COMMUNICATION FROM THE COMMISSION Enhanced Surveillance update - Greece, September 2021
Date: 2021-09-22
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Euro Group (euro area), Greece, coronavirus disease, economic recovery, epidemic, gross domestic product, macroeconomics, multilateral surveillance, stability programme, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 22.9.2021  COM(2021) 598 final  COMMUNICATION FROM THE COMMISSION Enhanced Surveillance update - Greece, September 2021 {SWD(2021) 273 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  Articles  2  and  3  of  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 
programmes  are  safeguarded.  In 
the 
implementation of specific commitments to complete key structural reforms started under the 
programme,  in  six  key  areas  by  agreed  deadlines  up  to  mid-2022,  namely:  (i)  fiscal  and 
fiscal-structural  policies,  (ii)  social  welfare,  (iii)  financial  stability,  (iv)  labour  and  product 
markets, (v) Hellenic Corporation of Assets and Participations and privatisation, and (vi) the 
modernisation of public administration (3). 

that  context,  enhanced  surveillance  monitors 

This is the eleventh enhanced surveillance report for Greece. The report is based on the 
findings of a mission held remotely on 15 July 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  Post-
Programme Monitoring framework, 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.  The  current  report  assesses 
implementation  of  Greece’s 
commitments to the Eurogroup regarding reform completion due up to mid-2021. This report 
is not linked to a release of the next set of policy-contingent debt measures, which – in line 

the 

(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)  Commission  Implementing  Decision  (EU)  2021/1279  of  28 July  2021  on  the  prolongation  of  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 1 to 7 July 2021. 

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with the agreed biannual schedule – could take place on the basis of the twelfth report. The 
twelfth report is expected to be published in November. 

The commitments given by Greece to Eurogroup partners in June 2018, which are the 
basis for the release of additional debt relief measures, were established up to mid-2022 
and  thus  Greece  has  entered  the  final  year  of  this  arrangement.  Whilst  many 
commitments have been completed, the mission sought to clarify the scope and timeline for 
completion of the outstanding reform commitments. 

OVERALL ASSESSMENT 

The  economy  shows  signs  of  an  earlier-than-expected  recovery,  in  spite  of  the  later-
than-planned opening. Following the large downturn of 8.2% in 2020, real GDP increased 
by  4.5%  and  3.4%  on  a  quarter-on-quarter  basis  in  the  first  and  second  quarter  of  2021 
respectively,  driven  by  investments  and  accumulation  of  inventories.  According  to  the 
Commission 2021 Summer interim forecast, GDP is forecast to increase by 4.3% in 2021 and 
by 6.0% in 2022, taking into account the investment impetus from the recovery and resilience 
plan,  as  well  as  the  fiscal  stimulus  from  the  government  support  measures.  Fiscal  policy 
remains accommodative as the authorities continue to provide targeted and temporary support 
to  the  economy,  including  in  response  to  the  catastrophic  fires  that  affected  the  country  in 
August.  Employment  support  measures,  supported  notably  through  the  EU  instrument  to 
'Support to mitigate Unemployment Risks in an Emergency (SURE), continued propping up 
the labour market and, along with the relaxation of the healthcare restrictions and the restart 
of the tourist season, supported a further decrease in the unemployment rate to 15.9% in the 
second  quarter  of  2021  compared  to  17.1%  in  the  second  quarter  of  2020.  The  vaccination 
campaign  continues  to  progress;  however,  the  uncertainty  surrounding  the  outlook  remains 
high in particular in relation to the recent upsurge of COVID-19 cases over the summer due 
to the spread of new variants of the coronavirus. 

The recently adopted recovery and resilience plan will play a key role in helping Greece 
emerge stronger from the COVID-19 pandemic. Greece’s recovery and resilience plan was 
among  the  first  plans  that  were  formally  approved  by  the  Council,  on  13 July,  following  a 
positive  assessment  by  the  European  Commission  on  17 June.  Greece  received  a 
disbursement  of  €3.96  billion  in  pre-financing  on  9  August.  The  plan,  which  presents 
measures  to  mobilise  €17.8  billion  in  grants  and  €12.7  billion  in  loans,  represents  a 
significant  effort  by  Greece  to  address  the  challenges  it  faces.  It  includes  many  climate-
relevant investments and will provide a boost to digitalisation and a large number of reforms 
building on past  and ongoing efforts. Greece was also  the first  Member State to  finalise its 
Partnership Agreement for the 2021-2027 programming period. The Partnership Agreement, 
adopted by the Commission on 29 July 2021, sets out the strategic orientation for deploying 
of  more  than  €21  billion  worth  of  investments  to  support  Greece’s  economic,  social  and 
territorial cohesion. 

Reform implementation continued at a good pace across a number of policy areas, with 
a  number  of  specific  policy  commitments  completed  in  the  current  reporting  period. 
Notably: 

 

Important  and  material  progress  has  been  achieved  as  regards  privatisations, 
notably  by  closing  the  transaction  on  the  iconic  Hellinikon  project  and  by 
selecting  a  preferred  investor  on  the  Egnatia  concession  and  the  Public  Gas 
Corporation  (DEPA)  Infrastructure  transaction.  The  work  of  the  Hellenic 

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Corporation  of  Assets  and  Participations  is  progressing  as  regards  the 
preparation of the update of its strategic plan and the performance contract for the 
Athens Urban Transport Organisation. 

  The  supplementary  wage  grid  for  the  Independent  Authority  of  Public 
Revenue, adopted in the context of the 10th report, has been successfully rolled-
out to a significant number of its staff, thus completing the specific commitment 
in the area of tax administration. 

  Despite  long  delays  in  the  tendering  procedure,  the  contract  regarding  the  full 
deployment  of  the  relevant  IT  system  to  support  the  investment  licensing 
framework was recently signed, thus fulfilling this specific commitment. 

