COMMUNICATION FROM THE COMMISSION Enhanced Surveillance Update - Greece, November 2021
Date: 2021-11-24
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, 24.11.2021  COM(2021) 916 final  COMMUNICATION FROM THE COMMISSION Enhanced Surveillance Update - Greece, November 2021 {SWD(2021) 364 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  that  context, 
enhanced  surveillance  monitors  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). 

This is the twelfth enhanced surveillance report for Greece. The report is based on 
the  findings  of  a  mission  held  in  Athens  on  19-20 October  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  Financing  Assessment  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 

(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, held 
remotely, from 11 to 15 October 2021. 

1 

 
                                                 
the  implementation  of  Greece’s  commitments  to  the  Eurogroup  regarding  reform 
completion due up to mid-2021.  

This report could serve as a basis for the Eurogroup to decide on the release of the 
next  set  of  policy-contingent  debt  measures  worth  €767 million.  These  measures 
were  agreed  with  the  Eurogroup  on  22 June  2018  and  include  the  transfer  of  income 
equivalent amounts stemming from central banks’ holdings of Greek government bonds 
under  the  Securities  Markets  Programme  and  the  Agreement  on  Net  Financial  Assets 
and a waiver for the step-up interest margin for certain loans provided by the European 
Financial  Stability  Facility.  The  fifth  tranche  of  policy-contingent  debt  measures  was 
released following the Eurogroup on 17 June 2021. 

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.  The 
authorities  expressed  an  intention  to  focus  their  efforts  on  delivering  on  outstanding 
commitments  by  mid-2022.  The  decisions  on  the  release  of  the  remaining  debt  relief 
measures as well as the ending of enhanced surveillance will need to take account of the 
progress  towards  completion  of  commitments  as  well  as  the  wider  economic  policy 
environment.  

OVERALL ASSESSMENT 

The  recovery  of  the  Greek  economy  is  gaining  traction,  despite  the  ongoing 
pandemic. Following a strong first half of the year and the better-than-expected tourist 
season,  the  Commission  autumn  forecast  expects  growth  in  2021  to  reach  7.1%,  thus 
practically reaching the pre-pandemic level of economic activity. Real GDP is forecast 
to  grow  by  5.2%  in  2022.  While  still  very  intense,  the  impact  of  the  pandemic  is 
expected 
to  gradually  diminish  with  the  ongoing  vaccination  campaign.  The 
accommodative  fiscal  and  monetary  policy,  coupled  with  the  expected  strong  boost 
from the implementation of Greece’s recovery and resilience plan, are set to sustain the 
momentum  going  forward.  The  labour  market  remains  resilient,  thanks  also  to  the 
government support schemes which continued protecting jobs in vulnerable sectors. The 
2022 Draft Budgetary Plan confirmed that the existing emergency support measures are 
expected to be largely phased out by the end of 2021, with those that remain active in 
the following year being adapted to the evolving needs of the economy. This, along with 
the economic rebound, is set to support the reduction of the general government deficit 
going ahead.  

The authorities successfully completed a further set of specific commitments: 

  As part of the chart of accounts reform, which introduces a common economic, 
administrative  and  functional  classification  for  budgetary  and  accounting 
purposes,  the  authorities  finalised  the  first  level  of  the  functional  classification 
for  both  ordinary  and  public  investment  budget,  which  will  be  presented  in 
November as part of the 2022 Budget. This fulfils a specific commitment in the 
area of public financial management  on  completing the  chart of accounts  for 
the central administration. The development of the second level of the functional 
classification (a mid-2022 specific commitment) is on track.  

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  The  measures  adopted  by  the  authorities  under  the  antitrust  remedy  allow  the 
competitors  of  the  Public  Power  Corporation  (PPC),  the  Greek  state-owned 
electricity incumbent, to purchase more electricity on a longer-term basis, which 
closes this long-standing anti-trust case. This completes the reform of the energy 
sector, which was a specific commitment (5). 

In  addition,  reform  implementation  progressed  well  across  a  broad  range  of 
specific commitments, according to the agreed timelines. In particular: 

  Substantial  progress  was  recorded  in  terms  of  simplification  of  investment 
licensing  legislation,  with  the  majority  of  the  pending  elements  now  in  place. 
The  last  agreed  element,  i.e.  the  enabling  secondary  legislation  for  the 
simplification  of  licensing  procedures  for  economic  activities  in  the  education 
sector, is expected to be completed by January 2022. 

  The Hellenic Corporation of Assets and Participations finalised the work on 
the update of its strategic plan, which sets out its goals and strengthens its role as 
an active shareholder in the companies in its portfolio. Within the framework of 
the update of its strategic plan, the Corporation also progressed well in the area 
of  legal  changes  that  will  be  needed  for  state-owned  enterprises  to  become 
higher-performing  companies.  As  the  Corporation  continues  its  evolution  and 
moves  into  the  implementation  of  the  updated  plan,  it  remains  critical  for  all 
parties to uphold the independence of the Corporation in line with its founding 
Law as this will contribute to the achievement of its mandate and the continued 
positive performance in terms of value creation of the assets of the Greek state. 
Further,  a  performance  contract  for  the  Athens  Urban  Transport  Organisation 
(OASA), including the specific methodology for the estimation of the amount of 
public sector obligation to be received by the Organisation, was agreed, whereas 
the  pending  actions  for  its  execution  are  expected  to  be  completed  by 
end-November. 

  There  was  overall  good  progress  with  the  ongoing  privatisation  transactions 
over the past months. Firstly, following the selection of the preferred investor for 
the  long-term  concession  of  the  Egnatia  motorway  on  26 August  2021,  for  a 
financial  offer comprising of an upfront  payment of almost  €1.5 billion and an 
annual  payment  amounting  to  7.5%  of  the  annual  total  gross  revenue  of  the 
concessionaire,  the  authorities  prepared  a  timetable  for  the  completion  and 
operation of the toll stations and the licensing of all tunnels. Secondly, following 
the  selection  of  the  preferred  investor  for  the  sale  of  Public  Gas  Corporation 
(DEPA)  Infrastructure  on  9 September  2021,  the  file  was  submitted  and 
approved  by  the  Court  of  Audit.  Thirdly,  progress  was  made  on  the  tender 
process  for  a  number  of  transactions  on  the  regional  ports  and  binding  offers 

(5)  As reported in the fourth enhanced surveillance report (November 2019), following the cancellation of 
the NOME (Nouvelle Organisation de Marché de l’Electricité), which was a specific commitment for 
end-2019, the Greek authorities committed to put in place additional structural measures in the context 
of an alternative remedy for the anti-trust case, which have herewith been completed. 

