REPORT FROM THE COMMISSION Greece Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2020-05-20
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Greece, budget deficit, budget policy, budgetary control, epidemic, gross domestic product, infectious disease, macroeconomics, public debt, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 546 final  REPORT FROM THE COMMISSION Greece  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

Greece 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION  

 On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of  the 
general escape clause of the Stability and Growth Pact. The clause, as set out in Articles 5(1), 
6(3),  9(1)  and  10(3)  of  Regulation  (EC)  1466/97  and  Articles  3(5)  and  5(2)  of  Regulation 
(EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic 
downturn.  In  its  Communication,  the  Commission  shared  with  the  Council  its  view  that, 
given  the  expected  severe  economic  downturn  resulting  from  the  COVID-19  outbreak,  the 
current  conditions  permit  activation  of  the  clause.  On  23  March  2020,  the  Ministers  of 
Finance of the Member States agreed with the assessment of the Commission. The activation 
of  the  general  escape  clause  allows  for  a  temporary  departure  from  the  adjustment  path 
towards  the  medium-term  budgetary  objective,  provided  that  this  does  not  endanger  fiscal 
sustainability in the medium term. For the corrective arm, the Council may also decide, on a 
recommendation  from  the  Commission,  to  adopt  a  revised  fiscal  trajectory.  The  general 
escape  clause  does  not  suspend  the  procedures  of  the  Stability  and  Growth  Pact.  It  allows 
Member States to depart from the budgetary requirements that would normally apply while 
enabling  the  Commission  and  the  Council  to  undertake  the  necessary  policy  coordination 
measures within the framework of the Pact. 

Data  notified  by  the  Greek  authorities  on  22  April  2020  and  subsequently  validated  by 
Eurostat1 show that the general government surplus in Greece reached 1.5% of GDP in 2019, 
while general government gross debt stood at 176.6% of GDP. According the 2020 Stability 
Programme, Greece plans a deficit of -4.7% of GDP in 2020, while debt is planned at 188.8% 
of GDP. 

The planned deficit for 2020 provides prima facie evidence of the existence of an excessive 
deficit  for  as  defined  by  the  Stability  and  Growth  Pact.  Moreover,  the  data  for  2019  imply 
insufficient  progress  towards  compliance  with  the  debt  reduction  benchmark,  which  also 
provides  prima  facie  evidence  of  the  existence  of  an  excessive  deficit  as  defined  by  the 
Stability and Growth Pact. 

Against this background, the Commission has therefore prepared this report, which represents 
the  first  step  in  the  excessive  deficit  procedure.  It  analyses  Greece’s  compliance  with  the 
deficit and debt criteria of the Treaty. It takes into account all relevant factors and gives due 
consideration to the major economic shock linked to the COVID-19 pandemic.  

1 

https://ec.europa.eu/eurostat/documents/2995521/10294648/2-22042020-AP-EN.pdf/6c8f0ef4-6221-1094-

fef7-a07764b0369f 

1 

 
 
 
 
                                                           
Table 1. General government deficit and debt (% of GDP)  

2016 

2017 

2018 

2019 

0.5 

0.7 

1.0 

1.5 

2020 
COM 

-6.4 

2021 
COM 

-2.1 

178.5 

176.2 

181.2 

176.6 

196.4 

182.6 

n.r. 

n.r. 

n.r. 

n.r. 

2.5 

-1.0 

2.3 

n.r. 

-0.5 

-0.1 

-2.2 

0.1. 

0.4 

0.8 

n.r. 

n.r. 

n.r. 

n.r. 

Deficit 
criterion 

Debt 
criterion 

General 
government 
balance 
General 
government 
gross debt 
Gap to the 
debt 
reduction 
benchmark 
Change in 
structural 
balance 
Required 
MLSA 

Note: MLSA refers to the Minimum Linear Structural Adjustment  
Source: Eurostat, Commission 2020 spring forecast 

2. 

DEFICIT CRITERION  

Based  on  the  2020  Stability  Programme,  Greece’s  general  government  deficit  in  2020  is 
expected to reach 4.7% of GDP, above and not close to the Treaty reference value of 3% of 
GDP. 

