COMMUNICATION FROM THE COMMISSION Enhanced Surveillance update - Greece, February 2021
Date: 2021-02-24
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, 24.2.2021  COM(2021) 97 final  COMMUNICATION FROM THE COMMISSION Enhanced Surveillance update - Greece, February 2021 {SWD(2021) 43 final}  
 
 
BACKGROUND 

Economic  developments  and  policies  in  Greece  are  monitored  under  the  European 
Semester  for  economic  policy  co-ordination  and  under  the  enhanced  surveillance 
framework  according  to  Regulation  (EU)  No 472/2013 (1).  The  implementation  of 
enhanced  surveillance  for  Greece (2)  acknowledges  the  fact  that  Greece  needs  to  continue 
implementing 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.  

Enhanced surveillance provides a comprehensive framework for  monitoring economic 
developments  and  the  pursuit  of  policies  needed  to  ensure  a  sustainable  economic 
recovery. It allows for a regular assessment of recent economic and financial developments 
in Greece, as well as for monitoring sovereign financing conditions and updates of the debt 
sustainability analysis. Enhanced surveillance also provides the framework for assessing the 
general  commitment  given  by  Greece  to  the  Eurogroup  of  22 June  2018,  to  continue  and 
complete reforms adopted under the European Stability Mechanism programme and to ensure 
that  the  objectives  of  the  important  reforms  adopted  under  the  financial  assistance 
the 
programmes  are  safeguarded.  In 
implementation of specific commitments to complete key structural reforms started under the 
programme,  in  six  key  areas  by  agreed  deadlines  up  to  mid-2022,  namely:  (i)  fiscal  and 
fiscal-structural  policies,  (ii)  social  welfare,  (iii)  financial  stability,  (iv)  labour  and  product 
markets, (v) Hellenic Corporation of Assets and Participations and privatisation, and (vi) the 
modernisation of public administration (3). 

that  context,  enhanced  surveillance  monitors 

This  is  the  ninth  enhanced  surveillance  report  for  Greece.  The  report  is  based  on  the 
findings  of  a  mission  held  remotely  on  26-27 January  2021  and  regular  dialogue  with  the 
authorities.  The  mission  was  conducted  by  the  European  Commission  in  liaison  with  the 
European Central Bank (4); the International Monetary Fund participated in the context of its 
the  European  Stability  Mechanism 
Post-Programme  Monitoring  framework,  while 
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.  The  current  report  assesses  the  implementation  of 
Greece’s commitments to the Eurogroup regarding reform completion up to end-2020. This 
report is not linked to a release of policy-contingent debt measures, which – in line with the 
agreed biannual schedule – could take place on the basis of the tenth report. The tenth report 
is expected to be published in May.  

Commission  Implementing  Decision  (EU)  2021/998  of  17 February  2021  on  the  prolongation  of 

(1) 
Regulation  (EU)  No 472/2013  of  the  European  Parliament  and  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 L140, 27.5.2013, p. 1. 
(2) 
enhanced surveillance for Greece. 
(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, also held remotely, 
from 13 January to 20 January 2021. 

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OVERALL ASSESSMENT 

The  report  was  prepared  against  the  backdrop  of  the  second  wave  of  the  pandemic, 
which has  led  to a general  tightening of containment  measures before the end of 2020 
and, more recently, to a closure of schools and retail businesses and personal mobility 
restrictions in certain regions including Athens.  The Greek economy is expected to have 
contracted by 10% in  2020 compared to  2019 with  only a partial  recovery  forecast  for this 
year.  The  fallout  of  the  tourist  season  in  2020  on  the  back  of  the  pandemic  negatively 
affected  Greece  given  the  weight  of  the  tourism  sector  in  the  economy.  The  government 
continued adapting the existing fiscal measures supporting the unemployed and wage earners, 
whose  contracts  have  been  suspended,  prolonged  the  support  measures  for  companies  and 
adopted new targeted measures to protect households and corporates. So far, the employment 
protection measures, supported by the EU notably through the new financing instrument for 
temporary  Support  to  mitigate  Unemployment  Risks  in  an  Emergency  (SURE)  and  the 
European  Social  Fund,  appear  to  have  been  effective,  and  the  unemployment  rate  has 
remained broadly stable in spite of the sizeable economic contraction. The number of persons 
out  of  jobs  is  nevertheless  growing  as  hiring  of  new  workers  remains  subdued.  Firms  and 
workers have benefited from public support measures; however, the full size of the challenge 
faced by the corporate – and the financial – sector is expected to become apparent only at a 
later  stage  with  the  phasing  out  of  support  measures,  as  in  other  Member  States.  This  will 
need to be carefully managed to avoid cliff effects. 

