COMMUNICATION FROM THE COMMISSION Enhanced Surveillance Update - Greece, February 2022
Date: 2022-02-23
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, 23.2.2022  COM(2022) 78 final  COMMUNICATION FROM THE COMMISSION Enhanced Surveillance Update - Greece, February 2022 {SWD(2022) 50 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 thirteenth enhanced surveillance report for Greece. The report is based on the 
findings  of  a  mission  held  virtually  on  25 January  2022  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 the implementation of Greece’s commitments 
to the Eurogroup regarding reform completion due up to end-2021. This report is not linked to 
a release of the next set of policy-contingent debt measures, which – in line with the agreed 
biannual schedule – could take place on the basis of the fourteenth report. The fourteenth report 
is expected to be published in May 2022. 

(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) 2022/216 of 15 February 2022 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  12  to 
17 January 2022. 

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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 

Greece  recovered  swiftly  from  the  pandemic  and  the  outlook  remains  strong,  albeit 
subject to high uncertainty. The economy is currently expected to have reached a high GDP 
growth rate of 8.5% in 2021, driven by domestic demand and the better-than-expected tourist 
season. The pre-pandemic level of economic activity was reached already in the third quarter 
of  2021.  The  outlook  for  2022  remains  strong,  supported  by  the  accommodative  fiscal  and 
monetary policy and the strong boost from the recovery and resilience plan. The spread of the 
new omicron variant of the coronavirus is nevertheless likely to have weighed on growth in the 
last quarter of 2021, but this impact is expected to largely fade out during the first quarter of 
2022. Greece introduced mandatory vaccination for residents over age 60 from January 2022. 
Risks of additional disruptions exist, although that impact is currently expected to be rather 
short-lived. The recent world market price developments in energy and, in particular, electricity 
prices have led to a surge in consumer prices and is an additional source of uncertainty for the 
economy at large. While most of the emergency support measures were phased out in 2021 as 
planned, the government responded swiftly to the outbreak of the new coronavirus variant and 
the higher-than-expected inflation with new targeted support. The general government deficit 
is expected to substantially narrow in 2022 compared to the previous year (5). Labour market 
developments remain favourable and unemployment, which stood at 14.1% in the third quarter 
of 2021 (down from 17.2% in the third quarter of 2020), is set to decrease further in 2022. The 
at-risk-of poverty rate stood at 17.7% in 2020, down from 17.9% in 2019. 

The authorities have successfully completed a further set of specific commitments: 

 

In the  area of  public administration, the authorities  have effectively completed the 
preparation  of  job  descriptions  for  public  officials.  Together  with  the  digital 
organisation  charts,  which  were  put  in  place  earlier  in  2021,  the  job  descriptions 
constitute  a  key  element  in  the  establishment  of  an  integrated  human  resources 
management system for the Greek public administration. 

  The  authorities  have  completed  the  simplification  of  investment  licensing  in  the 
agreed sectors by adopting the last piece of legislation for education activities. These 
efforts build on and complement a major reform that was initiated during the financial 
assistance  programme  by  extending  simplified  investment  licencing  procedures  to  a 
number of additional economic activities (6). 

(5)  The Commission’s autumn forecast projected that the primary deficit monitored under enhanced surveillance 

would reach 7.6% of GDP in 2021 and 1.2% of GDP in 2022. 

(6)  These  were:  transport-related  services,  social  welfare,  tourism,  physical  well-being,  personal  and  health 
services,  leasing  of  maritime  leisure  equipment,  lifeguard  training,  livestock  installations,  aquaculture, 
veterinary clinics and pet breeding and trading, in addition to education activities mentioned above. 

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 

the  Single  Pension  Fund,  following 

In the area of social welfare reforms, the authorities have completed the administrative 
reorganisation  of 
the  setting  up  and 
operationalisation  of  all  required  local  offices,  while  making  steady  progress  on  the 
improving  its  IT  infrastructure.  The  reform  completes  the  efforts  to  consolidate  the 
previously fragmented pension system, while  moving towards a full digitalisation of 
pension system data: it thus constitutes an important step for enhancing the efficiency 
of the Greek pension system.  

In addition, reform implementation has progressed well across a broad range of specific 
commitments. In particular: 

 

In the area of public financial management, the work on further refinements of the 
functional budgetary classification (part of the chart of accounts reform) is progressing 
according to plan and is expected to be completed by April 2022 and published in the 
annual update of the Medium Term Fiscal Strategy in May 2022. 

  The authorities have made progress as regards the clearance of arrears of the general 
government towards the private sector. The stock of pension arrears has been reduced 
in  line  with  what  was envisaged in  the  action plan adopted  in  autumn 2021  and the 
authorities confirmed that it would be fully cleared by June 2022. After several months 
of  stagnation,  the  stock  of  non-pensions  arrears  decreased  markedly  on  the  back  of 
actions adopted by the government to bring clearance back on track. While the stock 
currently remains somewhat above the target set in March 2021, the authorities expect 
the  stock  of  non-pension  arrears  to  be  materially  cleared  by  February  2022.  The 
implementation of the recommendations made by the Hellenic Court of Auditors and 
the simplification of fiscal procedures proceed according to plan. 