The planned excess over the Treaty reference value in 2020 is exceptional, as it results from a 
severe  economic downturn. Taking into account  the impact  of the COVID-19 pandemic on 
Greece’s  economy,  the  Commission  spring  forecast  projects  a  contraction  of  real  GDP  in 
2020 by 9.7%. 

The  planned  excess  over  the  Treaty  reference  value  would  be  temporary,  based  on  the 
Commission  2020  spring  forecast,  which  projects  the  decifit  to  fall  under  3%  of  GDP  in 
2021.  However,  those  projections  are  surrounded  by  an  exceptionally  high  degree  of 
uncertainty. 

In  sum,  the  planned  deficit  for  2020  is  above  and  not  close  to  the  3%-of-GDP  Treaty 
reference value. The planned excess is considered to be exceptional as defined by the Treaty 
and  the  Stability  and  Growth  Pact,  while  the  nature  of  the  excess  is  currently  considered 
temporary. Hence, the analysis suggests that prima facie the deficit criterion as defined by the 
Treaty and Regulation (EC) No 1467/97 is not fulfilled.  

3. 

DEBT CRITERION  

The government debt-to-GDP ratio decreased from 181.2% in 2018 to 176.6% in 2019. The 
debt reduction was due to the high primary surplus reached in 2019, which was augmented by 
strong  real  GDP  growth  and  the  increase  in  the  GDP  deflator,  and  by  a  marginally  debt-
reducing impact of stock-flow adjustments.  

Following the abrogation of the excessive deficit procedure in September 2017, Greece was 
subject to a three-year transition period to ensure sufficient progress towards compliance with 
the  debt  reduction  benchmark.  The  transition  period  started  in  2017  and  ended  in  2019.  In 

2 

 
 
 
 
 
 
 
 
order  to  ensure  continuous  and  effective  progress  towards  compliance  during  the  transition 
period, Greece should respect simultaneously the following two conditions:  

a.  First, the annual structural adjustment should not deviate by more than ¼% of 
GDP from the Minimum Linear Structural Adjustment (MLSA) ensuring that 
the debt reduction benchmark is met by the end of the transition period;  

b.  Second,  at  any  time  during  the  transition  period,  the  remaining  annual 
structural adjustment should not exceed ¾% of GDP (unless the first condition 
implies an annual effort above ¾% of GDP); 

The notified data show that Greece did not make sufficient progress towards meeting the debt 
reduction benchmark in 2019, as the structural balance is estimated to have deteriorated by -
2.2% of GDP last year, compared with the applicable MLSA of 0.8% of GDP. 

The  analysis  thus  suggests  that  prima  facie  the  debt  criterion  is  not  fulfilled  based  on  the 
2019 outturn data.  

4. 

RELEVANT FACTORS  

Article 126(3) of the Treaty provides that, if a Member State does not fulfil the requirements 
under one or both of those criteria, the Commission has to prepare a report. That report must 
also  “take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”. 

Those factors are further clarified in Article 2(3) of Regulation (EC) No 1467/97, which also 
provides  that  “any  other  factors  which,  in  the  opinion  of  the  Member  State  concerned,  are 
relevant in order to comprehensively assess compliance with the deficit and debt criteria and 
which the Member State has put forward to the Council and to the Commission” need to be 
given due consideration. 

For the apparent breach of the debt criterion, the analysis of the relevant factors is particularly 
warranted  given  that  debt  dynamics  are  to  a  larger  extent  influenced  by  factors  outside  the 
control of the government than is the case for the deficit. This is recognised in Article 2(4) of 
Regulation  (EC)  No  1467/97,  which  provides  that  the  relevant  factors  shall  be  taken  into 
account when assessing compliance on the basis of the debt criterion irrespective of the size 
of the breach. In that respect, at least the following three main aspects need to be considered 
when assessing compliance with the debt criterion given their impact  on the debt dynamics 
and  sustainability:  (i)  adherence  to  the  MTO  or  the  adjustment  path  towards  it,  (ii)  the 
implementation of structural reforms, and (iii) the prevailing economic conditions. 