Despite  the  challenging  circumstances,  the  authorities  managed  to  progress  well  in  a 
number of areas, including education, management of state assets, privatisation projects 
and energy policy. Notably: 

  Two ambitious reforms in the area of education were adopted in the past three 
months. A vocational education and training reform was adopted in December 2020 
aiming  at  improving  the  attractiveness  of  that  path  and  better  linking  vocational 
education and lifelong learning with labour market needs. The Higher Education Law 
from February 2021 aims, in turn, at modernising the operation of the universities and 
enhancing  the  quality  of  education  offered.  Moreover,  internal  and  external 
evaluations of schools have been launched.  

  The Hellenic Corporation of Assets and Participations completed the review of the 
boards of all state-owned enterprises, which was a specific commitment. The strategic 
plan of the Corporation continued to be implemented as planned, and the authorities 
completed the preparation of the updated Ministerial Guidance for the Corporation. 

  Privatisation tenders have progressed with the successful closing of the transaction 
of  Marina  of  Alimos  on  31 December  2020,  good  prospects  for  concluding  the 
Hellinikon project in the coming months, and some long-awaited progress on pending 
actions necessary for the Egnatia concession – all of which are specific commitments.  

  In  the  area  of  energy  policy,  the  authorities  have  launched  the  market  test  with  a 
view to closing the long-standing anti-trust case against the Public Power Corporation 
in the coming months, which is a specific commitment. 

Reforms  continued  also  in  other  important  areas.  Public  financial  management  reforms, 
including  of  the  public  investment  budget,  have  re-gained  the  much  needed  momentum 
through progress made on the administrative, economic and functional budget classifications. 

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Close  monitoring  will  be  needed,  as  this  is  key  to  enhancing  the  efficiency  of  payment 
procedures.  The  legislation  for  the  human  resources  reform  of  the  tax  administration  was 
adopted  and  the  reform  remains  on  track  for  its  full  implementation  by  the  next  review. 
Public administration reforms have also been progressing as planned, including the adoption 
of a new legislation for faster and more efficient recruitment of civil servants.  

Nevertheless,  the  overall  pace  of  implementation  seems  to  have  slowed  down  in  a 
number  of  areas,  due  notably  to  the  pandemic  context,  and  the  implementation  of 
measures to address several commitments has been delayed. In addition to the continued 
difficulties posed by the pandemic, the authorities also pointed to a reshuffle of several key 
posts in the administration at the beginning of this year and the increased workload due to the 
preparations of the Recovery and Resilience Plan as a cause of some delays, and this is duly 
acknowledged.  A  number  of  detailed  specific  roadmaps  have  been  agreed  to  prepare  the 
ground for decisive progress by the tenth report in May. These include a continued delivery 
of  the  financial  sector  reforms,  full  implementation  of  the  human  resources  reform  of  the 
Independent  Authority  for  Public  Revenues,  operationalisation  of  the  Project  Preparation 
Facility and the Strategic Projects Pipeline for major investments, prevention of the creation 
of  new  arrears  and  reduction  of  the  existing  stock  following  the  delays  observed  including 
through  the  reinforcement  of  the  Steering  Committee  for  the  clearance  of  arrears  and 
simplification of the legislative framework for  the conduct  of fiscal  procedures, completion 
of  the  reform  of  the  further  simplification  of  investment  licensing  in  agreed  areas,  and  the 
adoption of the modernised Labour Code. In addition, the authorities committed to a number 
of specific steps in the areas of health care, fighting corruption, public administration reform 
and the implementation  of the chart of accounts. Given its importance in the context of the 
overall recovery strategy, the justice reform needs to be relaunched, as reforms linked to the 
effectiveness  of  the  justice  system  contribute  to  ensuring  a  swift  implementation  of 
investments, including from the private sector.  