  The  ENFIA  property  tax  reform  has  reached  a  final  stage  of  preparation.  An 
agreement  has  been  reached  on  the  detailed  tax  rate  structure  and  fiscal  cost  of  the 
reform based on the new market-related property tax values, which will widen the tax 
base and improve the fairness and economic efficiency of the property tax. This will be 
legislated in February 2022 to allow for the tax assessment and first payments to take 
place, with a minor delay, in April 2022. 

  As  regards  health  care,  collection  of  clawbacks  (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  pharmaceutical  suppliers  and  healthcare 
providers),  is  progressing  according  to  schedule  for  both  pharmaceuticals  and  other 
services, which is welcome. Procurement activities are on track to reach the mid-2022 
target of a 40% share of centralised procurement in total hospital expenditure for which 
the Centralised Health Procurement Authority is mandated to issue tenders. 

  The  authorities  are  advancing  on  the  preparation  of  the  disability  reform,  with  the 
secondary legislation for disability determination based on both medical and functional 
assessment being prepared and expected to be adopted by the end of March 2022. The 
new assessment framework will inform in-kind benefit decisions for the provision of 
personal assistance to persons with disabilities.  

  The General Assembly of the Hellenic Corporation of Assets and Participations has 
approved the updated Strategic Plan prepared by the Corporation, which sets out the 
top-level  key  performance  indicators  by  which  the  Corporation  will  track  its 

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performance, as well as detailed actions for the Corporation to act as an investor and a 
reformer in the state-owned enterprises in its portfolio. Work has progressed well on 
the implementation of the Coordination Mechanism, including the approval of the first-
ever  performance  contract  for  the  Athens  Urban  Transport  Organisation.  The 
authorities are preparing a first draft of a law for the modernisation of the institutional 
framework  for  state-owned  enterprises,  covering  indirect  subsidiaries  of  the 
Corporation  and  other  public  companies  outside  of  the  Corporation’s  portfolio.  The 
Council of State ruled in February 2022 the transfer of the stakes in the water utilities 
of  Athens  and  Thessaloniki  to  the  Corporation  in  2018  unconstitutional.  The 
implications of this decision are under examination.  

  There has been overall good progress  with  privatisation transactions over the past 
months. The tender process for the Public Gas Corporation (DEPA) Infrastructure has 
progressed  towards  a  final  stage,  and  its  financial  closure  is  expected  shortly.  The 
tenders for a number of important regional ports and ‘Gournes Heraklion’ (development 
of part of the former American military base on Crete) are in progress, and the tender 
process  for  the  award  of  a  concession  agreement  for  the  Athens  Ring  Road  (Attiki 
Odos) has been launched. The authorities have progressed further with the construction 
works on the Egnatia motorway, paving  the way to  the  activation of the  concession 
agreement expected by end-2022. 

  The cadastral mapping and the transition to the full establishment of the new Hellenic 
Cadastre have continued to progress in the past three months. The ratification of the 
forest maps, which is currently suspended in view of the prolongation of the period for 
raising objections, is set to restart in May 2022. The period for raising objections was 
prolonged due to the impact of the wild fires of summer 2021. The authorities expect it 
to be substantially completed by July 2022, broadly in line with what was noted in the 
previous report.  

  Work on the codification of labour legislation continues in close collaboration with 
the Central Codification Committee, with a first draft of the revised legislation to be 
presented in March 2022. The authorities committed to adopting the codified laws in 
May 2022.  

 

Implementation  of  mandatory  e-filing  in  administrative  courts  is  advancing  and  is 
expected  to  be  concluded  by  April  2022.  An  e-docket  platform,  used  to  allow 
stakeholders to register and monitor the progress of cases through the courts, has been 
launched in Athens and its functionality will  gradually extend across the territory of 
Greece, and the e-divorce procedure is now fully functional. 

  The  authorities  continued  working  towards  implementation  of  the  remaining 
recommendations for the fight against corruption from the fourth evaluation round of 
the  Group  of  States  against  Corruption  (GRECO).  A 
these 
recommendations is conditional on the adoption of the Code for the Organisation of 
Justice  and  the  Status  of  Officers  of  the  Courts,  which  is  delayed  (see  below).  The 
recommendations concerning bribery of public officials were successfully implemented 
at the end of 2021. 

large  part  of 

Nevertheless,  some  specific  commitments  and  other  key  policies  have  seen  delays 
compared with the timelines agreed in the context of the 12th report. Notably: 

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  The new IT collection system for the Independent Authority for Public Revenue 
has encountered delays. This is due to delays in submitting the final complete version 
of the end-to-end IT collection system by the contractor, which is now scheduled for 
June 2022. As a result, the full operationalisation of this new IT system, which was 
planned for end-April 2022, is now expected by end-September 2022. However, the 
Independent Authority still plans that its central and decentralised services, including 
the directorate of collection and refund and the collection operation unit, will start using 
some functionalities of this system by April 2022. 

  The reform of primary health care has seen limited progress. Alongside a final draft 
of the primary legislation, the authorities have now prepared draft secondary legislation, 
which spells out the main features of patient registration and of the gatekeeping function 
of  general  practitioners,  although  some  key  parameters  of  the  system  are  still  under 
definition. The authorities are encouraged to put in place in a timely manner sufficient 
incentives  to  contain  self-referrals,  while  ensuring  equal  access  to  healthcare,  and 
implementing  compulsory  patient  registration  as  provided  for  in  the  existing  legal 
framework. The authorities committed to launch public consultation on the legislation 
at the end of February or the beginning of March 2022, with adoption to follow shortly 
thereafter  by  the  time  of  the  14th  report.  Implementation  of  the  reform  will  start 
thereafter and will continue to be closely monitored.  

