more time is 
required to design and fully implement them.  

The ex ante audits performed by the HCA were phased out as envisaged. 

Good  progress  was  reached  on  equivalent  measures  to  the  end-2018 
commitment on the hiring target: 

Completion of the HR reform: Budget has been allocated. Primary legislation 

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Commission Staff Working Document -  

Chapter  - Annex 1 

on  grading  scale  will  be  adopted  by  end-2019.  Primary  legislation  on  the 
wage grid will be adopted in time for the new system to become effective as 
of 1 July 2020.   

IT systems: Preparation of an agreed road map will be finalised by end-2019. 
The road map will clarify competency areas relating to IT between the IAPR 
and the GSIS (incl. updating of the SLA) to be completed by mid-2020.  

Housing:  Appropriate  building  for  the  IAPR’s  headquarter  services  was 
identified.  A  detailed  timeline  will  be  adopted  by  end-2019  and  services 
relocated by end-2020. 

5 

* 

6 

Social  safety  nets.  Apply  to  all  disability  benefits  the  new 
approach for disability determination based on both medical and 
functional assessment. 

The  reform  is  advancing  but  with  significant  technically-related  delays 
outside the control of the authorities. A revised timeline will be agreed once 
the evaluation by an external consultant is received. 

Labour market. Monitor impact of minimum wage increase and 
collective bargaining. 

A  technical  support  project  is  being  launched  with  the  World  Bank  to 
conduct an ex-post assessment of the 2019 minimum wage increase. 

Financial. Continue to implement reforms aimed at restoring the 
health of the banking system, including NPL resolution efforts. 

E-auctions: The final working group report is expected by December 2019 

Elimination  of  Household  Insolvency  backlogs:  An  action  plan  is  expected 
by end-December 2019 

Implementation  of  primary  residence  protection:  Draft  amendments  to  law 
4605/2019 will be adopted shortly.  

Harmonisation of insolvency legislation: A concept paper was submitted and 
will  be  finalized  by  December  2019;  the  relevant  legislation  should  be 

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adopted by April 2020. 

Commission Staff Working Document -  

Chapter  - Annex 1 

Evaluation  of  the  implementation  record  of  the  reformed  Code  of  Civil 
Procedure: proposal for amendments due by end-December 2019 

Provision of financial training to judges: Two draft PD due for submission 
to the Council of State. 

Legal  safeguards  for  bank  officials  dealing  with  debt  restructuring  cases: 
Proposed  amendments  to  the  Penal  Code  tabled  in  Parliament  on  31  Oct 
2019 and due for imminent adoption. 

State  guarantees:  Clearance  and  payment  plans  were  presented  on 
31 October 2019, envisaging the payment of called guarantees within seven 
years.  The  authorities  are  seeking  scope  for  a  more  timely  payment  profile 
with adequate measures to ensure its credibility. 

7 

8 

Financial. Continue the relaxation of capital controls in line with 
the published roadmap. 

Capital  controls  were  fully  phased  out  as  of  September  2019,  ahead  of 
schedule. 

Justice.  Complete  the  tendering  procedure  for  the  launching  of 
phase  II  of  the  Unified  System  for  the  Management  of  Court 
cases (OSDDY-PP). 

The tender is due to be launched by end-December 2019. 

* 

Investment licensing. Adopt all enabling licensing legislation. 

A Joint Ministerial Decree (FEK/B/436 - 14.02.2019) for the installation and 
operation  of  activities  in  the  sector  of  environmental  infrastructures  was 
adopted.  Other  important  measures  consistent  with  the  objectives  of  the 
reform were adopted in the Development Law on 24 Oct 2019. A review of 

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environmental licensing rules is in progress. 

9 

Cadastre. Complete the drawing of the remaining forest maps.  Materially completed  (94.6%). The  remaining part was delayed  for  reasons 

Commission Staff Working Document -  

Chapter  - Annex 1 

10  Energy. Launch the Target Model for the electricity market. 

* 

Energy. Completion of lignite divestiture. 

outside of control of the authorities and will be completed by Feb 2020. 

The timeline for the rollout of the Target Model was agreed to be revised in 
view  of  delays  from  the  first  half  of  the  year,  with  a  new  deadline  of  June 
2020.  The  recently  submitted  draft  energy  bill  puts  in  place  a  binding 
timetable and allows RAE to impose penalties for breaches in this respect. 