  The contract for the development of the National Gateway for Codification and 
Reform of Greek Legislation has been awarded, effectively closing this specific 
commitment. The contract has a long implementation phase of 36 months and is 
EU-funded through the National Strategic Reference Framework. 

Progress  continued  well  also  in  other  areas  covered  by  specific  commitments  and  the 
authorities  committed  to  ensure  their  implementation  according  to  agreed  timelines. 
More specifically: 

  The  end-to-end  IT  collection  system  for  the  tax  administration,  a  mid-2021 
specific commitment, is in a testing phase and the final system is expected to be in 
place by end-2021, broadly in line with what was expected in the 10th report.  

  As regards health and social care, the collection of  clawback, i.e. spending over 
and above the legislated ceiling for public spending on pharmaceuticals and other 
healthcare services  that is due to  be collected back from  healthcare providers, is 
now  progressing  broadly  according  to  schedule,  following  delays  due  to  the 
pandemic.  The  authorities  are  advancing  with  the  adoption  of  the  primary 
legislation establishing a Personal Assistance scheme for persons with disabilities 
based  on  a  new  functionality-based  disability  assessment  approach,  with 
secondary legislation to follow by the end of the year.  

  As  regards  the  business  and  investment  environment  and  following  the  set  of 
legislations  adopted  in  April  2021,  the  authorities  adopted  further  primary 
legislation  in  June  2021  to  reform  the  licensing  of  economic  activities  in  all 
agreed  sectors.  This  is  a  welcome  step.  Nonetheless,  the  authorities  are 
encouraged to strengthen the pace of the adoption of ministerial decrees necessary 
to  implement  the  April  and  June  laws,  which  is  necessary  to  make  the  new 
provisions  fully  operational.  The  implementation  of  the  road  map  for  the 
completion of the cadastre project progresses satisfactorily, with moderate delays 
on  the  ratification  of  forest  maps.  The  European  institutions  welcome  that  the 
authorities  adopted  a  new  cadastral  law,  which  aims  to  accelerate  cadastral 
mapping and property transfer procedures. Following the recent labour reform, the 
authorities are expected to present an initial draft of a new Labour Code by early 
2022,  with  a  view  to  enhancing  legal  certainty  and  access  to  law  through  legal 
codification.  

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 

In  the  area  of  justice,  the  authorities  have  made  good  progress  on  the  specific 
commitment  on  electronic  e-filing  in  the  current  reporting  period.  Greece’s 
recovery  and  resilience  plan  includes  a  number  of  welcome  follow-up  measures 
that will further pursue and broaden the objectives of this reform.  

  Regarding  the  fight  against  corruption,  the  authorities  have  put  forward 
measures  to  address  the  remaining  recommendations  by  the  Group  of  States 
against  Corruption  (GRECO),  a  specific  commitment,  progressively  by  April 
2022.  

  The  authorities  progressed  with  the  master  plan  for  the  development  of  the 
Olympic  Athletic  Centre  (OAKA).  Further  work  will  be  needed  to  ensure  that 
the plans for the site guarantee its long-term financial sustainability. 

The  authorities  advanced  on  a  number  of  broader  structural  reforms  initiated  in  the 
context of enhanced surveillance. Notably: 

  A  new  comprehensive  law  on  school  education  was  adopted  in  Parliament  in 
August  2021  and  will  be  applied  in  the  current  academic  year  2021-22.  This 
reform  brings  a  number  of  important  innovations  as  regards  schools’  autonomy, 
organisational changes and teachers’ evaluation. 

  The authorities prepared a detailed action plan, through technical support provided 
by the European Commission, to strengthen the hiring process for civil servants. 
The  implementation  of  the  plan  will  be  monitored  under  Greece’s  recovery  and 
resilience plan. 

  The  authorities  adopted  a  new  national  public  procurement  strategy  for  2021-
2025,  with  key  initiatives  including  the  digitalisation  of  public  procurement 
processes,  introduction  of  modern  tools  and  e-services  and  improvements  in 
governance and control framework.  

  Last  but  not  least,  the  authorities  continue  making  steady  progress  on  e-
governance, notably as regards the ongoing development of the gov.gr portal and 
securing the robustness of public sector systems. The actions in this area will be 
also supported under Greece’s recovery and resilience fund. 

In  some  areas,  progress  has been  slower  than  expected  in  the  10th  report.  Notably,  the 
pace  of  arrears  clearance  has  not  picked  up.  The  total  stock  of  arrears  stood  at  around 
€900 million,  exceeding  the  end-July  overall  target  (around  €500 million)  by  nearly  80%. 
This  significant  deviation  raises  concerns,  especially  given  the  extensive  reassessment  of 
clearance  targets  undertaken  in  the  context  of  the  10th  report.  The  current  delay  makes  the 
target  to  materially  clear  the  stock  of  non-pension  arrears,  which  was  due  in  June  2021, 
challenging  to  be  met  even  by  end-September.  The  authorities  are  invited  to  accelerate  the 
implementation  of  all  actions  that  facilitate  the  arrears  clearance  and  prevent  the 
accumulation of new ones, in order to avoid any future slippages from the agreed targets. It is 
nevertheless  encouraging  that  the  implementation  of  the  recommendations  of  the  Hellenic 
Court of Auditors on arrears clearance continues as planned and that the authorities identified 
proposals  for  the  simplification  of  certain  fiscal  procedures,  the  majority  of  them  to  be 
adopted  by  October  and  December  2021.  The  authorities  have  overall  made  significant 
progress  on  the  reform  of  the  inspection framework  but  the  last  remaining  element  from 