  Completion  of  the  reform  of  the  inspections  framework  for  the  supervision  of 
economic activities and product markets remains pending. Secondary legislation in the 
last remaining area of environmental protection has not been finalised in time for this 
review  due  to  the  necessary  consultations  to  ensure  constitutional  conformity  of  the 
reform. The consultations have now been completed and the legislation is expected to 
be  adopted  shortly.  This  legislation  will  elaborate  on  the  enforcement  management 
model to facilitate a harmonised approach in the application of the enforcement system. 

  The  authorities  adopted  two  pieces  of  secondary  legislation  critical  for  the 
implementation the new public procurement law, while the final one remains pending. 
The two adopted joint ministerial decisions concern the establishment of a certification 
framework  for  private-sector  engineers  for  public  works  and  studies.  However,  the 
adoption of the third pending joint ministerial decision, which concerns the set-up of a 
new legal entity to develop and maintain a new integrated IT system, has been delayed 
and is now expected shortly. 

  The launch of the call for bids for the integrated case management system for civil 
and criminal court cases has been further delayed and is due to be launched in March 
2022. The European institutions reiterated their concern about the delay and encouraged 
the  authorities  to  ensure  the  efficient  and  unhindered  conduct  of  the  process  going 
forward. 

  Adoption of the new Code for the Organisation of Justice and the Status of Officers 
of  the  Courts  has  accumulated  a  considerable  delay.  The  Code  was  initially  due  to 
enter into force by September 2021 but was then delayed to January 2022. Currently, 
the  authorities  plan  to  table  the  Code  to  Parliament  by  the  end  of  April  2022.  The 
authorities  attribute  the  additional  delay  to  redrafting  and  consultation  constraints. 
Among other things, the Code is expected to  contribute to alleviating the challenges 
faced  with  dealing  with  personal  insolvency  backlogs  monitored  under  the  financial 

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policy commitment, in the sense that its revised disciplinary and promotion rules will 
foster  a  culture  of  stricter  adherence  to  high  professional  standards  amongst  the 
members of the judiciary. Its adoption is also a precondition for addressing a significant 
part of the commitment to fight corruption. The authorities are strongly encouraged to 
proceed swiftly with the finalisation of the Code, given its fundamental importance for 
the efficient functioning of the justice system.  

  The requisite secondary legislation for the operationalisation of the JustStat unit of 
the Ministry of Justice is expected to be adopted with a nine-month delay, by end-
March 2022. The mandate of this specialised department is to collect and process data 
with a view to measuring and improving the performance of the judicial system. 

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: 

  A list identifying deviations from the unified wage grid has been finalised as part of the 
authorities’ efforts to strengthen central control of hiring and salary provisions in the 
public  administration.  Legal  provisions  addressing  the  identified  weaknesses  are 
planned to be adopted by April 2022. A needs assessment of permanent and temporary 
teachers in the medium- to long-term will also be completed by April 2022. 

  The authorities have successfully completed the set-up of the single digital (Gov.gr) 
portal backed by relevant initiatives to ensure system interoperability and robustness, 
in line with the guidelines and priorities set out in the National Digital Transformation 
Strategy and the urgent needs arising from the evolution of the pandemic. 

  The  authorities  are  continuing  the  preparatory  work  on  the  Higher  Education  Act, 
following previous welcome reforms of the education sector, but its adoption is being 
delayed  due  to  the  challenges  presented  by  the  pandemic.  The  authorities  have 
committed  to  launching  the  public  consultation  in  March  2022  and  the  adoption  is 
currently expected in May 2022. 

The  reduction  of  non-performing  loans  by  the  banking  sector  –  mainly  through  the 
Hercules  scheme  –  has  continued  but  vulnerabilities  remain  as  net  inflows (7)  of  non-
performing loans continue, albeit so far at a limited rate. The non-performing loans ratio 
stood at 15% on a solo basis in September 2021, having declined strongly from 30.1% at end-
2020 and 40.6% at end-2019 (8), but remains the highest in the euro area. Net inflows of non-
performing loans  continued but remain below initial expectations. The securitisations under 
the Hercules scheme will allow banks to reduce their cost-of-risk going forward and free up 
space in their balance sheets for new lending. While recent securitisation transactions under 
the  Hercules  scheme  result  in  increased  provisioning  needs,  their  impact  on  banks’  capital 

(7)  The  term  ‘net  inflows’  refers  to  the  difference  between  the  volume  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. The overall stock of non-performing loans can decrease even if net inflows 
are  positive,  if  for  instance  some  non-performing  loans  are  removed  from  the  stock  due  to  securitisation 
transactions or outright sales. 

(8)  Source: Bank of Greece.  

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positions was partly offset by successful capital enhancing actions. Still, banks’ capital position 
remains one of the lowest in the euro area and entails a high share of deferred tax credits. 