3 

 
                                                 
were  submitted  for  Gournes  Heraklion  in  Crete  (development  of  part  of  the 
former American military base of Gournes) on 15 October 2021. The authorities 
also  endorsed  the  updated  Asset  Development  Plan,  which  constitutes  the 
privatisation  programme  and  lays  down  the  next  steps  for  the  transactions 
included in it. 

  As regards social welfare reforms, the authorities adopted primary legislation to 
apply  the  new  approach  for  disability  determination  to  personal  assistance 
benefits, with secondary legislation for its initial trial implementation period to 
follow  in  early  2022,  somewhat  later  than  expected  in  the  11th  report.  The 
opening of remaining directorates of the Single Social Security Fund (e-EFKA) 
over the territory of Greece is progressing well, however the IT infrastructure is 
not yet mature.  

 

In  the  area  of  public  administration,  the  efforts  to  complete  the  integrated 
human resources management system are progressing well, with job descriptions 
completed for 81% of all posts, with full completion due in January 2022. The 
legal provisions to facilitate the appointment of the Permanent Secretary  at the 
Ministry  of  Education  and  Religious  Affairs  are  expected  to  be  adopted  by 
end-November  2021,  while  ensuring  consistency  with  the  delegation  of 
signature powers in line with the Executive State Law. The authorities have also 
progressed  well  with  implementing  measures  to  address  the  remaining 
recommendations  by  the  Group  of  States  against  Corruption  (GRECO),  which 
concern prevention of corruption with respect to members of parliament, judges 
and prosecutors, as well as bribery of public officials. 

  Cadastral  mapping  and  establishment  of  the  new  cadastral  entity  progresses 

well, in line with the agreed roadmap. 

  The  authorities  confirmed  their  commitment  to  go  ahead  with  a  reform  of  the 
ENFIA  property  tax  based  upon  the  new  wider  property  tax  base  with 
payments starting in March 2022 and provided a timetable for the next steps. 

Nevertheless,  some  specific  commitments  have  seen  delays  compared  with  the 
timelines agreed in the context of the 11th report. Notably: 

  Clearance of arrears has seen only a marginal improvement compared with the 
11th  report,  on  account  of  delays  in  implementing  policy  actions  agreed  in  the 
March  2021  clearance  plan,  accumulation  of  new  arrears  and  a  higher-than-
expected inflow of new pension applications. The actions to accelerate clearance 
are  now  in  place  and  the  authorities  currently  expect  that  non-pension  arrears 
should  be  cleared  by  December  2021  and  the  stock  of  unprocessed  pension 
applications  by  mid-2022.  The  authorities  agreed  to  start  as  of  October  2021 
monitoring  progress  on  policy  implementation  on  a  monthly  basis  to  prevent 
further delays. Implementation of the recommendations of the Hellenic Court of 
Auditors and the simplification of fiscal procedures continued as planned. 

 

In the area of reforming the Public Revenue Agency, whereas the testing phase 
for  the  end-to-end  IT  collection  system  has  been  completed,  the  actual 

4 

 
operationalisation  is  now  expected  to  be  fully  achieved  only  by  April  2022, 
compared with the end-2021 target agreed in the 11th report. 

  Setting up of the primary health care system, a specific commitment, has been 
further  delayed  by  the  pandemic  and  the  recent  government  reshuffle.  The 
authorities committed to presenting a draft law by December 2021, with a view 
to adopting it by February 2022, together with the secondary legislation needed 
to  deliver  on  the  principles  of  gatekeeping  and  patient  registration,  in  time  for 
the 13th enhanced surveillance report. Collection of the 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, continues well  for the recent  amounts but  has  seen  important  delays 
for  amounts  to  be  collected  for  2020.  As  regards  health  procurement,  the  new 
legislative  framework  is  expected  to  be  adopted  by  10 December  2021  and 
procurement  activities  are  progressing  towards  the  mid-2022  milestone  to 
achieve a 40% share of centralised procurement in total hospital expenditure. 

 

In the area of justice, the preparatory stage for the launch of the call for bids for 
the integrated case management system has incurred an additional delay, making 
the  previous  target  for  awarding  the  project  in  the  first  quarter  of  2022 
unattainable. This is of concern, given the importance of the project and its long 
envisaged implementation period.  As regards electronic filing,  further progress 
has been made in the areas of both civil and administrative courts, with actions 
to be completed by April 2022. 

  While  the  authorities  made  welcome  steps  on  the  reform  of  the  inspections 
framework  for  the  supervision  of  economic  activities  and  product  markets,  in 
areas  monitored  under  the  enhanced  surveillance  commitment,  its  completion 
remains  pending.  Specifically  in  the  last  remaining  area  of  environmental 
protection  the  authorities  adopted  primary  legislation  to  amend  the  framework 
on sanctions and enforcement powers of inspecting authorities, aiming to make 
to  businesses  and 
environmental 
conducive  to  self-compliance.  The  elaboration  of  an  enforcement  management 
model to facilitate a harmonised approach in the application of the enforcement 
system is needed to complete this reform.  

transparent,  friendly 

inspections  more 

  The completion of the specific commitment on the ratification of  forest maps, 
which  is  necessary  for  the  completion  of  the  cadastre  project,  has  encountered 
further delays, partly on account of the forest fires earlier this year. While these 
factors are acknowledged, the repeated horizontal extensions of the deadline for 
ratification  of  the  maps,  put  the  timely  completion  of  the  cadastre  at  risk.  The 
authorities  indicated  that  the  maps  could  be  ratified  by  mid-2022,  which  is 
subject to significant implementation risks.  