4 

 
 
the  priority  areas  followed  under  enhanced  surveillance,  namely  primary  legislation  and 
implementing  decrees  on  inspections  in  the  area  of  environmental  protection,  has  suffered 
delays  on  account  of  ongoing  wider  environmental  reform  with  respect  to  the  May  2021 
timeline  that  was  expected  in  the  10th  report.  The  authorities  committed  to  completing  the 
inspection  reform  by  the  end  of  October  2021.  In  the  area  of  justice,  the  work  on  the 
establishment of JustStat units is progressing slower than expected and the call for tenders for 
the  integrated  case  management  system  for  civil  and  criminal  cases  remains  yet  to  be 
launched. Following the adoption of a number of major education laws in 2021, the law on 
higher education, is  now expected to  be adopted by the end of 2021, somewhat  later than 
envisaged.  In  the  area  of  health  care,  centralised  health  procurements  are  ongoing  but  the 
adoption of the new legislative framework for the  National Centralised Health Procurement 
Authority  (EKAPY)  has  slipped  to  the  next  review.  The  revision  of  the  law  on  primary 
healthcare is progressing, although key elements such as gatekeeping and compulsory patient 
registration  are  still  being  defined,  and  progress  was  also  made  on  hiring  new  general 
practitioners.  The  authorities  committed  to  completing  the  draft  and  putting  it  to  public 
consultation by mid-October. 

The impact of the pandemic on the financial sector has been moderate so far, thanks to 
the  measures  put  in  place  by  the  Greek  authorities  and  at  the  euro  area  level. 
Implementation  of  agreed  policy  actions  has  resumed  but  progress  is  overall  slower 
than expected. The non-performing loan ratio in the first quarter of 2021 remained at 30%, 
similar  to  the  end  of  2020  level,  but  the  trend  of  a  continuous  improvement  is  expected  to 
restart  in the next  quarters on the back of further sizable securitisations under the Hercules 
scheme. The initial signs from the use of the new insolvency framework implemented in the 
context of the 10th report are encouraging but it is too early to assess the effectiveness of the 
new framework. The concessionary process for the setup of the sale and lease-back entity for 
vulnerable debtors has been further delayed, with its establishment not expected before mid-
2022, without affecting, however, other parts of the insolvency framework. The processing of 
the backlog of household insolvency cases, an end-2021 specific commitment, has resumed 
but  is  likely  to  take  longer  than  initially  expected  on  account  of  several  months  of  court 
suspensions  related  to  the  pandemic  and  a  low  case-processing  capacity  in  a  number  of 
courts. Regarding the conduct of e-auctions and other enforcement proceedings, the welcome 
and significant steps included in the revised (draft) Code of Civil Procedure will come into 
force  later  than  expected,  on  1  January  2022,  which  is  unfortunate  considering  the  earlier 
assurances that the Code would enter into force by mid-September 2021. The authorities have 
launched additional steps to increase the efficiency of certain procedural aspects of e-auctions 
in 2022. Delays in the clearance of the backlog of called state guarantees have continued in 
the  second  quarter  of  2021,  leading  to  a  downward  revision  of  the  2021  clearance  target. 
While recent data provided encouraging signs of an acceleration, meeting the revised targets 
remains  challenging.  The  European  institutions  welcome  the  adoption  of  the  necessary 
secondary  legislation  to  ensure  full  operationalisation  of  the  deferred  tax  credits 
framework in July 2021, to enable the use of deferred tax credits in case of bank losses, and 
that the relevant primary law will be amended shortly to further facilitate securitisations and 
sales of non-performing loans.  

The  authorities  indicated  that  completion  of  a  number  of  specific  commitments  and 
other important reforms is in reach in time for the 12th report. More specifically: 

  As  regards  fiscal  structural  reforms,  the  implementation  of  the  1st  level  of  the 
functional  classification,  which  constitutes  a  mid-2021  specific  commitment  in  the 

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area of the Chart of Accounts, is on track for completion in time for the adoption of 
the  2022  budget.  The  end-to-end  IT  collection  system,  a  mid-2021  specific 
commitment  in  the  area  of  tax  administration,  is  in  a  testing  phase  with  a  view  to 
becoming  fully  operational  by  end-October  2021.  Legislation  is  expected  in 
November  2021  to  implement  a  major  reform  for  2022  of  the  ENFIA  property  tax 
with the wider base provided by the new market-related property tax values, a specific 
commitment.  

 

In the area of energy, an anti-trust remedy has been agreed with the authorities. The 
successful  implementation  thereof,  through  adopting  the  relevant  regulatory  and 
corporate measures, will complete this specific commitment.  

  The  specific  commitment  to  complete  the  integrated  human  resources  management 
system for the public administration is expected to be closed also by October 2021, 
following  the  recent  completion  of  interconnections  between  records  on  each 
jobholder  collected  by  the  census  of  public  officials,  the  Single  Payment  Authority 
and  the  human  resources  department.  The  authorities  have  also  completed  the 
assessment  of  existing  temporary  staff  categories  and  committed  to  set  an  annual 
ceiling for temporary staff by October 2021, to be applied as of 2022. The European 
institutions encouraged the authorities to complete the process for the appointment of 
the permanent secretary for education the soonest possible.  

  Despite  minor  delays,  the  authorities  are  progressing  well  to  operationalise  the 
Strategic Projects Pipeline and the Project Preparation Facility, both of which will 
play  a  critical  role  in  the  implementation  of  Greece’s  recovery  and  resilience  plan. 
The  entities  are  expected  to  be  fully  operational  by  the  time  of  the  12th  report, 
including the first Development Programme of Contracts of Strategic Importance and 
a  launch  of  the  tender  process  for  framework  contracts  for  consultants  for  projects 
assigned  for  maturation  through  the  Project  Preparation  Facility.  The  authorities  are 
also  expected  to  complete  the  adoption  of  the  remaining  secondary  legislation 
identified as critical for the operationalisation of the new law on public procurement, 
following steady progress over the past months.  

  Discussions  have  started  on  the  future  of  the  Hellenic  Financial  Stability  Fund,  a 
specific  commitment.  A  legal  amendment,  touching  upon  the  duration,  governance, 
divestment  strategy  and  special  rights  of  the  Fund,  is  expected  to  be  adopted  by 
October  2021.  It  is  noted  that  the  nomination  process  for  the  post  of  the  Fund’s 
Deputy  Chief  Executive  Officer  has  encountered  delays.  Preserving  the  Fund’s 
independence  and  respecting  the  selection  process  as  set  out  in  the  law  remains 
essential. 