The  implementation  of  agreed  policy  actions  in  the  financial  sector  has  advanced, 
however  several  policy  actions  remain  behind  schedule.  Regarding  the  insolvency  code 
implementation,  all  procedures  (OCW,  rehabilitation,  regular  and  simplified  insolvency 
proceedings and early warning mechanism) are operational, along with the corresponding e-
platforms.  The  assignment  of  new  hearing  dates  for  pending  household  insolvency  cases  is 
picking up, according to the updates provided by the authorities, but clearance of the backlog 
still falls short of expectations and is not envisaged before end-2023. The authorities have taken 
steps to increase the processing capacity at courts and expect the provisions of the Code for the 
Organisation  of  Justice/Judges  to  further  enhance  the  process.  The  conduct  of  electronic 
auctions continues to increase since its resumption in September 2021, while work is ongoing 
regarding the introduction of further enhancements. The authorities remain committed to meet 
the agreed final targets concerning the processing and clearance of the entire backlog of called 
state  guarantees  by  mid-2023  and  mid-2024,  respectively.  The  processing  of  claims  has 
accelerated but this is only partially reflected in payments. Meeting the targets set for 2022 will 
require a further significant increase in the processing of claims and payments. The call for the 
expression of interest for the sale-and-lease-back entity is expected to be launched in February 
2022. An interim support scheme for vulnerable debtors with primary residences is considered 
by the authorities to ensure a smooth transition until the sale-and-lease-back entity commences 
operations,  which  is  currently  not  expected  before  end-March  2023.  The  authorities  are 
encouraged  to  put  in  place  strong  safeguards  to  counter  unintended  use  of  the  scheme  and 
mitigate legal risks and proceed swiftly with establishing the sale-and-lease-back entity so as 
to ensure a timely phase-out of the interim scheme. Discussions on the future of the Hellenic 
Financial Stability Fund have progressed well and the relevant amendment is expected to be 
adopted by April 2022. 

The authorities announced their intention to implement on 1 May 2022 an increase in the 
statutory minimum wage, in consultation with social partners, with a view to alleviating 
the  negative  impact  of  the  price  increases  on  low-income  workers.  This  increase  would 
follow  a  modest  increase  of  2%,  decided  in  July  2021  and  implemented  in  January  2022 
following a two-year freeze of the minimum wage (as a result of the pandemic), which reflected 
developments in wages and productivity, as well as other indicators based on data up to the 
first half of 2021. While accelerating the regular procedure of updating the minimum wage to 
mitigate the impact of the high inflation on low-income workers, the authorities committed to 
follow  the  process  established  in  law  4172/13  for  determining  the  minimum  wage.  The 
authorities also indicated that the potential minimum wage adjustment in May will safeguard 
competitiveness and have a limited fiscal cost, including as regards the public sector wage bill. 
The minimum wage increase resulting from these consultations is expected to be announced in 
April 2022 and implemented from the following month. 

Overall, this report concludes that Greece has taken the necessary actions to achieve its 
specific commitments, despite the challenging circumstances that continue to be posed by 
the pandemic. The Greek authorities have also outlined a credible path leading to further 
substantial progress  on its commitments by the time of the 14th enhanced surveillance 
report  to  be  published  in  May  2022.  The  authorities  delivered  on  specific  commitments 
across  various  areas,  notably  as  regards  enhancing  the  efficiency  of  public  administration, 

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completing the administrative reorganisation of the Single Pension Fund and the simplification 
of investment licensing in the agreed sectors. Greece also advanced on wider structural reforms, 
including in particular in the area of digitalisation, and embarked on the implementation of its 
recovery and resilience plan (9). The European institutions welcome the authorities’ 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 reforms in the area of financial sector policy, primary health care, the 
business environment and justice, and reach the agreed targets for the clearance of arrears. 

MACROECONOMIC DEVELOPMENTS 

The economy sustained its growth momentum in the third quarter of 2021 on account of 
strong export performance and private consumption. Growth in the third quarter of 2021 
(2.7% quarter-on-quarter) was also supported by a quick recovery in tourist receipts and the 
goods exports remained resilient, despite the bottlenecks in the value chains. Investment also 
contributed positively, although from a relatively low base. The recent emergence of omicron 
variant  and  the  related  sharpening  of  the  containment  measures  in  December  2021,  are 
expected to have weighed on growth in the last quarter of 2021, but this impact is expected to 
largely  fade  out  during  the  first  quarter  of  2022.  Overall,  real  GDP  is  projected  to  have 
rebounded  by  8.5%  in  2021,  with  the  economy  reaching  its  pre-pandemic  level  of  activity 
already in the third quarter of 2021.  

Growth in 2022 is forecast to be domestically driven, supported by the stimulus from the 
implementation  of  the  investments  and  reforms  under  the  Recovery  and  Resilience 
Facility. The external environment is forecast to remain supportive, as tourism is expected to 
recover a significant part of its losses during the pandemic, while goods exports are to extend 
their strong performance from last year. For the year as a whole, real GDP growth is estimated 
to reach 4.9% in 2022. In the third quarter of 2021, employment increased by 4.9%, up from 
1.9% in the second quarter. While employment has almost reached its pre-pandemic levels, the 
losses in active labour force endured during the pandemic have not been fully recovered yet. 
Households’  real  disposable  income  is  expected  to  rebound  strongly  in  2021  and  continue 
growing in 2022. Rising oil and gas prices drove the noticeable increase in inflation over the 
second  half  of  2021,  but  these  pressures  are  expected  to  ease  later  in  2022  as  international 
prices moderate. The Commission’s winter interim forecast expects inflation to peak in 2022, 
reaching 3.1%. 