In  addition  to  the  progress  with  specific  commitments,  the  report  welcomes  that 
the  authorities  advanced  on  a  number  of  broader  structural  reforms  initiated  in 
the context of enhanced surveillance. Notably: 

5 

 
  The  new  Project  Preparation  Facility,  a  unit  within  the  privatisation  agency 
dedicated to the maturation of investment projects and the provision of broader 
support  for  the  acceleration  of  projects  of  strategic  importance,  including 
projects  included  in  Greece’s  recovery  and  resilience  plan,  has  become  fully 
operational.  The  first  set  of  contracts  that  are  considered  to  be  of  strategic 
importance, and therefore to be included in the Strategic Projects Pipeline and 
receive priority attention, has been provided to the Facility on 8 November 2021. 
Moreover, the authorities progress steadily to operationalise the new regulatory 
framework  for  public  procurement,  also  in  the  wider  context  of  the  recently 
adopted strategy. Adoption of the remaining secondary legislation for the public 
procurement  law  has  encountered  a  short  delay  and  is  now  expected  to  be 
completed by end-November 2021. All these steps are critical for the successful 
implementation  of  investments  presented  in  Greece’s  recovery  and  resilience 
plan. 

  Wider  reforms  in  the  area  of  justice  are  also  progressing  well,  including  the 
completion  of  setting  up  of  special  court  chambers,  progressing  towards  the 
adoption  of 
the  Organisation  of  Justice  and 
for 
operationalisation of the JustStat department, which aims to improve the quality 
of data on the judiciary. 

revised  Code 

the 

  The  implementation  of  new  digital  services  and  applications  progresses 
steadily, underpinned by enabling actions to enhance system interoperability and 
data exchange within the public administration. 

  With a view to addressing the sizeable increase in temporary staff in the public 
administration since 2018, the authorities adopted a ceiling for temporary staff 
to be hired in 2022, which is welcome. Due to unforeseen developments, such as 
unexpectedly  high  retirements  of  teachers  and  increased  demand  for  special 
support to pupils, it was however, not possible to reach the expected reduction to 
fully offset the conversion of 10 500 temporary teachers’ contracts to permanent 
contracts  that  took  place  ahead  of  the  start  of  the  current  school  year.  The 
authorities  have  committed  to  carry  out  a  needs  assessment  of  permanent  and 
temporary education personnel as well as to ensure that the new hirings of 3 000 
temporary teachers will be offset for the next school year.  

The  European  institutions  welcomed  the  authorities’  intention  to  carry  out  an 
assessment  of  the  staffing  needs  in  the  public  administration  and  how  to  attract 
competent  personnel,  while  stressing  the  importance  of  maintaining  the  overall 
cost of the public administration stable so as to help preserve prudent fiscal policy 
in the medium term. Overall, the number of staff in the public administration increased 
by 2.6% since Greece exited the financial assistance programme in August 2018, mainly 
on  account  of  temporary  staff,  the  headcount  of  which  increased  by  24.5%.  This  has 
been reflected in the wage bill, which is expected to increase by 6% in the period 2018-
2022. As a ratio to GDP, the wage bill is forecast to increase to 9.5% in 2022, up from 

6 

 
control  over  hiring  procedures  and 

9.3% in 2018 (6). Continued close monitoring and reinforcing the efforts  to strengthen 
the  central 
remaining 
inefficiencies (7) will  help  ensure  that  the  size  and  cost  of  the  public  administration 
remains stable. At the same time, the authorities are encouraged to exploit the flexibility 
inbuilt  in  the  unified  wage  bill  to  ensure  that  the  public  sector  remains  an  attractive 
work place. 

tackling 

the 

The banking sector recorded a strong decrease in non-performing loans, although 
vulnerabilities remain. Thanks to securitisation transactions, the non-performing loans 
ratio  reached  20.3%  in  June  2021 (8),  i.e.  half  of  the  ratio  recorded  at  end-2019.  The 
securitisations  of  non-performing  loans  result  in  increased  provisioning  needs,  which 
weigh on banks’ profitability and their capital positions in the short-term, but will allow 
banks  to  reduce  their  cost-of-risk  going  forward  and  free  up  space  in  their  balance 
sheets  for  new  lending.  The  ratio  of  deferred  tax  credits  in  the  banks’  capital  remains 
high.  Successful  capital  enhancing  actions  have  taken  place  over  the  summer  and 
further are planned in the coming months. The risk of a cliff effect following the expiry 
of the moratoria has not materialised so far but downside risks remain.  

The  implementation  of  agreed  policy  actions  in  the  financial  sector  has  seen 
improvements  but  catching  up  with  previous  delays  remains  challenging.  The 
functioning  of  the  insolvency  framework  is  now  supported  by  the  relevant  electronic 
infrastructure. The concessionary process for the setup of the sale and lease-back entity 
has been further delayed, but this does not seem to have affected the implementation of 
the insolvency framework. As regards the specific commitment to clear the backlog of 
household  insolvency  cases,  there  is  progress  but  the  pace  remains  slow.  A  large 
number  of  cases  remains  pending,  of  which  only  about  19.5%  have  received  a  new 
hearing  date,  in  some  cases  for  beyond  2022.  The  authorities  are  preparing  to  take 
relevant steps, inter alia to improve their processing in specific courts, with a view to 
clearing  the  backlog  largely  within  2022,  which  remains  challenging.  Despite  an 
acceleration  of  payments  with  regards  to  the  backlog  of  called  state  guarantees  in  the 
third  quarter  of  2021,  the  pace  of  clearance  still  falls  short  of  expectations.  The 
authorities  have  committed  to  provide  monthly  updates  on  the  progress  with  the 
clearance  of  both  backlogs  (household  insolvency  cases  and  called  state  guarantees). 
The recent adoption of an extensive revision of the Code of Civil Procedure is welcome, 
as  it  is  expected  to  accelerate  the  delivery  of  Justice  and  increase  the  efficiency  of 
enforcement  proceedings,  including  the  conduct  of  e–auctions.  Work  is  also  ongoing 
regarding the introduction of enhancements to the e-auctions platform.  

(6)  The calculation caters for ad hoc factors such as the wage refunds paid in 2018, the increase in social 
security contributions, which is fiscally neutral, and the temporary increase in healthcare wages due to 
the pandemic.  

(7)  The  inefficiencies  include  for  instance  the  low  educational  attainment  level  of  public  sector 
employees,  the  lack  of  performance  assessment  in  Human  Resource  management  and  the  perceived 
low integrity in the public service. These were identified using the public administration assessment 
framework based on OECD (2017): SIGMA, Methodological Framework for the Principles of Public 
Administration. 