Overall, this report concludes that Greece has taken the necessary actions to achieve its 
due  specific  commitments,  despite  the  challenging  circumstances  caused  by  the 
pandemic. The authorities delivered on specific commitments across various areas, including 
privatisations, improving the business  environment  and tax administration, while advancing 
on  wider  structural  reforms  including  in  the  area  of  school  education  and  public 
administration. The European institutions welcome the close and constructive engagement in 
all  areas  and  encourage  the  authorities  to  keep  up  the  momentum  and,  where  necessary, 
reinforce  the  efforts  to  remedy  the  delays  partly  caused  by  the  pandemic,  in  particular  as 
concerns financial sector reforms and arrears clearance. 

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MACROECONOMIC DEVELOPMENTS 

Following the large downturn of 8.2% in 2020, the Greek economy started to recover in the 
first  half  of  the  year.  Real  GDP  increased  by  4.5%  and  3.4%  on  a  quarter-on-quarter  basis 
(seasonally adjusted) in the first and second quarter of 2021 respectively, driven by investments 
and accumulation of inventories. Consumer price growth picked up in the summer reaching 1.2% 
in  August,  after  several  months  of  a  decline.  The  developments  in  the  first  part  of  the  year, 
although  somewhat  detached  from the  global inflationary  pressures  observed in  other  Member 
States,  are  primarily  attributed  to  the  impact  of  VAT  reductions  on  prices  of  services. 
Employment  support  measures  continued  propping  up  the  labour  market,  despite  the  large 
economic  disruption  brought  about  by  the  pandemic.  It  is  estimated  that  in  2020,  around 
1.5 million  workers  in  more  than  200 000  businesses  were  supported  by  employment-support 
measures  financed  by  the  EU  instrument  to  'Support  to  mitigate  Unemployment  Risks  in  an 
Emergency  (SURE),  while  more  than  600 000  workers  may  benefit  from  the  instrument  in 
2021. Following the relaxation of the healthcare restrictions and the restart of the tourist season, 
which have helped accelerate job creation, the unemployment rate in the second quarter of 2021 
decreased to 15.9%, i.e. 0.4 percentage points below its level in the first quarter and more than 
1 percentage point compared with a year ago. Yet, youth unemployment increased from 32.8% in 
the  first  quarter  of  2020  to  41.7%  in  the  first  quarter  of  2021  (latest  available  data).  Leading 
indicators from ‘Ergani’ information system point to a further increase in employment during the 
summer  months,  signalling  a  potential  reduction  of  the  unemployment  rate  for  the  subsequent 
quarter. In parallel, the vaccination campaign continues to progress; however, the recent upsurge 
of  cases  over  the  summer  period  due  to  the  emergence  of  the  new  delta  variant  has  raised 
concerns. 

According to the Commission 2021 Summer interim forecast, GDP is forecast to increase 
by 4.3% in 2021 and by 6.0% in 2022. Growth is expected to be domestically driven in 2021, 
on the back of the investment impetus from the recovery and resilience plan, as well as the fiscal 
stimulus from the government support measures. While international tourist arrivals recovered a 
considerable part of their losses with respect to 2019 levels over the summer season, notably in 
August,  tourist  receipts  are  forecast  to  remain  below  their  2019  levels.  Goods  exports  are 
expected to keep their positive momentum, fuelled from their notable resilience during the period 
of the pandemic. Headline inflation is forecast at -0.4% in 2021 and 0.5% in 2022. 

Greece’s  recently  adopted  recovery  and  resilience  plan  is  set  to  strengthen  private  and 
public investment going forward. Through implementing strategic investments in the fields of 
green transformation, digital transition, sustainable and inclusive growth as well as other growth-
enhancing actions, the plan is expected to support the economic recovery. According to the latest 
simulations by the Commission services, the GDP level is expected to increase by 2.1-3.3% by 
2026,  from  the  combined  effect  of  the  grants  and  loans  component.  Such  simulations  do  not 
include the possible positive impact from the structural reforms envisaged under the plan, which 
could be substantial. Growth will also be supported by the new EU funding cycle.  

The uncertainty surrounding the outlook remains high. Particularly as regards the recovery 
of the tourism industry, the progress with the fight against the pandemic, both at a domestic but 
also international level, will be a key factor. The reopening of tourism in early-May, provided a 
boost to the sector; however, the impact of this was partly offset by the late relaxation of travel 
restrictions from key source countries. Uncertainty also concerns the speed of recovery of the 
private sector after the expiry of the support measures. For that reason, the phasing-out of these 
measures  will  need  to  be  carefully  timed  to  avoid  cliff  effects  and  prohibit  a  surge  of  new 
bankruptcies. This also concerns the labour market and the withdrawal of the respective labour 

7 

 
 
market support schemes, which will need to be designed with an objective to keep an upsurge 
of lay-offs under  control. The recent pick-up in input costs  and the presence of supply chain 
bottlenecks are adding to the uncertainty regarding the inflation outlook. External geopolitical 
factors  and  a  potential  resurgence  of  migration  flows  remain  an  additional  source  of 
uncertainty. On the upside, the realisation of part of the purchases delayed from the previous 
year could provide an additional boost to private consumption, as suggested by high-frequency 
indicators of the economy. 