The above-mentioned announcement to increase the minimum wage in May 2022 comes 
in this context of rising inflation and strong recovery. According to law 4172/13, which sets 
out the minimum wage revision process, the level of the statutory minimum wage should be 
determined  by  taking  into  account  the  state  of  the  economy  and  the  evolution  of  growth 
prospects,  notably  developments  in  productivity,  inflation,  competitiveness,  employment, 

(9)  The  plan  was  adopted  by  the  Council  on  13  July  2021  and  includes  reforms  and  investments  worth 
EUR 17.8 billion in grants and EUR 12.7 billion in loans. The European Commission disbursed EUR 4 billion 
to Greece on 9 August 2021 in pre-financing, equivalent to 13% of the country’s grant and loan allocation 
under  the  Recovery  and  Resilience  Facility.  On  29 December  2021,  Greece  submitted  a  request  to  the 
Commission  for  a  disbursement  of  EUR 4.1 billion  in  financial  support,  assessment  of  which  is  ongoing. 
Greece was among the first countries to submit such a request. 

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unemployment, incomes and wages. Competitiveness, as measured by unit labour cost (10), had 
improved since 2018, largely on the back of a decrease in real compensation per employee, as 
real wages remained in check while employment increased. The temporary shock due to the 
pandemic in 2020 triggered a strong increase in unit labour cost as compensation per employees 
remained  broadly  unaffected  due  to  the  emergency  support  measures  put  in  place  by  the 
authorities. In 2021, productivity is expected to have nearly fully recovered and its growth rate 
is  expected to  remain high, also  supported by the  investments  implemented under Greece’s 
Recovery and Resilience Plan. As shown in Graph 1, Greece has overall recorded significant 
gains  in  competitiveness  since  2018.  Despite  these  improvements,  Greece’s  export  base 
remains focused on products with a low level of technological sophistication and the exports-
to-GDP  ratio  is  low,  despite  recent  improvements.  Furthermore,  its  current  account  in 
cyclically adjusted terms (11) was in deep deficit in 2020 (-11.8% of GDP in national accounts 
terms) and remains well below the required level to reach a prudent net international investment 
position.  The  nominal  minimum  wage  increased  in  a  majority  of  euro  area  Member  States 
(11 out of 15 Member States that have established a collective bargaining process) in 2021, 
ranging from 0.3% in the Netherlands to 16.3% in Latvia.  

Graph 1:  Real effective exchange rate based on unit labour cost (19 trading partners – euro 

area) (2017Q1 = 100)  

Source: European Commission 
Note: The real effective exchange rate based on unit labour cost is defined as the ratio of the real 
effective exchange rate (value of currency against the weighted average of the euro area trade 
partners) divided by the unit labour cost. This indicator captures the drivers of persistent changes 
in cost competitiveness of each Member State relative to its major trading partners. 

The risks to the forecast remain elevated. Despite the better-than-expected economic outturn 
in  the  first  three  quarters  of  2021,  the  evolution  of  the  pandemic  at  both  domestic  and 
international levels represents a continuous source of uncertainty, for both tourist arrivals and 
potential  further  prolongation  of  the  supply-side  bottlenecks,  and  vulnerabilities  remain.  In 
addition, the projection expects only a limited negative impact on production from the notable 
pick-up  in  input  costs,  in  line  with  the  current  reading  of  forward-looking  indicators  of 

(10) The unit labour cost (ULC) is defined as the ratio of the nominal compensation per employee to the real GDP 

per person employed. 

(11) The cyclically adjusted current account balance is defined as the current account balance adjusted for the level 

of the output gap in the domestic economy and its most important trade partners. 

9 

 
 
 
 
                                                           
producers’ sentiment. On the upside, the stock of savings accumulated by households during 
the pandemic could facilitate a stronger realisation of part of the purchases delayed from the 
previous periods, as spending opportunities for households improve. The strong performance 
of goods exports since the third quarter of 2020, could be indicative of structural improvements 
in the export base, as also evidenced by the continuous gains in export market shares. This 
could be a source of additional upside risks.  

Table 1: 

Summary of main macroeconomic variables (%) 

Source: European Commission 

FISCAL DEVELOPMENTS 

The early reading of the fiscal and economic data augurs well for the fiscal outturn for 
2021 as a whole. To recall, the Commission autumn forecast projected a primary deficit (as 
monitored under enhanced surveillance) of 7.6% of GDP for 2021 and 1.2% of GDP for 2022, 
and a primary surplus of 1.5% of GDP in 2023. Regarding the developments on the expenditure 
side in 2021, the implementation of some of the emergency support measures have been more 
gradual than assumed in the autumn forecast and thus payments worth around 0.1% of GDP 
have been shifted from 2021 to 2022. Furthermore, some measures had lower fiscal cost than 
anticipated, reducing the total cost for the measures in 2021 by another 0.1% of GDP. At the 
same  time,  state  revenues  in  2021  were  higher  than  expected  in  the  Commission  autumn 
forecast by close to 1.2% of GDP. This was mostly due to high corporate income tax receipts, 
as the decline in corporate profitability in 2020, which determines the clearance of the 2020 
tax liability due in 2021, was less severe than initially expected. Also other income taxes and 
VAT revenues had a higher yield than expected, mostly reflecting of the better-than-forecast 
macroeconomic growth. These factors were partly offset by the cost of a subsidy of EUR 250 
per  person  to  low  income  elderly  and  those  receiving  disability  benefits  provided  by  the 
government to counter the impact of increased inflation. 