The  extended  lignite  divestiture  failed  and  resulted  in  a  breach  of  the  anti-
trust  commitment.  The  authorities  announced  an  early  decommissioning  of 
lignite, reflected in its energy market plan. Regarding an alternative remedy 
for  the  anti-trust  commitment,  the  authorities  formally  communicated  their 
intention to submit revised remedies in January 2020.   

11  Privatisation.  Complete  the  transactions  on  HELPE  (including 
transfer of remaining shares to HCAP) and Marina of Alimos. 

HELPE: No binding offers submitted. The financial closure is thus inevitably 
subject to significant delays. The approach is expected to be clarified and a 
timeline finalised, by end-2019. 

Marina of Alimos: 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. 

12  Privatisation.  Implement  the  Asset  Development  Plan  of 

TAIPED on a continuous basis. 

The  Asset  Development  Plan  was  updated  and  endorsed  by 
Governmental Council for Economic Policy. 

the 

Egnatia:  The  following  actions  are  needed  to  be  completed  before  the 
submission  of binding offers,  which is  currently  scheduled for 21  February 

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Chapter  - Annex 1 

2020:  (i)  Implementation  of  the  new  toll  pricing  policy  approved  by  the 
Commission; (ii) Completion of the construction of all remaining frontal and 
lateral  toll  stations;  (iii)  Licensing  of  all  tunnels  by  the  Tunnel  Licensing 
Authority; (iv) Clarification of the remaining measures (and cost) to ensure 
that  bridges  are  classified  as  safe;  (v)  Commencement  of  operation  of 
already constructed and ready to operate frontal toll stations; (vi) Resolution 
of open issues related to contracts  for the motor  service stations (regarding 
Eleftherochori, Oraiokastro, Ardanio and Sostis) by Egnatia; (vii) Egnatia to 
proceed  to  necessary  actions  (tender  for  advisor  appointment)  for  all  the 
preparatory work necessary for the remaining expropriations. 

DEPA: Draft law  expected to  be enacted shortly. Following the  enactment, 
the  transactions  for  the  sale  of  the  whole  stake  of  the  Hellenic  Republic  in 
both the commercial and infrastructure business will be launched. Given that 
the  two  tender  processes  are  expected  to  be  running  in  parallel,  it  is 
important to ensure that the unbundling provisions envisaged in the draft law 
are enforced.   

Regional  ports  of  Alexandroupolis  and  Kavala:  The  next  steps  are: 
(i)Adoption  of  an  amendment  providing  TAIPED  the  flexibility  of  choice 
(i.e.  master  concession,  sub-concession,  sale  of  equity)  so  as  to  allow  the 
best  privatisation  transaction  structure  for  each  port;  (ii)  Completion  of  a 
study by the advisors of TAIPED on the best proposed privatisation structure 
for  each  port;  (iii)  Launching  of  the  transactions  on  the  regional  ports  of 
Alexandroupolis and Kavala. 

Sale  of  30%  of  the  Athens  International  Airport  (AIA)  shares:  On  29 
October,  ten  investment  schemes  expressed  interest  (Phase  A)  to  acquire  a 
30% stake in AIA owned by TAIPED. The next steps is for TAIPED with its 

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advisors  to  evaluate  the  Expressions  of  Interest  and  submit  to  the  Fund’s 
Board  of  Directors  their  recommendation  regarding  the  candidates  that 
qualify for the next phase of the tender. 

EYDAP  water  company:  The  20-year  concession  agreement  between 
EYDAP and the Hellenic Republic, which was due to expire on 25 October 
2019,  was  extended  for  a  six  months  period.  This  is  intended  to  provide 
sufficient time to the parties to finalise the negotiations. 

Significant  progress  was  made  and  the  financial  closing  is  feasible  in  the 
coming months. Next steps: Completion of: (i) tender process for the award 
of  the  casino  licence;  (ii)  relocation  of  the  remaining  user;  and  (iii)  the 
partition  of  the  Hellinikon  site  between  the  Hellenic  Republic  and  Lamda 
Development.  