FISCAL DEVELOPMENTS 

The  authorities  continue  to  provide  timely,  targeted  and  temporary  support  to  the 
economy,  the  re-opening  of  which  has  been  more  gradual  than  assumed  in  April. 
According to  the Council opinion on the Greece’s  2021 Stability Programme, the measures 
taken by Greece in 2020 and 2021 have been in  line with  the Council Recommendation of 
20 July  2020 (5).  The  measures  adopted  by  August  2021  remain  currently  in  place  and  are 
expected to be gradually lifted in the coming period. The fiscal cost of these measures is now 
expected to reach 5.9% of GDP, i.e. 0.2% of GDP higher in 2021 than previously estimated. 
This  includes  a  new  measure  that  incentivises  young  adults  to  get  vaccinated.  The 
government  plans  to  continue  its  support  next  year  but  on  a  lower  scale.  Apart  from  the 
already  announced  measures  of  the  reduced  rate  of  social  security  contributions  and  the 
reduction of the social solidarity tax for the private sector, which are included in Commission 
2021  spring  forecast,  the  authorities  also  decided  to  extend  the  application  of  lower  value 
added  tax  rates  in  2022  for  specific  goods  and  services  in  certain  vulnerable  sectors.  In 
June 2021,  the  Council  recommended  that  Greece,  in  2022,  should  use  the  Recovery  and 
Resilience  Facility  to  finance  additional  investments  in  support  of  the  recovery  while 
pursuing prudent fiscal policy and preserving nationally-financed investment (6). 

In response to the extensive forest fires in August, the authorities adopted a set of relief 
and support measures.  At the end of August  2021, the authorities issued a supplementary 
budget,  which  increases  the  ordinary  budget  expenditure  by  0.1%  of  GDP  and  the  public 
investment budget expenditure by 0.2% of GDP, in order to finance the measures that provide 
assistance  to  affected  households,  businesses  and  regions.  The  introduced  support  is 
estimated to increase public spending by 0.3% of GDP in 2021 and 0.1% of GDP in 2022 and 
consists of a wide range of measures such as grants and loans, exemptions from repayment of 
the refundable advance provided during the pandemic, waiver of the real estate tax (ENFIA) 
for 2021-2023, temporary suspensions of taxes and debts obligations and support to affected 
local governments to help the reconstruction of their regions.  

On  11 September  2021,  the  authorities  announced  a  package  of  additional  measures. 
Most of the measures prolong or adjust the existing support measures. More specifically, the 

(5)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of 

Greece, OJ C 304, 29.7.2021, p. 33–37.  

(6)  Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Stability Programme of 
Greece, OJ C 304, 29.7.2021, p. 33–37. Note that the general escape clause, which remains active in 2022, 
allows  for  a  temporary  departure  from  the  budgetary  requirements,  provided  that  this  does  not  endanger 
fiscal sustainability in the medium term. It was initially activated in March 2020 for 2020 and extended to 
2021 as indicated in the Annual Sustainable Growth Strategy 2021. On the basis of the Commission’s 2021 
spring forecast, on 2 June the Commission considered that the conditions for the continued application of the 
general  escape  clause  in  2022  and  its  deactivation  as  of  2023  are  met.  Country  specific  situations  will 
continue to be taken into account after the deactivation of the general escape clause.  

8 

 
 
                                                 
repayment rate of all ‘repayable advance payments’ (public support to companies affected by 
the pandemic, distributed in the form of loans with a conditional subsidy component) will be 
decreased  further  from  the  current  50-100%  to  25-50%,  depending  on  the  rate  of  loss  in 
turnover for each company; the short-time work scheme (‘SYNERGASIA’) will be extended 
until the end of 2021; and the temporary instalment subsidy scheme for coronavirus-affected 
debtors  with  primary  residence  loans  (the  ‘Gefyra’  scheme)  will  be  extended  for  three 
additional  months (7).  In  response  to  the  recent  increase  in  electricity  prices  a  new  subsidy 
scheme was announced, which will offer a discount of 30€/MWh for  the first 300 kWh per 
month  consumed  until  the  end  of  the  year.  This  measure  is  temporary  and  will  benefit  all 
households  and  low  voltage  businesses.  The  cost  of  these  measures  are  yet  to  be  fully 
specified  and  will  be  included  in  the  Commission  2021  autumn  forecast.  The  package  also 
includes measures that have a fiscal impact in 2022 and will be assessed in the context of the 
2022 Draft Budgetary Plan (8). 

A  new  settlement  scheme  has  been  adopted  for  the  overdue  tax  and  social  security 
obligations  that occurred during the period of the pandemic and until end-June 2021. 
This new scheme amends the already adopted settlement scheme that concerns the repayment 
of  the  deferred  liabilities  for  the  period  between  March  and  June  2020.  According  to  the 
previous  scheme,  businesses  and  households  that  were  directly  affected  by  lockdowns  and 
labour contract suspensions, could choose to pay their deferred obligations in 24 instalments 
without any interest, or in 48 monthly instalments in which case an annual interest of 2.5% is 
charged. Given that the pandemic has lasted longer than expected at the time of the design of 
this  scheme  and  that  the  accumulation  of  new  overdue  tax  and  social  security  debt  has 
increased,  the  authorities  decided  to  allow  a  longer  period  for  the  repayment  of  these 
liabilities under the new scheme. Following this modification, the eligible natural  and legal 
persons may repay their overdue debt in a maximum of 36 or 72 instalments. Similar to the 
previous  scheme,  those  who  choose  the  shorter  repayment  period  will  not  be  charged  any 
interest.  In  order  to  reduce  the  average  number  of  paid  instalments,  the  minimum  monthly 
payments for debts over €1 000 has been increased to €50. 

A reform of the auxiliary pension system was adopted by the Parliament in September 
2021 and it will enter into force in 2022, at limited fiscal costs in the medium run but a 
sizeable fiscal impact in the long run. The authorities will create a new fully funded public 
pension  fund  that  will  operate  as  a  defined  contribution  pension  scheme  for  the  auxiliary 
pensions. The new entrants to the labour market (9) will be automatically enrolled in this new 
fund, while employees who are already in the notional defined contributions system and are 
below 35 years of age will be allowed to choose whether they want to participate in the new 
fund or remain in the existing scheme. The fiscal costs of the reform in the short term reflect 
the diversion  of future contributions  of new employees towards capital  accumulation in  the 
new fund, hence the creation of a revenue gap that will need to be covered by public funds. 
These costs are expected to be manageable (0.1-0.2% of GDP per year) over the next decade, 

(7)  The  scheme’s  extension  is  subject  to  the  Commission’s  approval  of  the  amendment  to  the  decision 

SA.58555.  