(8)  Source: Bank of Greece, on a solo basis. 

7 

 
                                                 
Discussions are progressing on the future of the Hellenic Financial Stability Fund. 
The  reform  of  the  Fund’s  legal  framework  is  expected  to  focus  on  the  duration, 
governance,  divestment  strategy  and  special  rights  of  the  Fund.  The  Greek  authorities 
now expect the legal amendment to be adopted later this year. 

Overall,  this  report  concludes  that  Greece  has  further  progressed  towards 
achieving  its  specific  commitments,  despite  delays  encountered  in  some  areas, 
partly  linked  to  the  challenging  circumstances  caused  by  the  pandemic  or  the 
catastrophic fires in August 2021. The authorities delivered on specific commitments 
in  the  energy  sector  and  public  financial  management,  while  making  important  and 
welcome steps towards completion of most of its specific commitments by April 2022. 
The European institutions welcome the close and constructive engagement in all areas 
and  encourage  the  authorities  to  keep  up  the  momentum  and  remedy  the  delays  in 
particular as concerns financial sector reforms, arrears clearance, health care and justice. 

MACROECONOMIC DEVELOPMENTS 

Recovery  is  gaining  traction.  The  economy  grew  by  4.5%  and  3.4%  (quarter-on-
quarter)  in  the  first  and  second  quarter  of  2021  respectively.  The  external  sector  is 
expected  to  have  markedly  improved  in  the  third  quarter  of  2021  in  light  of  good 
preliminary tourism data following the opening of the country to tourism in May and the 
lifting  of  mobility  restrictions  across  the  EU  during  the  summer.  In  parallel,  goods’ 
exports  have  recorded  market  share  gains  during  the  first  half  of  2021  and  thereby 
contributed to growth over the same period. Real GDP growth in 2021 is also expected 
to  be  supported  by  the  implementation  of  investments  under  Greece’s  recovery  and 
resilience plan and other government support measures. Net foreign direct investments 
in  Greece  increased  substantially  during  the  second  quarter  of  2021,  but  their  stock 
expressed as a share of GDP remains well below the EU average. Driven by the global 
inflationary pressures, inflation continued rising over the summer months. 

Employment  continued  growing  over  the  summer,  supported  by  government 
schemes  which  continued  protecting  jobs  in  vulnerable  sectors,  while  the  recovery  of 
the economy and the high demand for seasonal workers in tourism have accelerated job 
creation. According to the latest data from ‘Ergani’ information system, the net flow of 
employees  to  the  private  sector  was  positive  during  the  third  quarter  of  2021,  with 
hirings  up  by  6.7%  compared  to  the  previous  year.  The  short-time  work  scheme 
(‘Synergasia’)  continued  to  provide  support  to  about  37 800  employees  in  3 560 
enterprises  in  September  2021.  The  unemployment  rate  in  September  stood  at  13.3%, 
3 percentage points below its September 2020 level, thanks to the recovery, notably in 
the  tourism  sector.  Youth  unemployment  decreased  to  38.5%  in  the  second  quarter  of 
the year, but remains 2.3 percentage points higher compared to the respective rate in the 
second  quarter  of  2020.  According  to  the  latest  available  data,  in  2020  the  share  of 
people at risk of poverty or social exclusion fell to 27.5%, 1.5 percentage points below 
the respective level in 2019. 

According  to  the  Commission  2021  autumn  forecast,  GDP  is  forecast  to  rebound 
by  7.1%  in  2021  and  record  strong  growth  of  5.2%  and  3.6%  in  2022  and  2023 
respectively.  Overall,  the  implementation  of  the  recently  adopted  Greece’s  recovery 
and resilience plan is set to sustain momentum in 2022 and 2023 and strengthen private 

8 

 
and  public  investment  going  forward.  With  international  tourist  arrivals  gradually 
recovering part of their losses with respect to 2019 levels, tourist receipts are forecast to 
remain an important  driver of  growth  in  the coming  years. Despite the  hike in  energy 
prices, headline inflation is forecast to be mildly above zero in 2021, on account of the 
negative inflation rates recorded in the first half of the year. The current forecast expects 
that  the  increase  in  energy  inflation  is  of  a  transitory  nature.  Inflation  is  projected  to 
reach 1.0% in 2022 and 0.4% in 2023. 

The wholesale electricity price pressures that emerged in the third quarter of 2021, 
on the back of the global gas and oil price developments, represent an additional 
burden for households and businesses. Electricity prices in Greece increased by 14% 
in September 2021, compared to the previous month. When compared with the rest of 
the EU, residential energy prices in Greece stand around 14% above the respective EU 
average (9).  The  government  has  adopted  measures  to  cushion  the  impact (10).  The 
relatively  high  price  of  electricity  renders  additional  risks  for  the  energy  poor  and  the 
low  and  lower-middle-income  households.  Based  on  the  latest  available  data  (2020), 
about 16.7% of the Greek population were unable to keep their homes adequately warm, 
some 8.5 percentage points above the EU average. The increase in electricity prices is a 
result  of  international  developments  coupled  with  domestic  factors,  such  as  the 
dependence on natural gas, while full integration in the pan-European electricity energy 
markets  and  demand  response  participation (11)  in  the  electricity  markets  is  still  an 
ongoing process. Nonetheless, Greece’s recovery and resilience plan includes additional 
interventions  in  the  area  of  renewable  energy  sources  generation,  energy  efficiency, 
storage and grid investments, electricity market reforms, as well as connection of non-
interconnected  islands  to  the  mainland.  As  the  implementation  of  these  projects 
progresses,  this  is  expected  to  increase  protection  of  final  consumers  against  future 
shocks in the medium term.  

Initial  evidence  suggests  that  the  government  support  measures  have  helped 
safeguard  the  dynamism  of  the  corporate  sector  during  the  pandemic.  Based  on 
business  demographics  data (12), 
i.e. 
establishments  of  new  businesses  minus  closures  of  existing  ones,  remained  positive 
during  2020  and  exceeded  pre-pandemic  levels  in  the  first  two  quarters  of  2021.  This 
outcome was supported also by the recovery in demand during 2021, which accelerated 
the  creation  of  new  businesses,  especially  in  the  service  sector.  These  data  should 

the  balance  of  new  business 

‘births’, 

(9)  Data  are  adjusted  for  Purchasing  Power  Standards  (PPS),  which  eliminates  general  price  level 
differences between countries. Data refer to September 2021. Source: Household Energy Price Index 
for Europe, VAASAETT, October 1, 2021. 