The implementation of some key financial sector reforms has also been delayed but an 
ambitious timeline for the next review was agreed. The entry into force of the insolvency 
code was partially postponed at the end of last year, with some elements envisaged to enter 
into  force  on  1  March,  and  others  postponed  to  1  June  2021.  This  code  represents  a  major 
reform of the insolvency framework but requires substantial implementation work related to 
its  detailed  specification  as  well  as  to  the  setting  up  of  an  IT  platform  interconnected  with 
those  of  the  banks.  Implementation  of  other  agreed  reforms  continues  but  at  a  slower  pace 
than  previously  agreed  and  will  require  close  monitoring,  particularly  with  respect  to  the 
clearance of the backlog of household insolvency cases (the end-2021 target appears at risk) 
and with respect to the clearance of called state guarantees, which has been further delayed in 
the  last  quarter  of  2020  also  on  account  of  difficulties  with  hiring  of  new  staff  amidst  the 
tightening  of  containment  measures.  The  authorities  are  preparing  additional  measures  to 
support  the  financial  sector,  in  particular  an  extension  of  the  asset  protection  scheme 
Hercules,  which  is  welcome.  In  the  context  of  the  tightening  of  containment  measures 
towards the end of 2020, the authorities have suspended all enforcement measures across all 
categories of debtors, including the conduct of e-auctions and its preparatory steps, which can 
take several months. Such a generalised freezing of all enforcement steps, if protracted, may 
impinge  on  a  swift  and  efficient  handling  of  non-performing  loans  by  Greek  banks  and 
servicers  going  forward.  The  authorities  are  thus  invited  to  adopt  temporary  and  more 
targeted solutions in a timely manner, while protecting vulnerable households. 

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The  authorities  are  engaging  closely  with  the  European  Commission  in  the  context  of 
the preparation of the  Recovery  and Resilience  Plan. This  is  welcome as the significant 
funds  that  Greece  is  entitled  to  receive  via  the  Recovery  and  Resilience  Facility,  if  used 
efficiently and appropriately, would support growth, job creation and the twin transitions in 
the coming years. The EU Recovery and Resilience Facility will make available €30.5 billion 
to Greece during the period 2021-2026, out of which €17.8 billion through grants. Reforms 
and investments that will be part of the Plan are expected to build on and complement past 
and ongoing reforms  in  the context  of the enhanced surveillance process. Coupled with  the 
additional  envelope  of  €1.7 billion  under  the  React-EU  instrument  and  the  €2.7 billion 
already  disbursed  by 
the  European  instrument  for  temporary  Support  to  mitigate 
Unemployment Risks in an Emergency (SURE) as well as any possible additional amount (5), 
these substantial financing resources will help cushion the economic and social impact of the 
pandemic and provide the necessary support for a sustainable and inclusive recovery. 

Overall, this report concludes that Greece has progressed well with the implementation 
of a number of reform commitments yet notes that reform momentum has slowed down, 
acknowledging  the  challenging  circumstances  caused  by  the  pandemic.  The  European 
institutions welcome the continued close and constructive engagement of the authorities and 
the  agreement  on  a  number  of  revised  timelines  for  critical  reforms.  The  authorities  are 
encouraged  to  continue  to  mobilise  resources  with  a  view  to  taking  all  necessary  steps  to 
achieve their due specific commitments in time for the tenth enhanced surveillance report, to 
be  issued  in  May  and  for  which  a  disbursement  of  the  next  set  of  policy-contingent  debt 
measures is foreseen.  