Implementation of the strategic plan of HCAP continues. The business plan 
for 2019-2021, implementing the strategic plan and setting key performance 
indicators  (KPIs)  for  its  direct  subsidiaries  and  the  non-listed  other 
subsidiaries was prepared in December 2018. HCAP has also elaborated the 
framework for monitoring the KPIs and is monitoring the KPIs set for each 
non-listed SOE, in which it has majority participation, on a regular basis. 

Review  /  replacement  of  the  Boards  of  Directors  was  completed  in:  ELTA 
(Hellenic  Post),  GAIAOSE  (SOE  active  in  the  fields  of  railway  real  estate 
property  and  rolling  stock  exploitation,  management  and  development), 
OASA  (Athens  Urban  Transport  Organization),  AEDIK  (Corinth  Canal), 
KATH  (Central  Market  of  Thessaloniki),  PPC  (Public  Power  Corporation), 
the  water  companies  EYDAP  (Athens)  and  EYATH  (Thessaloniki),  and 
ETVA  VIPE  (SOE  whose  main  activity  is  the  sale  of  plots  of  land  for 

* 

Privatisation.  The  transaction  on  Hellinikon  should  have  been 
completed by end-2018. 

13  HCAP. Implement the Strategic Plan of HCAP on a continuous 
basis. Complete the review/replacement of all SOE boards. 

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* 

HCAP.  The  transfer  of  OAKA  to  HCAP  should  have  been 
completed by end-2018. 

14  Public  administration. 

the 
appointment process for senior management, including follow up 
measures. 

Independent  assessment  of 

15  Public administration. Complete the 3rd cycle of mobility and 

performance assessments. 

* 

Public  administration.  Progress  with 
appointment  of 
Administrative Secretaries and issues relating to the unified wage 
grid. 

industrial  use).  Work  is  underway  for  Central  Market  of  Athens,  Helexpo 
(Hellenic Exhibition Organisation) and the Greek Saltworks. Work is about 
to  commence,  in  cooperation  with  OASA’s  management,  for  OSY  and 
STASY, the Athens bus and metro companies respectively. 

Given  the  complexities  and  involvement  of  third  parties,  an  adjusted 
timetable,  with  technical  studies  through  2020,  appears  reasonable.  The 
timing  for  transfer  would  then  be  determined.  The  process  needs  to  be 
pursued as diligently as possible. 

The  assessment  was  completed  by  June  2019.  Law  4622/2019  cancelled 
Administrative Secretary posts, thus making the commitment for adoption of 
follow-up measures redundant.  

3rd  mobility  cycle:  Good  progress  was  made  in  completing  transfers. 
Provisions  to  facilitate  that  transfers  are  completed  on  time  and  strengthen 
link with the annual hiring plan will be adopted by end-2019. 

Performance assessment: The 2018 round was completed on time and with 
overall good participation. 

Appointments  of  senior  management  posts:  Law  4622/2019  abolished  the 
Administrative Secretary posts (69 in total), while partially replacing it with 
the  Permanent  Secretary  post  (13  in  total).  The  job  announcement  for  the 
Permanent Secretary posts is expected to be launched by ASEP shortly and 
be  completed  by  Jan  2020.  An  open  selection  process  for  legal  entities  of 
public/private  law  will  be  reintroduced  and  the  relevant  legislation  will  be 
adopted by May 2020. The authorities are expected to also adopt measures to 
strengthen  the  institutional  continuation  of  the  Presidency.  A  circular  was 

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published by the Ministry of Interior in Nov 2019 that sets out the process of 
delegating the signature powers of individual acts as per Law 4622/2019 to 
administrative level.  

Unified  wage  grid  and  the  Single  Payment  Authority:  The  authorities  have 
committed  to  adopt  the  following  measures  to  consolidate  the  existing 
exemptions  from  the  wage  grid  and  to  make  the  introduction  of  new 
exemptions  more  difficult:  (i)  legal  amendment  of  the  Presidential  Decree 
(142/2017,  Art  50)  by  end-2019  to  allow  for  the  launch  of  a  flagship  IT 
project  for  the  Single  Payment  Authority  by  Jan  2020;  (ii)  an  inter-
ministerial  working  group  with  mandate  to  present  specific  measures  that 
will  be  in  place  by  Jan  2020;  and  (iii)  secondary  legislation  relating  to  the 
allowance for hazardous professions by Sept 2020.  