The vast majority of the emergency measures have been phased out by the end of 2021. 
In  line  with  previous  plans,  only  a  limited  set  of  temporary  and  targeted  pandemic-related 
emergency measures will continue to support households and businesses in 2022, with a fiscal 
cost of about 1.7% of GDP. However, in view of the recent emergence of omicron variant some 
measures have been prolonged, such as labour contract suspensions, short term works scheme 
and  hiring  subsidy  scheme.  The  health  care  system  will  also  continue  to  receive  increased 
support,  which  increases  the  fiscal  costs  for  2022  by  an  additional  0.15%  of  GDP.  The 
repayment of the refundable advance was to start in January 2022, but due to delays in setting 
up the IT system repayments are expected only from the middle of 2022. This delay has a very 
limited fiscal impact for 2022 of about EUR 40 million. Finally, the authorities also plan to 
adopt a reform of the ENFIA property income tax, with a permanent fiscal cost of about 0.1% 
of GDP. 

In  response  to  the  increased  electricity  prices  the  authorities  have  designed  a  new 
automatic support mechanism to alleviate cost increases to households and businesses. 
The scheme replaces a temporary subsidy scheme introduced in 2021 and provides a subsidy 

10 

2020202120222023Real GDP growth-9.08.54.93.5HICP growth-1.30.63.11.1 
 
 
linked to the excess of current electricity prices over a given threshold. Households are eligible 
for this subsidy only for their first residence. The subsidy will cover 80% of the increase above 
the threshold for the first 150 KWh consumed monthly and 60% of the increase for the next 
150  KWh.  Vulnerable  households  will  benefit  from  a  larger  subsidy  covering  90%  of  the 
increase for the first 300 KWh. For enterprises, a single subsidy is planned for all categories 
covering  50%  and  30%  of  the  price  increase  in  the  first  and  the  second  quarter  of  2022, 
respectively. Based on the projection of wholesale electricity prices of the Renewable Energy 
Sources Operator, the total volume of the subsidies might reach EUR 1 billion until July 2022 
(0.5% of GDP). The subsidy scheme was calibrated to be fiscally neutral  as its cost will be 
covered by the estimated increased revenues from the emissions trading system. The additional 
revenues  from  the emission  trading  system  are also  expected to  cover the cost  of  a heating 
subsidy to alleviate the impact of the sharp increase in natural gas prices. The subsidies appear 
in  line  with  the  guidance  provided  in  the  Commission  Communication  on  Tackling  Rising 
Energy Prices (12), as they are temporary and will be re-assessed every month.  

Fiscal risks remain high. Uncertainty about the evolution of the pandemic remains the main 
short-term risk factor, notably, as regards the need for further support measures and the possible 
activation of the state guarantees provided during the pandemic. The new electricity subsidy 
scheme  will  require  close  monitoring  in  view  of  its  large  size,  in  particular  as  regards  the 
adequacy of the assigned revenue flows expected to cover these subsidies, while at the same 
time ensuring that the account of renewable energy sources will not turn into deficit. Further 
risks remain unchanged compared to the previous report, in particular  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. Additional uncertainty is related to pending legal cases including on 
retroactive compensation for pension cuts and litigation cases against the Public Real Estate 
Company (ETAD). On the upside, the better than expected state revenues are likely to carry 
over  for  2022  as  they  possibly  reflect  that  the  tax  base  was  less  affected  by  the  crisis  than 
initially assumed. 

SOVEREIGN FINANCING 

Yield spreads have increased but remain below the average levels reached in 2019 before 
the  pandemic.  In  December  2021,  the  Governing  Council  of  the  European  Central  Bank 
decided (13)  to  discontinue  net  asset  purchases  under  its  pandemic  emergency  purchase 
programme at the end of March 2022 and to reinvest the principal payments from maturing 
securities purchased under this programme until at least the end of 2024. In this context, the 
Governing Council clarified that in the event of renewed market fragmentation related to the 
pandemic, reinvestments can be adjusted flexibly across time, asset classes and jurisdictions at 
any time and could include purchasing bonds issued by Greece over and above rollovers of 
redemptions. Despite the ongoing asset purchases of Greek government bonds by the European 
Central Bank, and reflecting increased risk aversion in financial markets against the backdrop 
of  increasing  uncertainty  about  the  economic  and  inflation  outlook,  yield  spreads  over  the 

(12) Commission  Communication  on  Tackling  rising  energy  prices:  a  toolbox  for  action  and  support, 

COM(2021) 660.  

(13) Combined monetary policy decisions and statement, 16 December 2021. 

https://www.ecb.europa.eu/press/pressconf/shared/pdf/ecb.ds211216.en.pdf 

11 

 
 
                                                           
 
German Bund have been increasing, moving above 200 basis points on the 10-year maturity in 
early February 2022. 