(10) Please see below for an assessment of the support measures following the increase in energy prices.  
(11) As defined in point (20) of Article 2 of Directive (EU) 2019/944, ‘demand response’ is the change  of 
electricity load by final customers  from their normal or current consumption patterns in response to 
market signals, including in response  to time-variable electricity prices or incentive payments, or in 
response to the acceptance of the final customer's bid to sell demand reduction or increase at a price in 
an  organised  market  as  defined  in  point  (4)  of  Article  2  of  Commission  Implementing  Regulation 
(EU) No 1348/2014 (17), whether alone or through aggregation. 

(12) Source: ELSTAT, https://www.statistics.gr/en/statistics/-/publication/SBR05/-. 

9 

 
                                                 
nevertheless be interpreted with caution since Greece traditionally records low rates of 
business dynamics (13); the impact of the pandemic could therefore be underestimated.  

Uncertainty  and  risks  surrounding  the  outlook  remain  high.  The  impact  of  the 
pandemic  on  economic  activity  has  diminished  over  the  last  quarters,  however,  the 
recovery remains exposed to a potential worsening of the pandemic, both domestically 
and internationally, and strong vulnerabilities remain. In addition, the phasing out of the 
support  measures  towards  the  private  sector  and  in  the  labour  market  will  need  to  be 
closely  monitored  and  carefully  timed  to  avoid  cliff  effects.  The  pick-up  in  energy 
prices  and  the  presence  of  supply-chain  bottlenecks  are  adding  to  the  uncertainty 
regarding  the  inflation  outlook.  The  external  geopolitical  factors  and  the  potential 
resurgence  of  the  migration  crisis  once  the  pandemic  subsides  remain  a  source  of 
uncertainty. On the upside, the recent increase in households’ savings of could facilitate 
a  realisation  of  part  of  the  purchases  delayed  from  the  previous  year  and  provide  an 
additional boost to private consumption. 

Table 1: 

Summary of main macroeconomic variables (%) 

Source: European Commission 

FISCAL DEVELOPMENTS 

Fiscal  policy  is  set  to  remain  accommodative  in  2021  and  to  continue  supporting 
the  recovery  throughout  2022.  The  Commission  and  the  authorities’  forecasts  are 
broadly aligned and project a substantial narrowing of the primary deficit in 2022. The 
Commission  2021  autumn  forecast  expects  the  primary  deficit  monitored  under 
enhanced  surveillance  to  improve  from  7.6%  of  GDP  in  2021  to  1.2%  of  GDP  in 
2022 (14). This  compares  to a deficit forecast  of 1.0% of GDP in  Greece’s 2022 Draft 
Budgetary  Plan.  The  improvement  in  the  balance  projected  for  2022  reflects  the 
ongoing recovery and the phasing out of most of the emergency measures. At the same 
time, the Recovery and Resilience Facility is expected to generate a substantial impact 
on  growth,  which  then  results  in  a  positive  impact  on  public  revenues.  The  deficit 
forecast by the Commission for 2022 is somewhat higher than it was projected in spring 
2021.  The  revision  reflects  the  cost  of  additional  measures  (see  below)  and  higher 
defence  spending  in  2022  on  account  of  an  earlier-than-planned  delivery  of  military 
equipment, with a balance-deteriorating impact of 0.1% of GDP in 2022. 

(13) In-Depth  Review  for Greece in accordance  with  Article 5 of  Regulation (EU) No 1176/2011 on the 

prevention and correction of macroeconomic imbalances, 2 June 2021, SWD(2021) 403. 

(14) The headline balance of 2020 has been revised by -0.4 percentage points of GDP, from -9.7% of GDP 
to -10.1% of GDP in the 2021 October EDP notification. The updated adjustment linked to EU flows 
accounts  for  -0.2  percentage  points  of  the  revision  and  derives  from  the  updated  information  about 
claims that are not any more expected to be submitted to the EU. The updated data sources on military 
deliveries account for -0.1 percentage points of the revision. 

10 

 
 
 
 
                                                 
Most of the pandemic-related measures will be phased out by the end of 2021, but 
additional  measures  were  taken  to  address  the  impact  of  the  fire  damages,  and 
minor  permanent  measures  were  also  adopted.  Most  of  the  measures  adopted  to 
support  households  and  businesses  affected  by  the  crisis  are  expected  to  be  gradually 
lifted  by  the  end  of  2021.  The  support  measures  are  expected  to  have  a  budgetary 
impact  of 6.4% of GDP in  2021 and 1.4% of GDP  in  2022. The measures which will 
remain in place in 2022 aim to support recovery by stimulating aggregate demand and 
employment and further support the healthcare system (15). They include:  

  a  reduced  rate  of  social  security  contributions  and  a  waiver  of  the  social 

solidarity tax for the private sector;  

  an  extended  recruitment  subsidy  programme  to  create  50 000  new  jobs  by 
subsidising  social  security  contributions  for  six  months  for  each  new 
employment contact; 
reduced  value  added tax rates  for transport, beverages  and cinema tickets  until 
June 2022; 
increased healthcare expenditure partly linked to the vaccination campaign.  

 

 

The 2022 draft budget includes measures to address the impact of the devastating fires 
from summer 2021. They include grants and loans, deferrals of tax and debt obligations, 
a suspension of the real estate tax (ENFIA) for 2021-2023 for the affected households 
and businesses and reconstruction costs for the affected regions.  

Finally,  the  draft  budget  includes  a  number  of  new  minor  measures  to  support  the 
economy worth 0.1% of GDP, the cost of which is partly matched with the elimination 
of unused reserves in the social budget (16). The measures include: 

reduction of the mobile subscription fees; 

 
  suspension of tax on donations below €800 000 between first-degree relatives; 
  50% reduction of the tax on capital accumulation; 
 

incentives to increase youth employment. 

In response to the recent increase in energy prices, Greece announced measures to 
counteract its economic and social impact. Following the sharp increase in electricity 
prices,  the  authorities  introduced  a  new  subsidy  scheme  that  will  offer  a  discount  of 

(15) See  also  the  assessment  of  2022  Draft  Budgetary  Plan  presented  in  Commission  opinion  on  Draft 
Budgetary  Plan  of  Greece,  C(2021)9503 and  SWD(2021)915.  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. 