As  specified  in  Article  2(4)  of  Regulation  (EC)  No  1467/97,  as  regards  compliance  with 
deficit criterion in 2020, however, since the government debt-to-GDP ratio exceeds the 60% 
reference value and the double condition is not met - i.e. that the deficit remains close to the 
reference  value  and  that  its  excess  over  the  reference  value  is  temporary  -  those  relevant 
factors cannot be taken into account in the steps leading to the decision on the existence of an 
excessive deficit on the basis of the deficit criterion for Greece. 

In the current  situation,  a key  additional  factor to  take into consideration regarding 2020 is 
the economic impact of the COVID-19 pandemic, which has a very substantial impact on the 
budgetary situation and  results in  a highly  uncertain outlook. The pandemic has also  led to 
the activation of the general escape clause. 

3 

 
 
4.1. 

 COVID-19 pandemic and the activation of the general escape clause 

The  COVID-19  pandemic  has  led  to  a  major  economic  shock  that  is  having  a  significant 
negative  impact  throughout  the  European  Union.  The  consequences  for  GDP  growth  will 
depend  on  the  duration  of  both  the  pandemic  and  of  the  measures  being  taken  by  national 
authorities and at European and global level to slow its spread, protect production capacities 
and  support  aggregate  demand.  Member  States  have  already  adopted  or  are  adopting 
budgetary  measures  to  increase  the  capacity  of  health  systems  and  provide  relief  to  those 
individuals  and  sectors  that  are  particularly  affected.  Significant  liquidity  support  measures 
and  other  guarantees  have  also  been  adopted.  Subject  to  more  detailed  information,  the 
competent statistical authorities are to examine whether those measures entail an immediate 
impact on the general government balance or not. Together with the fall in economic activity, 
these measures will contribute to substantially higher government deficit and debt positions. 

4.2 

Medium-term economic position including structural reforms 

Since  2016,  real  GDP  growth  has  been  recovering  driven  by  net  exports  and  private 
consumption.  Nominal  growth  increased  until  2018,  but  declined  somewhat  in  2019. 
Nevertheless,  it  cannot  be  argued  that  macroeconomic  conditions  are  a  mitigating  factor  in 
explaining  Greece’s  lack  of  sufficient  progress  towards  meeting  the  debt  reduction 
benchmark in 2019. 

Economic  activity  is  expected  to  be  severly  impacted  by  the  COVID-19  outbreak  and  the 
related containment measures. The Commission 2020 spring forecast projects GDP to decline 
by  9.7%  in  2020,  with  tourism  and  shipping  services  –  two  very  important  sectors  for 
Greece’s  economy  –  expected  to  be  hit  particularly  hard  and  the  expected  to  increase  in 
unemployment  may  also  depress  domestic  demand.  The  macroeconomic  outlook  is  marked 
by  an  exceptional  degree  of  uncertainty  related  to  the  duration  of  the  pandemic  and  its 
economic impact. This is a mitigating factor in the assessment of Greece’s compliance with 
the deficit criterion in 2020. 
In its 2020 Country Report2, the Commission assessed that Greece had made some progress 
in  addressing  the  2019  Country  Specific  Recommendations.  More  specifically,  Greece 
pursued reforms  in  line  with  the post-programme commitments given  at  the meeting of the 
Eurogroup  of  22  June  2018.  In  2019,  Greece  implemented  important  reforms  aimed  to 
increase  the  efficiency  of  the  Greek  public  sector,  strengthen  the  effectiveness  of  social 
policy,  advance  the  privatisation  agenda  and  further  improve  the  quality  of  the  business 
environment.  Notably,  the  authorities  continued  taking  steps  to  enhance  the  capacity  of  the 
Independent Authority for Public Revenue and enhance the human resource management in 
the public administration. Regarding the financial sector, some progress continued on reforms 
needed to clean up the stock of non-performing loans. The authorities also pursued a broader 
reform  agenda,  for  instance  in  the  area  of  good  law-making,  digital  governance  and 
education. 