MACROECONOMIC DEVELOPMENTS 

The  coronavirus  pandemic  continues  to  have  a  strong  negative  impact  on  the  Greek 
economy. The economy expanded by 2.3% on a quarter-on-quarter basis in the third quarter 
of 2020 after a decline of -14.1% in the previous period. The recovery in the third quarter was 
substantially less dynamic than the sizable rebound in the euro area, largely on account of the 
sharp fall of value added in the tourism sector. Growth was driven by private consumption, 
with  the  exports  of  goods  showing  some  resilience.  Unemployment  continued  to  decline, 
reaching  16.2%  in  the  third  quarter  of  2020,  which  indicates  that  the  support  measures  in 
place are successful in protecting jobs. At the same time, employment decreased compared to 
a  year  ago,  primarily  due  to  the  lower  number  of  hires  in  the  tourism  sector.  Youth 
unemployment also decreased but remains very high at 34.2% in the third quarter. 

Following  the  tightening  of  containment  measures  towards  the  end  of  2020,  the 
economic  recovery  is  expected  to  remain  anaemic  in  the  first  half  of  this  year.  The 
containment  measures  announced  in  November  2020  remain  in  place,  implying  severe 
restrictions  for  the  services  sector,  while  industrial  production  continues  with  limited 
disruptions  albeit  facing  disrupted  supply  chains  and  curtailed  demand.  These  necessary 
measures to save lives are expected to further delay the economic recovery. The Commission 
2021 winter forecast, prepared before the recent regional tightening of containment measures, 
expects real GDP growth to reach 3.5% in 2021 and 5% in 2022, driven mainly by domestic 
demand. The projection assumes that vaccination will gradually succeed to protect the most 

(5)  
The  Council  has  already  approved  a  total  of  €90.3  billion  in  financial  support  to  18  Member  States. 
Member  States  can  still  submit  requests  to  receive  financial  support  under  temporary  Support  to  mitigate 
Unemployment Risks in an Emergency (SURE) which has an overall firepower of up to €100 billion. 

4 

 
 
                                                           
vulnerable  by  mid-2021,  allowing  for  a  lasting,  if  only  step-wise  relaxation  of  the 
containment measures in the second quarter. The external sector is also projected to provide a 
positive  contribution  to  growth,  albeit  less  strong  than  previously  expected  as  tourism  may 
take longer to recover fully. The projection assumes that fiscal policy in 2021 will continue to 
support  the  economy  with  targeted  interventions  towards  businesses  and  households.  The 
slack  in  the  economy  is  expected  to  weigh  on  price  growth,  which  is  expected  to  remain 
mildly negative also in 2021, with a subsequent recovery in 2022.  

Uncertainty surrounding the outlook remains high.  Projections are subject  to  significant 
uncertainty  predominately  linked  to  the  evolution  of  the  pandemic  and  the  success  of 
vaccination  campaign.  Progress  with  the  fight  against  the  pandemic,  both  domestically  but 
also internationally, is also critical for the recovery of the tourism industry. Uncertainty also 
concerns the speed of recovery of the private sector after the expiry of the support measures, 
which will need to be carefully designed to avoid cliff effects, which could lead to corporate 
distress,  including  bankruptcies.  Weaknesses  in  the  balance-sheet  structure  of  the  Greek 
corporate sector  compound downside risks to  the recovery. The  geopolitical  tensions  in  the 
region  and  the  lingering  migration  crisis  add  further  uncertainty  to  the  macroeconomic 
outlook. On the upside, the Commission forecast does not incorporate the economic impact 
of the Recovery and Resilience Plan for Greece, the implementation of which is expected to 
provide a significant boost to growth.  