Greece conducted a successful liquidity management exercise in 2021. After the previous 
bond exchange concerning the so-called ‘step-bonds’ conducted in 2017, Greece now managed 
to  exchange  EUR 3 billion  of  the  remaining  EUR 4 billion  worth  of  step-bonds.  With  this 
exchange  the  weighted  average  maturity  of  these  liabilities  increased  from  eight  years  to 
thirteen years. As some of the bond holders received cash in return for their bonds, the general 
government debt has been reduced by around EUR 1 billion. 

New bond issuances contribute to high cash reserves. In line with the expectations based on 
the seasonality of budgetary revenues and expenditure and the debt amortisation schedule, cash 
reserves declined in the last quarter of 2021 and stood at EUR 31.6 billion in December (14). 
This  is  slightly higher than the level  observed a  year earlier. The Public  Debt  Management 
agency  published  its  funding  strategy  for  2022.  Based  on  the  plan,  Greece  expects  to  raise 
EUR 12 billion on the open market in 2022, which is slightly lower than the amount raised in 
2021. In January 2022 the implementation of this plan started by the successful issuance of a 
10-year bond with the amount of EUR 3 billion, reaching a yield of 1.8%.  

DEBT SUSTAINABILITY ANALYSIS 

The update of the debt sustainability analysis indicates that risks remained unchanged 
compared to the 12th report but uncertainty remains high. The current analysis is a partial 
update  of  the  one  published  in  the  12th  report.  The  update  includes  the  data  on  the  recent 
liquidity management exercise and the latest bond issuance while the macroeconomic, financial 
and fiscal variables continue to be based on the Commission 2021 autumn forecast. Short-term 
risks to debt sustainability remain contained, whereas risks are more significant over the longer 
run in the alternative scenarios. In the baseline scenario, debt decreases from 203% of GDP in 
2021 to around 55% 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 increases in the interest rates 
over the medium-term and weaker economic growth could negatively affect debt sustainability. 
A full update, including macroeconomic, financial and fiscal assumptions will be presented in 
the next enhanced surveillance report. 

(14) The cash buffer account balance remained at EUR 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. 

12 

 
 
                                                           
Table 2:  Main assumptions of the baseline scenario  

Source: Commission services 

Table 3:  Main assumptions of the scenarios 

Source: Commission services 

Graph 2:  Results of the debt sustainability analysis (% of GDP) 

Source: European Commission 

FINANCIAL SECTOR DEVELOPMENTS 

The  reduction  of  non-performing  loans  in  the  banking  sector  has  continued  but 
vulnerabilities remain and a large amount of this debt remains in the economy, burdening 
the private sector. The non-performing loans ratio stood at 15% on a solo basis in September 
2021, having declined strongly from 30.1% at end-2020 and 40.6% at end-2019, mainly thanks 
to securitisation transactions under the Hercules scheme. Nonetheless, it remains the highest in 
the euro area. This corresponds to a reduction in the stock of non-performing loans on a solo 

13 

 
 
 
 
 
 
  
 
 
 
basis from EUR 68.5 billion at end-2019 and EUR 47.2 billion at end-2020 to EUR 20.9 billion 
in September 2021 (15). It amounts to an 80.5% reduction compared to its peak level in end-
March 2016 (EUR 107.2 billion). All four systemic banks are so far on track to meet the target 
of single-digit non-performing loans ratios at the latest by the end of 2022, with three non-
performing loan securitisations of circa EUR 9.3 billion already concluded in the fourth quarter 
of 2021 (16). Further, more limited securitisation transactions and outright non-performing loan 
sales  are  anticipated  in  2022  to  support  these  efforts.  As  a  result  of  this  unprecedented 
transaction activity, a large amount of non-performing debt has exited the banks’ balance sheets 
but remains in the hands of specialised non-bank financial institutions, which owned EUR 72.2 
billion of predominantly non-performing loans as of end-September 2021. These institutions 
will try to maximize recoveries from these loans through a combination of restructurings and 
liquidations, using their previous experience with managing non-performing loans. 

Graph 3: 

Evolution of the stock of gross non-performing loans and the non-performing loan ratio 
of Greek banks 

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. 

Net inflows  of non-performing loans continued  albeit so far at a limited rate  but risks 
persist. Banks are currently reporting a limited increase in the re-default rate for loans after 
exiting  moratoria,  below  initial  expectations.  However,  net  inflows  (17)  of  non-performing 
loans continued in the third quarter of 2021, at similar levels as in the first half of the year. 
There is a material part of the banks’ loan book that still benefits from some form of support, 
mainly via two temporary instalment subsidy schemes set up by the authorities for performing 
or restructured coronavirus-affected debtors (the “Gefyra” and “Gefyra II” schemes) (18) and, 
to a lesser degree, via banks’ ‘step up’ products offered to viable customers facing temporary 

(15)  Source: Bank of Greece. 
(16) Gross book values of the underlying loan portfolios. 
(17) 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. It does not take into account the much larger reductions of non-performing 
loans due to other means, such as the securitisations under the Hercules scheme, which explains the overall 
decrease in the stock. 