2 See Commission Staff Working Document SWD (2020) 507 final, 26.2.2020, "Country Report Greece 2020. 

Including an In-Depth Review on the prevention and correction of macroeconomic imbalances".   

4 

 
 
                                                           
4.3 

 Medium-term budgetary position, including government investment 

The  headline  surplus  increased  from  1.0%  of  GDP  in  2018  to  1.5%  in  2019,  due  to  solid 
economic  growth,  contained  expenditure  growth,  and  the  receipt  of  transfers  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). Public investment is estimated to have fallen from 3.0% of GDP in 2018 
to 2.2% in 2019. 

Since  Greece  was  exempt  from  submitting  Stability  Programmes  while  it  was  subject  to  a 
macroeconomic  adjustment  programme  (‘the  programme’),  the  Greek  authorities  have  not 
established a medium-term budgetary objective for 2019. In spring 2018, the Council issued 
no  country-specific  recommendation  to  Greece  in  the  context  of  the  European  Semester 
because  pursuant  to  Article  12  of  Regulation  (EU)  No  472/20132  Greece  was  exempt  the 
monitoring and assessment under the European Semester at that time since it was under the 
programme.  Under  those  circumstances,  the  assessment  of  year  2019  is  conducted  in  the 
absence  of  a  medium-term  budgetary  objective,  taking  into  account  the  factors  mentioned 
above,  the  primary  surplus  target  recommended  by  the  Council  and  monitored  under  the 
enhanced surveillance procedure, as well as the structural budget balance for 2019.  

Data  notified  by  the  Greek  authorities  on  31  March  2020  and  subsequently  validated  by 
Eurostat3 confirms a general government primary surplus of 4.4% of GDP in 2019, which is 
equivalent  to  a  primary  surplus  monitored  under  the  enhanced  surveillance  procedure4  of 
3.5%  of  GDP.  The  budgetary  outcome  was  thus  compliant  with  Greece’s  commitments 
monitored  under  the  enhanced  surveillance  procedure.  The  structural  balance  in  2019 
remained in high surplus, reaching 2.8%. Compliance with its fiscal requirements under the 
enhanced surveillance procedure is a mitigating factor for the assessment of Greece’s prima 
facie non-compliance with the debt criterion in 2019. 

In  view  of  the  ongoing  pandemic,  the  authorities  have  adopted    fiscal  measures  of  an 
unprecedented  amount  to  address  the  COVID-19  crisis  and  to  support  the  economy.  The 
overall  size  of  the  measures  is  estimated  to  reach  up  to  10.5%  of  GDP  with  an  estimated 
impact of 3.7% of GDP on the general government deficit. The majority of the measures aim 
to  support  companies  and  their  employees  who  are  affected  by  the  COVID-19  pandemic 
either through a direct suspension of the companies’ operation or the general deterioration of 
economic activity due to the containment measures. 

Under the current circumstances, uncertainty about the fiscal and macroeconomic outlook is 
significantly  higher  than  usual.  At  this  stage,  only  very  preliminary  data  were  available  to 
confirm the magnitude and the severity of the economic and fiscal hit. 

4.4.  Medium-term government debt position  

Government  debt  decreased  between  2016  and  2017  from  178.5%  to  176.2%  of  GDP,  and 
then  increased  markedly  in  2018  to  181.2%  of  GDP.  That  increase  was  due  to  the  final 

3  https://ec.europa.eu/eurostat/documents/2995521/10294648/2-22042020-AP-EN.pdf/6c8f0ef4-6221-1094-

fef7-a07764b0369f 

4 The programme definition of the primary balance excludes the one-off cost of bank recapitalisation, SMP and 
ANFA revenues and part of the privatisation proceeds. See Commission Opinion of 21.11.2018 on the Draft 
Budgetary Plan of Greece {SWD(2018) 516 final} for the definition. 