Progress with the implementation of end-2019 specific commitments to the Eurogroup (Annex to the Eurogroup statement, 22 June 
2018)  

Commitment 

State of play and next steps 

1  Public financial management. Complete the cash monitoring and 
forecasting for the General  Government  Treasury  account  system 
by end-2019. 

Progress  was  made  on  most  of  the  key  actions  in  spite  of  minor  delays. 
Additional steps will be needed to ensure the full completion of the reform. 
Monitoring  all  general  government  entities’  liquidity  by  the  GAO  will 
require an ad-hoc IT system. 

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2  Tax  administration.  Reach 

the  agreed  permanent  staffing 
positions at the Independent Authority of Public Revenue (IAPR) 
of 12 500 by end-2019. 

3  Social safety nets. Complete the rollout of all three pillars of the 

Social Solidarity Income (SSI) scheme by end-2019. 

Review the system of subsidies for local public transport by end-
2019. 

4  Labour  market.  Implement  action  plan  on  undeclared  work  by 

end-2019.  

Similar  to  the  end-2018  hiring  target  that  was  not  met  (11 487  instead  of 
12 000), it seems unlikely that the end-2019 hiring target will be met (current 
staff level is 11 751 with the target set at 12 500). Overall good progress on 
the  complementary  measures  agreed  to  facilitate  achievement  of  future 
hiring targets.  

The authorities have completed the second pillar – social inclusion – of the 
Social  Solidarity  Income  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.  

The  authorities  have  confirmed 
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.  

their  commitment 

to  assess 

The current action plan to fight undeclared work for 2017-2019 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  are  designing  a  follow-up  to  the  action 
plan,  with  continued  technical  support  by  the  International  Labour  Office. 
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 ERGANI employment registration system 

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5 

Justice.  In  the  context  of  implementing  the  Three-Year  Action 
Plan on Justice, implement the electronic filing of legal documents 
throughout  the Courts, having  completed the tendering procedure 
by end-2019. 

6 

Investment licensing. Complete the investment licensing reform, 
and to this end fully deploy the relevant ICT (end-2019). 

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 tendering procedure will be launched by end-December 2019. 

The  tender  process  for  the  design  and  implementation  of  the  relevant  IT 
system  (ILIMS)  is  expected  to  be  completed  and  the  contract  awarded  by 
end-2019. 

7  Energy. With a view to completing  reforms in the energy sector, 
implement the measures agreed as part of the joint assessment on 
the NOME auction system. 

As  noted  in  table  above,  item  10,  additional  structural  measures  are  being 
discussed,  though  in  the  context  of  an  alternative  remedy  for  the  anti-trust 
commitment. There are also plans to speed up delivery of the forward market 
as an alternative to NOME.  

8  Privatisation.  With  a  view  to  swiftly  attracting  investment  to 
support a sustained economic recovery, complete by end-2019 the 
transactions  on  Egnatia,  DEPA  commercial,  regional  ports  of 
Alexandroupoli and Kavala, AIA shares, EYDAP and EYATH. 

9  Public administration. Complete the integrated HR Management 
System  (digital  organigram  for  all  public  entities  and  link  with 
single payment authority) by end-2019. 

See  table  above,  item  12  (implementation  of  Asset  Development  Plan  on  a 
continuous basis). 

Overall good progress in completion of the digital organigrams (around 50% 
of  all  general  government  entities)  and  job  descriptions  (140 788  out  of 
192 878),  which  constitute  key  elements  of 
the  Human  Resources 
Management  Strategy  (HRMS).  A  circular  has  been  issued  setting  out  that 
each jobholder will be linked with a specific job description/position by end-
2019.  Non-complying  general  government  entities  will  not  be  able  to 

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participate in  the mobility  scheme or secure hiring of new permanent  staff. 
The overall HRMS project will be delivered through the implementation of a 
number  of  EU-funded  sub-projects  and  is  expected  to  be  operational  as  of 
2023.  The  authorities  have  committed  to  a  detailed  road  map  in  order  to 
track the progress of implementing this important project.  