FISCAL DEVELOPMENTS 

Fiscal  policy  will  remain  accommodative  in  2021  as  the  authorities  maintain  targeted 
support  to  households  and  businesses  affected  by  the  crisis.  In  response  to  the 
unfavourable evolution of the pandemic, the government decided to tighten the containment 
measures at the beginning of November 2020 and, more recently, to close schools and retail 
businesses  and  to  impose  personal  mobility  restrictions  in  certain  regions  including  Athens 
and  announced  the  prolongation  of  earlier  fiscal  measures.  The  total  envelope  of  the 
‘repayable  advance  payments’  (public  support  to  companies  affected  by  the  pandemic, 
distributed  in  the  form  of  loans  with  a  conditional  subsidy  component)  has  been  increased, 
the  regular  and  long-term  unemployment  benefit  has  been  extended  and  the  temporary 
economic  support  to  suspended  wage  earners  has  been  prolonged.  As  the  duration  of  the 
containment  measures  turned  out  to  be  longer  than  initially  planned,  the  government  also 
announced  a  number  of  new  measures  in  order  to  support  both  households  and  affected 
businesses. These include a new guarantee scheme and a new loan subsidy programme, both 
tailored to help small and medium sized enterprises, including in particular very small/micro 
firms. Furthermore, affected companies will be eligible for compensation on their fixed costs 
in the form of a tax and social security contribution credit. Greece’s policy response has been 
swift since the beginning of the coronavirus outbreak, and with the abovementioned measures 
its overall size is expected to reach about 9.4% of GDP in 2020 and 6.5% of GDP in 2021. 
Overall, according to the Commission 2020 autumn forecast, the size of support measures (as 
a percentage of GDP) the Greek government adopted to alleviate the socio-economic impact 
of the coronavirus outbreak is slightly above the European Union average. 

The  2021  budget,  voted  in  early-December  2021,  expects  the  deficit  monitored  under 
enhanced  surveillance  to  reach  3.9%  of  GDP  in  2021.  This  compares  with  a  deficit 

5 

 
 
forecast of 3.4% of GDP in the Commission 2020 autumn forecast (6). A full update of the 
fiscal forecast will be prepared in spring in the context of the assessment of the 2021 Stability 
Programme. To recall, the General Escape Clause will remain active in 2021. This allows for 
a  temporary  departure  from  the  budgetary  requirements,  including  Greece’s  fiscal  targets 
monitored  under  enhanced  surveillance,  provided  that  this  does  not  endanger  fiscal 
sustainability in the medium term. The Council recommended (7) that Greece pursues, when 
economic  conditions  allow,  fiscal  policies  aimed  at  achieving  prudent  medium-term  fiscal 
positions  and  to  ensure  debt  sustainability,  while  enhancing  investment.  The  2021  budget 
expects the general government debt to reach 209% in 2020 before declining to around 200% 
in 2021, which is broadly in line with the Commission autumn forecast. 

The  public  finance  projections  are  subject  to  considerable  risks.  Uncertainty  about  the 
evolution  of  the  pandemic  remains  large,  which  translates  into  substantial  fiscal  risks  as  a 
further prolongation of the containment measures and related fiscal support, which should be 
both of a targeted and temporary nature, could lead to a further increase in fiscal costs. The 
probability  of  drawing  on  the  state  guarantees  will  increase  with  the  duration  of  the  crisis. 
Beyond the pandemic, rulings on retroactive pensions and litigation cases against the Public 
Real Estate Company (ETAD) continue to pose fiscal risks. On the positive side, Greece is 
expected  to  benefit  greatly  from  the  Recovery  and  Resilience  Facility,  through  large-scale 
financial  support  to  growth-enhancing  reforms  and  investments,  which  would  provide  a 
substantial support to the economy and boost potential growth, which can facilitate achieving 
prudent fiscal positions. 