5 

 
 
                                                           
disbursement  under  the  programme  in  2018,  which  contributed  to  the  build-up  of  Greece’s 
significant cash buffer. The cumulated high general government surpluses recorded over the 
same  period  as  well  as  the  nominal  GDP  growth  would  have  otherwise  resulted  in  the 
steadily  declining  debt  path.  In  2019,  the  public  debt-to-GDP  ratio  declined  to  176.6%, 
reflecting the high general government headline surplus and the nominal GDP growth and the 
debt-reducing impact of stock-flow adjustments. 

According to the Commission 2020 spring forecast, general government debt is expected to 
rise from 176.6% of GDP in 2019 to 196.4% in 2020. The increase in the debt ratio is mostly 
due to the large drop in nominal GDP and the deterioration of the primary balance due to the 
cyclical developments and the fiscal measures addressing the COVID-19 crisis. The impact 
of those measures on debt is mitigated by the expected use of cash financing.  

The debt sustainability analysis has been updated with the Commission 2020 spring forecast. 
This analysis confirms that notwithstanding risks, the debt position remains sustainable over 
the medium-term  in  Greece, which takes account of important  mitigating  factors (including 
the debt profile and the large share of official loans at depressed rates). In particular, while 
the debt position deteriorates as a result of the COVID-19 crisis, the debt-to-GDP ratio in the 
baseline  is  expected  to  be  on  a  sustainable  (declining)  trajectory  over  the  medium  term5 
(Graph 1).  

Graph 1: Government debt-to-GDP ratio, Greece, % of GDP 

Source: Commission services. 

5  The  baseline  reflects  the  Commission  Spring  2020  forecast  and  the  post-programme  commitments  for 
Greece  beyond  2021,  in  line  with  the  methodology  established  in  the  context  of  Enhanced  Surveillance. 
Under the adverse scenario, higher interest rates (by 500 bps.) and lower GDP growth (by  -0.5 pps.), with 
respect to the baseline, are assumed (throughout the projection horizon). 

6 

105125145165185205225201920202021202220232024202520262027202820292030BaselineAdverse scenario 
 
 
 
                                                           
4.5 

Other factors put forward by the Member State  

On  11  May  2020,  the  Greek  authorities  transmitted  a  letter  with  relevant  factors  in 
accordance with Article 2(3) of Regulation (EC) No 1467/97. The analysis presented in the 
previous sections already broadly covers the key factors put forward by the authorities. 

5. 

CONCLUSIONS 

According  to  the  Stability  Programme,  Greece’s  general  government  deficit  in  2020  is 
planned to reach 4.7% of GDP, above and not close to the 3% of GDP Treaty reference value. 
The  planned  excess  over  the  reference  value  is  considered  to  be  exceptional  and  currently 
considered to be temporary.  

The  general  government gross debt  stood  at  176.6% of GDP at  the end of 2019, above the 
60%  of  GDP  Treaty  reference  value.  Greece  did  not  make  sufficient  progress  towards 
meeting the debt reduction benchmark in 2019.  

In line with the Treaty and the Stability and Growth Pact, this report also examined relevant 
factors.  

As specified in Article 2(4) of Regulation (EC) No 1467/97, as regards compliance with the 
deficit criterion in 2020, since the government debt-to-GDP ratio exceeds the 60% reference 
value and the double condition is not met – i.e. that the deficit remains close to the reference 
value and that its excess over the reference value is temporary – those relevant factors cannot 
be  taken  into  account  in  the  steps  leading  to  the  decision  on  the  existence  of  an  excessive 
deficit on the basis of the deficit criterion for Greece. Overall, the analysis suggests that the 
deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is not fulfilled. 

As regards compliance with  the debt  criterion  in 2019, the relevant  factors, in  particular (i) 
the  observed  macroeconomic  conditions;  (ii)  some  progress  with  the  implementation  of 
growth  enhancing  structural  reforms  in  past  years,  and  (iii)  the  compliance  with  Greece’s 
fiscal targets in the context of the enhanced surveillance, lead to the conclusion that the debt 
criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is complied with.  

7