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In  February  2019,  Greece  was  identified  as  experiencing  excessive  macroeconomic 
imbalances  in  the  context  of  the  Macroeconomic  Imbalance  Procedure  (MIP).  The 
imbalances  identified  related,  in  particular,  to  the  high  public  debt,  the  negative  net 
international investment position, the high non-performing loans on banks’ balance sheets and 
the still high unemployment rate. 

The  2019  Country-specific  Recommendations  (CSRs)  under  the  European  Semester 
provided  guidance  for  the  policy  follow-up.  The  first  CSR  covers  a  wide  range  of  policy 
areas and is based on the commitments made by Greece upon exiting the European Stability 
Mechanism  programme  in  August  2018.  These  commitments  aim  to  ensure  continuity  and 
deepening  of  all  key  reforms  launched  under  the  programme  (CSR1)  (see  also  below). 
Combined  with  CSR2 that  identifies  priority  areas  for  public  and  private  sector  investment, 
these recommendations are considered relevant to address Greece’s identified imbalances. 

This  section reviews  the latest  developments  and  policy initiatives undertaken by the Greek 
authorities relevant for the correction of the excessive imbalances. 

OUTLOOK AND RECENT DEVELOPMENTS OF IMBALANCES 

The  stock  of  external  liabilities  remains  large.  At  -140.7%  of  GDP  in  2018,  the  net 
international investment position (NIIP) of Greece remains strongly negative. Despite a high 
share  of  liabilities  consisting  of  public  debt  to  official  creditors,  their  large  stock  exposes 
Greece to shifts in market sentiment and adverse economic shocks. The recent change in trend 
from  growing  to  narrowing  of  the  NIIP  is  a  positive  development  but  the  speed  of  the 
consolidation  remains  very  slow.  Moderate  nominal  GDP  growth  and  a  negative  current 
account balance are not conducive to a fast consolidation of external liabilities, and hence the 
NIIP is expected to improve only slowly. 

The current account balance has improved significantly since the start of the crisis but 
remains negative. In 2018 the current account balance declined again to -2.9% of GDP after 
narrowing  to  -1.8%  in  2017.  In  order  to  stabilise  the  NIIP  above  the  threshold  of  -35%  of 
GDP considered sustainable under the macroeconomic imbalance procedure within 20 years, 
the current account balance would need to adjust to a surplus of close to 1% of GDP. High 
export  growth  and  export  market  share  gains  have  helped  improve  the  balance  in  2017  and 
2018,  but  the  contribution  of  net  exports  to  growth  has  been  dampened  by  the  high  import 
content  of  exports,  investment  and  consumption.  Unit  labour  costs  have  been  increasing  in 
2017 and 2018 but their increase remained below the growth of unit labour costs in other EU 
countries, thus limiting the negative effects for price competitiveness. The recent increase in 
nominal unit labour costs is mainly driven by wage growth and inflation. This underlines the 
importance of wage growth for cost competiveness. 

The  high  level  of  public  debt  remains  a  burden  on  the  economy  and  makes  Greece 
vulnerable to changes in financial or economic conditions and increasing financing costs 
in  the  long  run.  General  government  debt  amounted  to  181.2%  of  GDP  in  2018  but  is 
expected to decline and reach 163.1% in 2021 on the back of the ongoing economic recovery 
and sound public finance policies. Standard debt sustainability analysis indicates that without 
further fiscal consolidation measures, debt will still be above 125% in 2027. 

The  large  stock  of  non-performing  loans  (NPLs)  remains  a  burden  on  the  banking 
sector. Despite active deleveraging by both non-financial corporations and households, 43.6% 
of loans were considered non-performing in June 2019. Average bank capitalisation is overall 
comfortably  above  current  capital  requirements  but  the  quality  of  capital  remains  weak. 

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Moreover,  going  forward,  the  banks  will  have  the  challenge  to  absorb  the  International 
Financial  Reporting  Standards  9  impact  and  the  phasing-in  of  Basel  III  capital  buffers,  and 
new calendar provisioning rules, while implementing ambitious Non Performing  Liabilities’ 
reduction strategies. 