(8)  According  to  the  Commission  2021  spring  forecast,  the  primary  deficit  monitored  under  enhanced 
surveillance is expected to reach 7.3% of GDP in 2021 and 0.5% of GDP in 2022, which is closely aligned 
with the projection of the authorities. The Greek Parliament also adopted the Medium Term Fiscal Strategy 
in July 2021, which is consistent with the Stability Programme submitted in April 2021. 

(9)  New  entrants  hired  in  sectors  that  are  already  under  the  current  notional  defined  contributions  auxiliary 

system. 

9 

 
 
                                                 
 
and can be covered by existing buffers in the social budget. However, the cost of the reform 
is expected to increase over time and peak at about 1% of GDP in 2070s in annual terms. The 
cost depends on the share of current employees insured in the existing supplementary funds 
who decide to move to the new fund, while the impact on the general government debt level 
will depend also on the investment strategy of this fund and on its sector classification (10). 

The fiscal  risks remain substantial and relate mainly  to the evolution of the pandemic 
and  to  the  pending  court  rulings.  Additional  fiscal  costs  might  arise  from  the  further 
prolongation  of  the  containment  measures  and  related  fiscal  support,  in  case  the  pandemic 
continues to evolve. Other risks stem from to the possibility of the guarantees issued as part 
of the support measures to be called in the coming years. Further risks relate to the pending 
court ruling on the retroactive pensions. Following the 2020 July Council of State ruling, the 
Greek State paid €1.4 billion in retroactive pension payments, but declined to recognise any 
remaining  claims  that  relate  to  seasonal  bonuses  and  supplementary  pensions.  The  pending 
ruling of the Council of State on the retroactive compensation for cuts in the supplementary 
pensions  and  seasonal  bonuses  could  lead  to  further  substantial  payments  in  case  the  court 
rules in favour of the pensioners. In addition, the pending litigation cases against the Public 
Real Estate Company (ETAD) continue to pose fiscal risks. Finally, the classification of the 
sale and lease-back entity for properties owned by vulnerable debtors is still pending. In case 
it is classified as a general government entity, it would result in substantial fiscal costs during 
the run-up phase of the entity.  

SOVEREIGN FINANCING 

The  cash  buffer  remains  large  as  the  government  successfully  continues  its  bond 
issuance  programme.  The  sovereign  yield  spreads  over  the  German  Bund  have  decreased 
further and have been hovering around 100 basis points on the 10-year tenure since end-May 
2021.  The  favourable  financing  conditions  continue  to  be  supported  also  by  the  European 
Central  Bank’s  accommodative  monetary  policy  stance,  including  its  Pandemic  Emergency 
Purchase Programme. Greece tapped the capital markets multiple times since April 2021. In 
May, it raised €3 billion through the issuance of a new 5-year benchmark government bond. 
The  achieved  yield  was  0.17%,  with  a  coupon  of  0%.  Both  are  the  lowest  values  ever 
achieved by a Greek bond on this maturity. In June, the books of the 10-year bond issuance 
of January 2021 were reopened, and €2.5 billion were raised with a yield of 0.89%. Issuance 
activity continued in September with the reopening of the books for the 5-year and 30-year 
bonds. The Public Debt Management Agency raised €1.5 billion (0.02% yield) and €1 billion 
(1.675%  yield) respectively from those issuances. The Greek state has already exceeded its 
original  issuance  plan  for  2021,  raising  €14  billion  on  the  open  market.  In  addition, 
approximately  €2.5  billion  loans  were  disbursed  to  Greece  in  May  under  the  European 
instrument  for  temporary  ‘Support  to  mitigate  Unemployment  Risks  in  an  Emergency’ 
programme. The general government’s cash reserves stood at around €34 billion in early July 
2021 (11). Furthermore, in August 2021 Greece received €4 billion in pre-financing under the 
Recovery and Resilience Facility. 

(10) If classified within general government, the impact on public debt would be lower as the fund’s holdings of 

Greek sovereign bonds would be consolidated within general government. 

(11) 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. 

10 

 
 
                                                 
DEBT SUSTAINABILITY ANALYSIS 

The  update  of  the  analysis  indicates  that  debt  sustainability  risks  remained  broadly 
unchanged compared to the 10th report. Similarly to the assessment in the 10th report, the 
current  update  of  the  analysis  indicates  that  short-term  risks  to  debt  sustainability  remain 
contained. Risks are more significant over the longer run in the ‘low growth’ and ‘higher risk 
premium scenarios’. The debt sustainability analysis continues to build on the Commission’s 
spring  forecast  and  has  been  updated  with  new  information  on  forward  rates  and  the 
issuances that took place since the last report. The baseline scenario has marginally improved 
compared to the 10th report due to the further decrease in the Greek forward rates as of mid-
August,  while  the  alternative  scenarios  remained  broadly  unchanged,  as  the  risk  free  rate 
projections  changed  only  marginally.  In  the  baseline  scenario,  debt  decreases  to  57.6%  of 
GDP by 2060, while gross financing needs remain below 15% of GDP in the long run. In the 
higher  risk  premium  scenario,  debt  decreases  to  97.6%  of  GDP  by  2060,  while  gross 
financing needs hover around 20% of GDP from the late-2050’s. In the low growth scenario, 
the debt level does not stabilise, and gross financing needs permanently surpass 20% of GDP 
from the late 2040’s. 