(16) The  draft  budget  also  includes  measures  that  were  included  in  Greece’s  June  2021  Medium-term 
Fiscal  Strategy  and  the  Commission  2021  spring  forecast,  including  a  reduction  of  the  corporate 
income  tax  rate  from  24%  to  22%  from  the  2021  tax  year  onwards.  See  the  tenth  enhanced 
surveillance report for assessment of these measures: COM(2021) 528 final. 

11 

 
                                                 
60€/MWh for the first 300 kWh consumed  per  month  until  the end of the  year  for  all 
low  voltage  consumers  with  variable  price  contracts  while  the  most  vulnerable 
households will benefit from a subsidy of 80€/MWh (17). If energy prices remain high 
longer than  expected, the measures might  be  prolonged. The  authorities informed that 
should  future  developments  require  additional  support,  it  would  be  targeted  to 
vulnerable households and an automatic adjustment mechanism would be set up to cater 
for such unexpected fluctuations in the future. The authorities also increased the heating 
benefit granted to low income households. These measures are worth 0.2% of GDP for 
2021 and will be fully matched with increased revenues of the emissions trading system 
account  earmarked  to  energy-related  spending.  These  measures  seem  broadly  in  line 
with  Commission  Communication (18)  on  tackling  rising  energy  prices  as  they  are 
temporary  and  broadly  targeted  with  increased  benefit  to  more  vulnerable  consumers. 
The  developments  on  the  energy  markets  are  closely  monitored  by  the  European 
Commission. 

(17) Following the presentation of Greece’s Draft Budgetary Plan and the cut-off date of the Commission 
2021 autumn forecast, the authorities announced an increase in the electricity subsidy for November 
and December to 130€/MWh for the first 300 kWh for all low voltage consumers and to 150€/MWh 
for  the  most  vulnerable  households.  The  additional  cost  of  0.1%  of  GDP  will  be  covered  by  the 
increased revenues of the emissions trading system account. 

(18) COM(2021)  660  final:  Communication  from  the  Commission  to  the  European  Parliament,  the 
European Council, the Council, the European Economic and Social Committee and the Committee of 
the Regions - Tackling rising energy prices: a toolbox for action and support, Brussels, 13.10.2021. 

12 

 
 
                                                 
Graph 1: Sources of the change in the budget balance between 2021and 2022 

Source: European Commission 
Note: The chart shows a decomposition of the improvement of the general government balance 
monitored under enhanced surveillance from a primary deficit of 7.6% of GDP to a primary deficit 
of 1.2% of GDP to contributions from the revenue and expenditure side 

The  current  assessment  and  forecast  are  subject  to  substantial  risks.  Part  of  the 
risks  relate  to  the  evolution  of  the  pandemic,  most  notably  to  the  need  for  additional 
support  measures  in  case  of  a  further  escalation  of  the  health  crisis  and  the  possible 
activation  of  state  guarantees (19)  issued  as  part  of  the  support  measures.  The 
developments on the energy markets could also trigger additional support measures. The 
recent  or  planned  financial  policy  arrangements,  including  the  sale  and  lease-back 
scheme  for  properties  owned  by  vulnerable  debtors,  may  entail  a  deficit-  and  debt-
increasing impact depending on their final statistical classification. Pending legal cases 
pose  additional  uncertainty  to  the  forecast  and  include  a  case  on  the  retroactive 
compensation  for  cuts  in  the  supplementary  pensions  and  seasonal  bonuses  and 
litigation cases against the Public Real Estate Company (ETAD). On the upside, based 
on the preliminary corporate income tax data, corporate profitability may have suffered 
a smaller hit in 2020 than currently assumed, which would lead to higher tax revenues 
this year. 

(19) No  guarantee  has  been  called  so  far.  The  deficit  in  2020  includes  a  provisioning  of  €85 million  to 

cover the eventual guarantee calls. 

13 

 
  
 
                                                 
SOVEREIGN FINANCING 

Cash  reserves  remain  high.  Cash  reserves  of  the  general  government  stood  close  to 
€40  billion  at  the  beginning  of  October  2021,  which  is  the  highest  level  since  late 
2019 (20).  The  increase  in  cash  buffer  is  partly  due  to  the  €4 billion  pre-financing 
received  from  the  Recovery  and  Resilience  Facility  and  to  the  bond  issuances  in 
September  2021.  Financing  conditions  remain  favourable,  and  despite  the  recent 
increases,  yield  spreads  on  the  10 year  maturity  have  remained  between  110  and  150 
basis points since end-August 2021. 

The Public Debt Management Authority is considering to repay early another part 
of  Greece’s  debt  to  institutional  creditors,  following  similar  steps  undertaken  in 
spring  2021  and  before.  In  particular,  it  is  considering  to  repay  approximately 
€5.3 billion  of  the  Greek  Loan  Facility  due  in  2022  and  2023  ahead  of  schedule,  and 
also  to  fully  repay  its  outstanding  loans  of  €1.8 billion  to  the  International  Monetary 
Fund in the coming months. While this package of pre-payments has a negligible impact 
on debt sustainability in the long run, it is welcome, since it sends a positive signal to 
the  market  about  the  financial  position  of  the  Greek  state,  it  lengthens  the  average 
maturity  of  the  Greek  debt,  and  it  generates  savings  on  the  interest  expenditure  and 
reduces foreign exchange risk. 

DEBT SUSTAINABILITY ANALYSIS 

The  update  of  the  debt  sustainability  analysis  indicates  that  risks  remained 
broadly  unchanged  compared  to  the  11th  report  but  uncertainty  remains  high. 
Short-term  risks  to  debt  sustainability  remain  contained,  whereas  risks  are  more 
significant over the longer run in the ‘low growth’ and ‘higher risk premium scenarios’. 
In the baseline scenario, debt decreases from 203% of GDP in 2021 to around 54% of 
GDP in 2060, while gross financing needs remain below 15% of GDP in the long run. 
In the higher risk premium scenario, debt decreases to 90% of GDP by 2060, and gross 
financing needs hover around 18% of GDP from the 2030s. In the low growth scenario, 
the debt level does not stabilise, and gross financing needs permanently surpass 20% of 
GDP as of 2050. The alternative scenarios show that potential changes in the currently 
observed low-interest-environment over the medium-term and weaker economic growth 
could negatively affect debt sustainability.  