Productivity  growth  has  turned  positive  in  2018  after  a  prolonged  period  of  declining 
productivity  during  the  crisis.  The  depletion  of  human  and  physical  capital  due  to 
emigration of skilled workers and lack of investment in the capital stock during the crisis has 
left Greece with lower productivity levels after the crisis. The expected increase in investment 
and positive GDP growth have the potential to help to restore capital stock, and better labour 
market conditions will in turn attract skilled workers. Potential growth is set to be around 1% 
in the long term, contingent on sustained implementation of sound policies. 

Despite  positive  employment  growth,  unemployment  and  youth  unemployment  rates 
remain  the  highest  in  the  EU.  Unemployment  is  declining  at  a  robust  rate  and  is 
expected to reach 14% in 2021. Coming from high levels the rates remain high, especially 
for youth and long-term unemployed, and the activity rate was comparatively low at 68.2% in 
2018.  High  unemployment  and  low  wage  growth  restrict  domestic  consumption,  hinder 
deleveraging and limit room for human capital investment. 

Overall,  Greece  has  substantially  improved  its  domestic  and  external  flow  imbalances. 
The  stock  imbalances  remain  high  as  a  legacy  of  the  protracted  economic  crisis  but  their 
correction has continued over the current reporting period. 

PROGRESS WITH POLICY IMPLEMENTATION  

Greece should continue pursuing policies to foster productivity, competitiveness and the 
rebalancing  of  the  economy,  which  are  key  objectives  of  the  ongoing  MIP  specific 
monitoring. During the programmes, the authorities adopted a wide range of measures to put 
public finances on a sound footing, restore the financial sector, and improve the functioning 
of  product  and  labour  markets,  while  strengthening  the  social  welfare  system.  These  deep 
institutional and structural reforms require many years of sustained implementation for their 
impact to unfold fully. 

In  this  context,  Greece  committed  to  the  Eurogroup  in  June  2018  to  continue  and 
complete  all  key  reforms 
launched  under  the  European  Stability  Mechanism 
programme and continuous implementation is key. Commitments concern the areas of (i) 
fiscal  and  fiscal  structural  reforms;  (ii)  social  welfare  reforms;  (iii)  financial  stability;  (iv) 
labour  and  product  market  reforms;  (v)  State  asset  management  and  privatisation;  and  (vi) 
reforms of the public administration and justice. The Commission is monitoring compliance 
with  these  commitments  under  its  post-programme  enhanced  surveillance  framework  and  is 
assessing progress in its quarterly reports. Moreover, implementation of these commitments is 
the  subject  of  the  CSR1  in  the  context  of  the  European  Semester  for  economic  policy 
coordination  that  Greece  participates  in  since  August  2018.  Combined  with  CSR2  that 
identifies priority areas for public and private sector investment, these commitments can help 
underpin  longer-term  growth  and  reduce  regional  disparities,  thereby  allowing  for  a 
sustainable  economic  recovery  and  a  correction  of  Greece’s  excessive  macroeconomic 
imbalances. Against this background, continuous implementation is particularly important. 

The  current  4th  enhanced  surveillance  report  provides  an  overview  of  policy 
developments  in  each  of  the  aforementioned  five  areas  and  assesses  progress  with 
meeting  related  commitments.  Section  3  reviews  fiscal  and  fiscal  structural  reforms, 

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including  steps  to  make  public  finances  more  growth  friendly  and  sustainable  through  tax 
policy adjustments, better revenue administration and improved public financial management. 
Section 4 touches upon policy developments in social welfare, focusing notably on the areas 
of pensions, healthcare and social safety nets. Section 5 describes policies to restore financial 
sector stability and tracks progress with implementing agreed actions to strengthen the NPL 
resolution  framework.  Section  6  lists  labour  and  product  market  reforms  and  assesses 
performance  in  key  areas  of  the  business  environment,  including  investment  licencing, 
cadastre  and  land  use,  and  the  functioning  of  network  industries.  Section  7  tackles  issues 
related  to  state  asset  management,  with  a  focus  on  SOE  governance,  and  monitors  progress 
with privatisation of major investment projects. Finally, Section 8 reviews reforms in public 
administration  that  aim  to  improve  human  source  management,  strengthen  the  legislative 
process and control the size and cost of the public sector. This last section of the report also 
provides  an  overview  of  policy  efforts  to  improve  the  justice  system,  including  through 
agreed measures to promote electronic justice and fight corruption. 

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