Graph 1.1:  Results of the debt sustainability analysis 

Source: Commission services 

FINANCIAL SECTOR DEVELOPMENTS 

The  provisioning  needs  linked  to  the  securitization  transactions  of  non-performing 
loans have dampened bank profitability. As a result, banks have continued to record losses 
in the first quarter of 2021. On the positive side, net revenues increased. In particular, one-off 
trading  revenues  linked to the government  bond  portfolio helped, while net  interest  income 
has been resilient as a result of the lower cost of funding due to the abundant liquidity on the 
back of growing deposits and ample Eurosystem funding. In the case of two systemic banks, 
results were also bolstered by a lower cost-of-risk, as they start to reap the benefits of their 
non-performing loan deleveraging. At the same time, operating costs increased due to some 
non-recurring restructuring costs. Excluding those, operating costs declined, reflecting banks’ 
efforts to reduce their staff and branches. Net interest margins are expected to remain under 
pressure by the low interest rates and the expected balance sheet clean up. The profitability 
prospects for the second half of 2021 will therefore be influenced by the (i) ability of banks to 
further reduce their provisioning needs, (ii) economic activity, which will affect the demand 
for  new  loans,  and  (iii)  the  ability  of  banks  to  find  alternative  sources  of  income.  Further 

11 

04080120160200240202020222024202620282030203220342036203820402042204420462048205020522054205620582060Gross government debtLow growth scenarioHigher risk premium scenarioBaseline scenario10th report baseline scenario051015202530202020222024202620282030203220342036203820402042204420462048205020522054205620582060Gross financing needsLow growth scenarioHigher risk premium scenarioBaseline scenario10th report baseline scenario 
 
  
reducing costs and taking advantage of the digital transition will be other key challenges in 
the near term.  

The  capital  position  of  Greek  banks  at  the  end  of  the  first  quarter  of  2021  remained 
broadly  adequate  despite  the  losses  registered  due  to  the  pandemic,  the  clean-up  of 
banks’ balance sheets and the partial phase-out of transitional prudential adjustments. 
Banks’  average  Common  Equity  Tier  1  and  Total  Capital  ratios  stood,  on  a  consolidated 
basis, at 13.6% and 15.6% of risk-weighted assets, respectively. This implies a decline with 
respect  to  the  previous  quarter  and  in  comparison  to  end-2019  (16.2%  and  17.3% 
respectively),  as  banks  have  frontloaded  provisioning  linked  to  the  impact  of  the  pandemic 
and the upcoming securitisations. The phasing out of transitional prudential adjustments (12) 
and the yearly amortisation of mostly guaranteed deferred tax assets, has also temporarily put 
pressure  on  the  banks’  overall  capital  ratio  in  the  first  quarter  of  2021.  Nonetheless,  the 
recent,  successful  share  capital  increases  by  two  systemic  banks  in  the  second  quarter  of 
2021 (13), coupled with other capital enhancing actions, enable the Greek systemic banks to 
move  forward  with  their  ambitious  non-performing  loan  reduction  strategies.  At  the  same 
time, the capital position of some less significant institutions may require close monitoring in 
the near term, as they also address their high level of non-performing loans. With respect to 
the  minimum  requirement  for  own  funds  and  eligible  liabilities  (MREL),  the  four  systemic 
banks have adjusted their issuance policy so as to meet  the binding interim target  set  for 1 
January 2022, as evidenced by successful issuances in the first half of 2021 (14). 

The sovereign-bank nexus has become stronger over the last year and will require close 
monitoring going forward. The already high share of deferred tax credits in banks’ capital is 
on a rising trend, reaching 65% of Common Equity Tier 1 capital in the first quarter of 2021, 
as banks’ capital positions comes under pressure by the cost of completed and upcoming loan 
securitisations  and  the  subdued  profitability  levels.  Moreover,  Greek  systemic  banks  have 
gradually increased their exposure to domestic government bond holdings, from 6.4% of their 
total assets as of end 2018 to 10.1% as of end-2020 (15), although the associated risk remains 
contained  for  the  time  being  due  to  the  share  of  government  bond  holdings  classified  at 
amortised  cost (16)  and  the  low  volatility  of  sovereign  bond  yields  on  the  back  of  the 
accommodative European Central Bank monetary policy stance. In addition, the exposure of 
Greek banks to their sovereign is increased further through state guarantees provided in the 
context  of  the  Hercules  scheme  and  Covid-19  state  support  measures,  while  the  State  also 
maintains  equity  stakes  in  the  sector,  as  a  result  of  its  participation  in  past  bank 
recapitalisations. 

The marginal deterioration in the non-performing loan ratio in the first quarter of 2021 
is  expected to be reversed in the next quarters on the back of further non-performing 

(12) These transitional arrangements refer to the phasing in of the new accounting standards on impairments of 
financial  assets  and  the  implementation  of  new  rules  leading  banks  to  more  quickly  write  down  non-
performing exposures, according to Regulation (EU) 2019/630 amending Regulation (EU) No 575/2013 and 
relevant supervisory guidance. 

(13) The  first  one  in  April  2021,  raising  €1.38  billion,  and  the  second  one  in  June  2021,  raising  €800  million. 

These were the first share capital increases of Greek banks since 2015. 

(14) Greek banks successfully issued in the first half of 2021 a €500 million Tier-II note in March 2021, a €500 
million preferred senior unsecured note in May 2021 and a €600 million Additional Tier I note in June 2021. 

(15) Source: Bank of Greece, Financial Stability Review June 2021 
(16) By  classifying  government  bond  holdings  as  held  to  maturity  (i.e.  at  amortised  cost),  banks  insulate  their 

capital base from any potential rise in the volatility of government bond yields. 