SOVEREIGN FINANCING 

Financing conditions remain favourable and the government continues holding a large 
cash  buffer.  The  sovereign  yield  spreads  have  decreased  further  and  have  been  hovering 
around 70 basis points on the 5-year tenure since mid-November 2020.  Their volatility has 
also been subdued. The favourable financing conditions are supported also by the European 
Central  Bank’s  accommodative  monetary  policy  stance,  including  its  Pandemic  Emergency 
Purchase Programme. Medium and long-term debt redemption and interest payments will be 
moderate in 2021, amounting to around €10 billion. Greece is planning to raise €8-12 billion 
through new bond issuances, which is comparable to the amount raised in 2020. The general 
government’s  cash  reserves  stood  around  €31  billion  at  the  end  of  2020,  which  would  be 
sufficient to cover the medium and long-term debt redemptions and interest payments of the 
general government for the next two years (8). Since the beginning of the year, the Hellenic 
Republic raised €3.5 billion through the issuance of a 10-year  government  bond in January 
2021. The achieved yield was 0.81%, a historical low level for this maturity. An additional €2 

(6) 
The  Commission  2020  autumn  forecast  did  not  take  into  account  either  the  economic  impact  of  the 
second  tightening  of  containment  measures  started  in  November 2020,  the  prolongation  of  fiscal  measures  in 
response  to  the  second  wave  or  the  economic  impact  or,  more  recently,  the  closure  of  schools  and  retail 
businesses and personal  mobility restrictions in certain regions including  Athens.  At the  same time,  while the 
budget  includes  the  envisaged  macroeconomic  impact  of  investments  under  the  Recovery  and  Resilience 
Facility,  the  Commission  will  evaluate  such  an  impact  only  in  the  coming  months,  when  the  plans  will  be 
presented in sufficient detail. 
(7) 
a Council opinion on the 2020 Stability Programme of Greece, OJ C 282, 26.8.2020, p. 46. 
(8) 
The  cash  buffer  account  balance  remained  at  €15.7 billion.  The  cash  buffer  account  was  built  also 
through  disbursements  under  the  European  Stability  Mechanism  programme  and  is  dedicated  to  debt  service. 
Greece  may  use  this  amount  for  other  purposes  as  well,  following  an  approval  of  the  European  Stability 
Mechanism’s governing bodies. 

Council Recommendation of 20 July 2020 on the national Reform Programme of Greece and delivering 

6 

 
 
                                                           
billion  was  raised  through  private  placements.  The  authorities  intend  to  carry  out  a  partial 
repayment of the loans from the International Monetary Fund, which is a welcome step that 
helps to reduce the foreign exchange risk and sends the right signal to the markets. 

The  2020  Debt  Sustainability  Monitor  presented  a  debt  sustainability  analysis  for  all 
Member  States  based  on  the  2020  autumn  forecast (9).  The  baseline  scenario  of  that 
analysis is identical to the one published in the 8th enhanced surveillance report. An updated 
debt sustainability analysis will be presented in the next enhanced surveillance report.  

FINANCIAL SECTOR DEVELOPMENTS 

Bank profitability is likely to remain under pressure as favourable liquidity conditions 
and  significant  non-recurring  revenues  on  the  trading  portfolio  have  only  partially 
offset increased provisioning needs. Banks have maintained ample cash buffers and a low 
cost  of  funding  due  to  a  steady  upward  trend  in  deposits  coupled  with  accommodative 
monetary  policy  conditions.  In  addition,  they  have  benefitted  from  extraordinary  trading 
gains  from  their  government  bonds  portfolio.  However,  the  frontloading  of  provisioning  to 
take  into  account  the  expected  impact  of  the  pandemic,  among  other  factors,  has  led  the 
banking  system  as  a  whole  to  post  a  loss  after  taxes  in  the  first  nine  months  of  2020.  The 
profit  outlook  will  remain  challenging,  and  thus  limiting  the  internal  capital  generation 
capacity.  The  securitisations  of  non-performing  loans  will  have  a  positive  impact  on  the 
banks’  cost-of-risk  and  free  up  space  in  banks’  balance  sheets  for  new  lending,  but  also 
entails an initial one-off capital loss and a recurring loss on net interest income. At the same 
time,  the  expiry  of  the  moratoria  may  lead  to  further  impairments  due  to  a  deterioration  in 
asset quality. 