The updated DSA is based on the following assumptions:  

  The assumptions on real GDP growth continue to build on the latest short-term 
Commission  forecast  for  the  years  2021-2023.  For  the  period  2024-2031  the 
projections  now  include  the  expected  growth  impact  of  the  investments  under 
the Recovery and Resilience Facility based on the Commission’s standard T+10 
simulations  adjusted  on  the  basis  of  the  QUEST  model.  This  simulation  is 

(20) The  cash  buffer  account  balance  remained  at  €15.7  billion.  The  cash  buffer  account  was  built  also 
through disbursements under the third financial assistance 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. 

14 

 
                                                 
carried  out  simultaneously  for  all  Member  States,  hence  it  also  includes  spill-
over effects. Before this update, the macroeconomic projections for Greece were 
based on Commission’s calculations until T+6 and on the 2021 Ageing Report 
thereafter.  They  included  the  impact  of  the  Recovery  and  Resilience  Facility 
until T+6. Long-run growth remains consistent with the 2021 Ageing Report.  

  Inflation  assumptions  beyond  the  short  term  build  on  market  expectations 
measured  by  the  ‘10-year  10-year’  inflation-linked  swaps (21)  until  the  tenth 
forecast  year,  hence  they  are  fully  consistent  with  the  market  expectations  on 
sovereign financing costs. Beyond the 10th forecast year, a linear convergence to 
2%  is  assumed  by  the  30th  forecast  year.  Before  this  update,  the  inflation 
expectations were taken into account only until the fifth forecast year.  

  The  primary  balance  assumptions  continue  to  follow  the  methodology 
established  in  the  8th  enhanced  surveillance  report.  In  particular,  the  primary 
balance  is  aligned  with  the  latest  Commission  forecast,  which  covers  years 
2021-2023 and is  made under the ‘no-policy-change’ assumption,  and assumes 
2.2% of GDP primary balance thereafter. 

As a result of these methodological adjustments, gross financing needs decreased by 0.8 
percentage points in 2060 in the baseline scenario and up to 2.5 percentage points in the 
other scenarios. 

Graph 2:  Results of the debt sustainability analysis  

Source: European Commission 

(21) The 10-year forward swap rate 10 years ahead  refers to the ten-year inflation expectations ten years 

from now. 

15 

 
  
 
 
 
 
 
 
                                                 
Table 2:  Main assumptions and results of the baseline scenario 

Source: Commission services 

Table 3:  Main assumptions of the scenarios  

Source: Commission services 

FINANCIAL SECTOR DEVELOPMENTS 

Increased  provisioning  needs  due  to  securitisations  of  non-performing  loans 
continue to weigh on banks’ profitability. Only two of the four systemic banks have 
shown  positive  results.  Profitability  in  the  first  half  of  the  year  was  supported  by  a 
number of factors including lower loan impairments, higher net interest income on the 
back of lower cost of funding, higher fees and lower operating costs. High provisions in 
the course of major securitisations of non-performing loans have adversely affected two 
other banks. As a result, the banking sector has continued to record aggregate losses in 
the  second  quarter  of  2021.  The  overall  quality  of  banks’  net  interest  income  is 
improving  as,  with  ongoing  securitisations,  it  becomes  less  dependent  on  accrued 
interest  of  non-performing  loans.  Profitability  for  the  whole  year  2021  will  be  highly 
influenced, on the one hand, by the remaining securitisations of non-performing loans, 
which will increase provisioning needs and reduce net interest income (22), and, on the 
other hand, the pick-up of economic activity, which should increase the demand for new 
loans,  boosting  income  generation.  However,  going  forward,  non-performing  loan 
securitisations should allow banks to reduce their cost-of-risk and free up space in their 
balance sheets for new lending, supporting their long-term profitability. 

The  capital  position  of  Greek  banks  continues  to  be  affected  by  the  cost  of  the 
sizeable  clean-up  of  the  banks’  balance  sheets  but  is  being  supported  by  capital 
enhancing  actions.  Banks’  average  Common  Equity  Tier  1  and  Total  Capital  ratios 
stood,  at  the end of the  second quarter of 2021  and  on a consolidated basis, at  12.5% 

(22) Securitisations of non-performing loans lead to a recurrent loss of net interest income, as they result in 
the loss of the accrued interest income from the transferred non-performing loan portfolios. However, 
as accrued interest income is interest income earned but yet to be received, the average quality of the 
bank’s recurrent net interest income improves. 

16 

 
 
 
 
 
 
 
  
 
                                                 
and 15% of risk-weighted assets, respectively. This implies a decline with respect to the 
previous  quarter  (13.6%  and  15.6%  respectively),  which  was  already  affected  by  the 
phasing  out  of  transitional  prudential  adjustments (23)  and  the  yearly  amortisation  of 
deferred  tax  assets,  most  of  them  guaranteed.  However,  the  successful  completion  in 
early July of a €800 million capital increase by one systemic bank, following an earlier 
share  capital  increase  by  another  systemic  bank  in  early  May  2021,  together  with  a 
series  of  upcoming  capital  enhancing  actions  will  provide  support  going  forward, 
enabling  the  Greek  systemic  banks  to  move  forward  with  their  ambitious  non-
performing  loan  reduction  strategies.  These  efforts  will  be  further  facilitated  by  the 
recent adoption of a legislative amendment, which aims to provide more flexibility with 
respect to the amortisation path of deferred tax assets related to sales and securitisations 
of  non-performing  loans.  While  the  capital  position  remains  above  the  regulatory 
requirement,  it  remains  one  of  the  lowest  in  the  EU.  The  poor  quality  of  capital 
continues  to  be  a  concern  in  view  of  the  high  share  of  deferred  tax  credits  in  banks’ 
capital, reaching 74% of Common Equity Tier 1 capital in the second quarter of 2021, 
up from 59% at end-2020. 