12 

 
 
                                                 
loan securitisations under the Hercules scheme. After a continuous improvement in 2020, 
the non-performing loan ratio has edged upwards in March 2021, to 30.3% on a solo basis, 
and remains the highest  in  the euro  area. The reason for this  slight  increase is  a pick-up in 
new  defaults  in  the  1st  quarter  of  the  year,  especially  in  the  corporate  and  consumer  loan 
book, with three of the four systemic banks recording net inflows of non-performing loans in 
the  quarter.  However,  the  decrease  in  the  stock  of  non-performing  loans  is  expected  to 
resume from the 2nd quarter of the year, as three more transactions were formally concluded 
by  the  end  of  June  2021  under  the  Hercules  scheme,  reaching  an  aggregate  portfolio  of 
securitised  non-performing  loans  of  approximately  €17  billion.  The  four  systemic  Greek 
banks plan to dispose an additional €24 billion of non-performing loans by the end of 2021, 
making  use  of  the  recent  extension  of  the  scheme.  Their  aim  is  to  reach  single  digit  non-
performing loan ratios in 2022 at the latest. The success of these ambitious reduction plans is 
contingent  on  a  number  of  factors,  such  as  the  scale  of  new  non-performing  loan  inflows, 
future economic  growth  and overall market  conditions. In this respect,  in an effort to  adapt 
the Hercules framework to the post-pandemic environment and reflect the adverse impact of 
the health crisis on loan recoveries (17), the authorities have adopted in July 2021 additional 
amendments to the relevant implementing law. 

Following the expiry of the moratoria, an initial assessment shows a moderate adverse 
impact  on  asset  quality,  in  line  with  banks’  expectations,  but  downside  risks  remain. 
The  vast  majority  of  moratoria  expired  at  the  end  of  2020,  with  some  limited  exceptions, 
particularly  linked  to  the  hospitality  sector.  The  initial  results  suggest  that  the  number  of 
potential  defaults  are  unlikely  to  exceed  the  original  estimate  incorporated  in  the  banks’ 
business  plans  for  2021.  Currently,  about  half  of  the  borrowers  exiting  moratoria  have 
returned to a normal payment pattern while the smooth transition of the remaining borrowers 
to  a  normal  payment  pattern  is  supported  by  a)  a  series  of  step-up  products  offered  by  the 
banks to viable customers facing temporary difficulties and b) the two temporary instalment 
subsidy schemes set up by the authorities for performing or restructured coronavirus-affected 
debtors (the “Gefyra” and “Gefyra  II” schemes). The deadline for applications for the most 
recent of these two schemes, targeting business loans of small and medium-sized firms and 
professionals,  was  the  end  of  May,  with  a  total  of  40 314  submitted  applications,  of  which 
18 077 eligible applications were processed by the end of July, corresponding to €6.5 billion 
of loans, predominantly (84%) performing. The authorities have also announced a limited 3-
month extension of the first scheme, related to loans secured by a primary residence, to allow 
for  a  more  gradual  phase-out  for  Covid-stricken  debtors.  Nonetheless,  downside  risks  with 
regards to the banks’ provisioning levels persist, as the full impact of the pandemic on non-
performing  loan  inflows  may  become  evident  with  a  lag  only  in  2022.  This  is  due  to  the 
expiry of the majority of step-up products and the two “Gefyra” schemes towards the end of 
this  year,  as  well  as  the  expected  lifting  of  various  other  state  support  programmes.  As  a 
result, there is a need for appropriate and homogeneous classification and provisioning of the 
loans  under  step-up  solutions  as  well  as  further  improvements  in  the  internal  capacity  by 
banks  to  provide  viable  long-term  loan  restructurings,  in  order  to  proactively  manage  such 
risks and ensure that the ambitious non-performing loan reduction targets are met. 

The  credit-support  programmes  have  continued  to  bolster  the  flow  of  credit  to  the 
economy.  Over  the  period  from  January  to  June  2021,  28%  of  new  loans  with  defined 

(17) The suspension of enforcement measures during the pandemic has affected the ability of servicers to recover 
on their credits and has created the need for some flexibility, given that the legislative framework foresees 
measures in case recoveries fall short of the business plans’ projections. 

13 

 
 
                                                 
maturity to non-financial corporations were supported by instruments offered by the Hellenic 
Development Bank and 48% in the case of small and medium-sized enterprises. The Covid-
19 enterprise guarantee fund has helped providing €5.7 billion in loans since the start of the 
pandemic  until  the  end  of  June.  The  fund  will  remain  available  until  the  end  of  2021, 
expecting to channel €0.8 billion of additional loans. Under ‘Tepix II’ €2.1 billion loans have 
been disbursed until the end of June. Credit to non-financial corporations continued growing 
but  at  a  slower  pace.  In  July  2021,  the  annual  rate  of  growth  of  net  credit  to  non-financial 
corporations  fell  to  4.1%  from  6.7%  in  April  and  10.0%  in  December  2020,  with  a 
deceleration  in  the  case  of  large  companies  fully  offsetting  an  acceleration  for  small  and 
medium-term enterprises, as two large corporate loan repayments in April affected the overall 
trend.  The  cost  of  credit  to  non-financial  corporations  remained  historically  low  during  the 
first  half  of  2021,  unlike  the  cost  of  credit  for  unincorporated  businesses,  which  is 
substantially higher. In addition, favourable market conditions have allowed the largest Greek 
non-financial  corporations  to  resort  to  the  financial  markets  to  look  for  additional  funds 
through  the  issuance  of  corporate  bonds.  With  respect  to  households,  the  annual  rate  of 
growth of credit remained negative and broadly unchanged at -2.5% in July 2021 compared 
to end-2020 and comes at a steadily higher cost. 

The  Hellenic  Financial  Stability  Fund  has  participated  in  the  successful  share  capital 
increases of two systemic banks. The Fund has participated in the second quarter of 2021 to 
the  capital  raising  exercises  of  two  credit  institutions  to  avoid  an  excessive  dilution  of  its 
existing stake in  them.  At the same time, the Fund has continued supporting banks in  their 
long-term  strategic  plans  to  meet  the  challenges  of  innovation  and  sustainability.  The 
statistical treatment of the fiscal impact of capital injections will be assessed by the statistical 
authorities in the coming period. The nomination process for the post of the Fund’s Deputy 
Chief  Executive  Officer  has  encountered  delays.  Preserving  the  Fund’s  independence  and 
respecting the selection process as set out in the law remains essential. 

14