The  stock  of  non-performing  loans  has  continued  to  decline,  mainly  thanks  to  the 
Hercules  scheme  and  the  temporary  impact  of  moratoria.  Non-performing  loans  at  the 
end of September 2020 amounted to €58.7 billion, down by €9.8 billion from December 2019 
but  only  €1  billion  from  the  previous  quarter.  As  a  result,  the  non-performing  loans  ratio 
came  down  to  35.8%,  which  remains  the  highest  in  the  euro  area.  The  continuous 
improvement  in  2020,  despite  the  pandemic  and  the  resulting  drop  in  the  number  of  cured 
loans, is mainly due to non-performing loan sales of €6.8 billion and a limited inflow of new 
bad loans (down by 58% year-on-year in the nine months) thanks to the moratoria in place. 
Loans under moratoria amounted to €20.8 billion as of November 2020, i.e. above 12% of the 
loan book, roughly evenly split between corporates and households. The deleveraging of non-
performing loans by banks has also led to an increased role for non-bank servicers, with €33 
billion of loans under management as of end-September 2020, up by 40% since the  end of 
2019. 

As  in  other  Member  States,  the  expiry  of  the  moratoria  could  be  accompanied  by  a 
renewed  deterioration  in  asset  quality  going  forward.  The  large  amount  of  loans  under 
moratoria  and  the  lacklustre  track  record  of  banks  in  viable  loan  restructurings  point  to  a 
material risk for asset quality, as moratoria mostly expired at the end of 2020. This could lead 
to new impairments, in case provisions booked so far not fully capture the eventual impact of 
the pandemic on the loan book. However, the temporary instalment subsidy scheme set up by 
the  authorities  for  coronavirus-affected  debtors  with  primary  residence  loans  (the  “Gefyra” 
scheme) will mitigate this risk for this type of loans, which represent a large part of the retail 

(9) 

Debt Sustainability Monitor, European Economy Institutional Paper, No. 143, February 2021. 

7 

 
 
                                                           
loan  portfolio.  Subsidy  payments  under  the  scheme  have  been  initiated.  The  authorities  are 
setting  up  a  similar  scheme  for  business  loans.  The  scheme  will  need  to  be  carefully 
designed,  including  appropriate  moral  hazard  safeguards.  Moreover,  the  banks  will  try  to 
stem any migration of loans currently under moratoria to a category of increased credit risk, 
that  would  imply  higher  provisioning  needs,  through  the  offering  of  intermediate  products, 
allowing for a gradual restoration of payment patterns. The exact supervisory treatment and 
related  capital  cost  of  these  products  will  need  to  be  discussed  with  the  supervisory 
authorities. Going forward, the planned securitisations under the Hercules scheme remain the 
main driver of the reduction of non-performing loans.  

The support measures adopted by the authorities have further bolstered credit growth 
to businesses, facilitating access to credit also for smaller firms. The Covid-19 enterprise 
guarantee  scheme  and  the  interest  subsidy  scheme  (TEPIX-II)  operated  by  the  Hellenic 
Development  Bank  have  resulted  in  €4.6 billion  and  2 billion,  respectively,  of  loan 
disbursements  to  corporates  and  small  and  medium  sized  enterprises  in  2020,  contributing 
with  approximately  40%  to  the  total  gross  corporate  loan  flows  over  the  year.  This  has 
resulted in the average monthly gross loan flows (10) more than doubling for large corporates, 
while  increasing  substantially  also  for  small  and  medium-sized  enterprises.  This  credit 
growth has been used by firms to mostly cover their working capital needs and build up their 
liquidity  buffers.  In  terms  of  cost  of  credit,  although  nominal  lending  rates  are  near  their 
historical lows for corporates, they have been on the rise since September 2020, particularly 
for  smaller  loans,  reflecting  increased  credit  risk.  As  for  lending  growth  to  households,  it 
remains in negative territory and comes at a steadily higher cost.  

The  authorities  are  preparing  an  amendment  of  the  governing  law  of  the  Hellenic 
Financial Stability Fund. The amendment will allow for the Fund to participate as a private 
investor in future share capital increases of the banks where it maintains a shareholding. 

(10) 

Defined maturity loans. Source: Bank of Greece. 

8