The banking sector recorded a strong decrease in non-performing loans, although 
vulnerabilities remain significant. Thanks to securitisation transactions, at the end of 
June 2021, the non-performing loans ratio declined strongly to 20.3% on a solo basis, 
from 30.1% at end-2020 and 40.6% at end-2019. Nonetheless, it remains the highest in 
the euro area. This corresponds to a reduction in the stock of non-performing loans from 
€68.5  billion  at  end-2019  and  €47.2 billion  at  end-2020  to  €29.4 billion  in  June  2021. 
Further  securitisations  transactions  are  anticipated  until  the  end  of  the  year,  together 
with  sales  of  non-performing  loans  portfolio.  As  a  result,  all  four  systemic  banks 
expressed  confidence  to  meet  the  target  of  single-digit  non-performing  loans  ratios  at 
the  latest  by  the  end  of  2022.  As  regards  the  scale  of  inflows  of  new  non-performing 
loans,  three  of  the  four  systemic  banks  continued  to  record  net  inflows  (24)  of  non-
performing loans in the second quarter of 2021, mainly in the corporate and mortgage 
loans portfolios.  

(23) 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. 

(24) The term ‘net inflows’ refers to the difference between the amount of new non-performing loans and 
the volume of previously generated non-performing loans that have been cured or whose collateral has 
been liquidated in a given period of time. 

17 

 
                                                 
Graph 3: 

Evolution of the non-performing loan ratio of Greek banks 

(*)The figure for 2021 concerns data up to June 2021 
Source: Bank of Greece 
Note: Gross non-performing loans as a share of total customer loans, for on-balance-sheet loans 
in accordance with European Banking Authority’s definitions. 

The risk of a significant adverse impact on asset quality following the expiry of the 
moratoria  has  not  materialised  so  far  but  downside  risks  remain.  Banks  are 
currently reporting a 7% re-default rate for loans after exiting moratoria, well below the 
initial expectations. Although the vast majority of moratoria expired at the end of 2020, 
there  are still various measures in  place:  mainly the two Gefyra schemes (see below), 
and, to a lesser degree, the banks’ ‘step up’ products offered to viable customers facing 
temporary  difficulties  and  the  remaining  payment  moratoria  granted  to  the  hospitality 
sector. The implementation of the two temporary instalment subsidy schemes set up by 
the authorities for performing or restructured coronavirus-affected debtors (the “Gefyra” 
and “Gefyra II” schemes) is on-going (25). As a result, the full impact of the pandemic 
on  the  banks’  asset  quality  may  materialise  only  in  2022.  As  downside  risks  remain, 
banks may need to maintain their provisioning levels.  

The deceleration of net credit flows to non-financial corporations has continued. In 
September  2021,  the  annual  rate  of  growth  of  net  credit  to  non-financial  corporations 
fell  to  2.8%  from  6.7%  in  April  and  10.0%  in  December  2020,  mainly  driven  by 
negative  net  credit  to  large  corporates.  The  respective  figure  for  households  remains 
negative (-2.7%) and broadly unchanged over the past 12 months. The decreasing trend 
for  non-financial  corporations  reflects  an  unfavourable  comparison  with  last  year’s 
above average performance,  which was  boosted  at  the time by the launch of  financial 

(25) All  the  applications  for  the  Gefyra  I  scheme  have  been  processed  with  101 962  eligible  debtors, 
corresponding  to  €8.6  billion  of  loans,  predominantly  performing  (86.6%).  For  Gefyra  2,  40 315 
applications  have  been  submitted  with  only  13 787  being  found  eligible  by  end-September 
corresponding to €6.7 billion of loans, mostly (86%) performing. The authorities have also adopted a 
3-month extension of the first scheme, at a reduced subsidy rate, to allow for a more gradual return to 
normal payments of Covid-stricken debtors. 

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instruments  offered  by  the  Hellenic  Development  Bank  to  support  businesses  in  the 
aftermath  of  the  pandemic  (the  Covid-19  enterprise  guarantee  fund (26)  and  ‘Tepix  II’ 
schemes). The budget of these schemes is now gradually being exhausted (27), as more 
targeted  schemes  take  their  place.  Latest  credit  flow  developments  reflect  a  relatively 
muted  credit  demand,  as  businesses  can  rely  on  significant  precautionary  liquidity 
buffers built  up over previous quarters.  The current  performance  is  also  influenced by 
large  loan  repayments  by  some  of  the  largest  corporates,  which  are  substituting  bank 
lending with cheaper funding through corporate bond issuances. With respect to the cost 
of credit to non-financial corporations, it has edged downwards in September (2.7% as 
compared to 3.0% at end-2020) and remains at historically low levels and substantially 
less  than  the  cost  of  credit  for  unincorporated  businesses  (5.1%)  or  households 
(4.9%) (28).  

The  Hellenic  Financial  Stability  Fund  has  received  a  majority  stake  in  a  less-
significant  institution  in  the  context  of  the  conversion  of  part  of  the  bank’s 
deferred tax credits. The authorities adopted the necessary legislation allowing for the 
operationalisation of the deferred tax credits’ conversion process, including the relevant 
remuneration of the state with an equivalent value of shares, after the bank reported net 
losses  in  2020.  In  addition,  the  authorities  have  adopted  a  legal  modification  to  avoid 
the  triggering  of  a  mandatory  public  offer  by  the  Fund  for  the  remaining  shares,  as  it 
will have passed the threshold of a 1/3 shareholding set by current legislation. The Fund 
is currently assessing (29) its potential participation in the bank’s share capital increase 
alongside  private  investors,  which  aims  to  address  current  and  future  capital  needs 
stemming  from  the  upcoming  clean-up  of  its  balance  sheet.  The  former  Deputy  Chief 
Executive Officer of the Fund has been appointed Chief Executive Officer on 21 May 
2021. The new Deputy Chief Executive Officer was appointed on 16 November. 

(26) At  the  end  of  August  2021,  the  scheme  had  granted  €1.7  billion  of  guarantees  (source:  Table  C.2, 
General Government Monthly Data Bulletin, August 2021, General Accounting Office). No guarantee 
calls have been reported so far. 

(27) It is indicative that in the first eight months of 2021, loan disbursements related to the two financial 
instruments  offered  by  the  Hellenic  Development  Bank  amounted  to  €1.3 billion  as  opposed  to 
€6.4 billion for the whole of 2020. Source: Hellenic Development Bank. 

(28) Source: Bank of Greece, annual percentages excluding charges. 
(29)As of 16 November 2021.  

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