(18) As of end-December 2021, the Gefyra I scheme covers 101 562 eligible debtors, corresponding to EUR 8.5 
billion of loans, predominantly performing (83.1%). For Gefyra 2, the equivalent figures are 13 888 eligible 
debtors, corresponding to EUR 6.8 billion of loans, mostly (81.4%) performing.  

14 

 
 
 
                                                           
difficulties and the remaining payment moratoria granted to the hospitality sector. As a result, 
the full impact of the pandemic on the banks’ asset quality is expected to materialise only in 
2022. 

Going forward, banks’ management of loans in or at risk of default and their ability to 
offer  viable  long-term  solutions  is  expected  to  gain  importance,  as  the  potential  for 
securitisations and sales is gradually being exhausted. The swift deleveraging of denounced 
loans by Greek banks is changing the structure of their non-performing loan portfolios, with 
unlikely-to-pay loans representing an increasing share of the portfolio (33.7% as of end-June 
2021  as  opposed  to  29.4%  at  end-December  2020).  As  a  result,  banks’  internal  credit  risk 
management and their capacity to offer viable long-term restructurings, tailored to the specific 
needs of this type of loans, are expected to become a crucial element to sustain an adequate 
pace of non-performing loan curings (19). At the same time, effective collateral recovery will 
be crucial when successful restructuring is not feasible. The challenge for banks to rely more 
on  viable  restructuring  solutions  is  illustrated  by  the  fact  that,  out  of  the  total  amount  of 
EUR 22.8 billion of restructured (i.e. forborne) loans in the banks’ loan book at end-June 2021, 
17.7% had re-defaulted and were in arrears for more than 90 days (20), while the percentage of 
re-defaulted long-term modifications within a 1-year horizon stood at relatively high levels. 

The  continued  efforts  to  clean  up  banks’  balance  sheets  negatively  impact  their 
profitability  in  the  short  term  but  open  the  way  for  profitable  new  lending.  Higher 
provisioning needs due to securitisations of non-performing loans have adversely affected two 
significant banks. As a result, the banking sector has continued to show aggregate losses in the 
first nine months of 2021 with only two of the four systemic banks achieving positive results. 
Nevertheless,  according  to  banks’  own  calculations,  all  recurring  operations  have  been 
profitable, which indicates a gradual return to profitability, when excluding the one-off effects 
of efforts to move non-performing loans off the banks’ balance sheets. Interest revenues will 
be affected by the completion of further non-performing loans securitisations (21) coupled with 
the low interest rate environment. On the cost side, the need for further debt issuances in order 
to meet the minimum requirement for own funds and eligible liabilities (MREL) (22) as per the 
EU  legislation  will  put  further  pressure  on  the  banks’  cost  of  funding.  The  banks  plan  to 
counterbalance these costs by the implementation of business plans, which take into account 
the expected increased financing needs of the economy and the prospects for new lending, the 
reduced  impairments  following  recent  efforts  to  reduce  non-performing  loans,  and  the 
development  of  alternative  sources  of  revenue  by  accelerating 
the  banks’  digital 
transformation.  

The  impact  of  the  clean-up  of  the  banks’  balance  sheets  on  their  capital  position  was 
partly  offset  by  certain  successful  capital  enhancing  actions.  Banks’  average  Common 

(19) I.e. the return of previously defaulted loan balances back to performing loan status. 
(20) Source: Bank of Greece, Financial Stability Report, December 2021. 
(21) 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  will  improve  once  the  offloaded  non-performing  loans  are  replaced  with  profitable  new 
lending. 

(22) Binding MREL targets are established by the resolution authorities on a bank-by-bank basis on the basis of 
the  provisions  of  the  Bank  Recovery  and  Resolution  Directive  (2014/59/EU)  and  the  Single  Resolution 
Mechanism Regulation (806/2014/EU) and their subsequent amendments. 

15 

 
 
                                                           
Equity Tier 1 and Total Capital ratios stood at the end of the third quarter of 2021 at 12.5% and 
15%  of  risk-weighted  assets  on  a  consolidated  basis,  respectively  (23),  virtually  unchanged 
compared  to  the  previous  quarter  (12.5%  and  15%  respectively).  However,  their  capital 
position was still lower than a year ago (14.6% and 16.3% respectively in September 2020), 
reflecting  the  cost  of  non-performing  loan  deleveraging  and  the  phasing  out  of  transitional 
prudential adjustments (24). The quality of the regulatory capital continues to be a concern, as 
deferred  tax  credits  account  for  EUR 14.4  billion  or  62%  of  total  regulatory  own  funds  in 
September 2021, which is an increase from 53% in December 2020. The capital position of the 
banks  has  been  strengthened  by  two  banks’  successful  share  capital  increases,  which  were 
concluded  in  2021 (25).  Further  upcoming  capital  enhancing  actions  took  place  in  the  last 
quarter of 2021 and are expected to materialize in 2022, in order to provide support for the 
capital position of the four systemic banks, enabling them to continue with their ambitious non-
performing loan reduction plans. While the outlook of increasing capital buffers and cleaning 
balance sheets seems positive, the capital position remains one of the lowest in the EU. 

Provision of credit to the non-financial corporate sector has registered a mild recovery in 
recent months. In net terms, it has reached 3.8% in December 2021 compared to a year ago. 
This is a positive turn after continuous net credit growth deceleration which fell to 2.8% year-
on-year  in  September  2021  from  6.7%  in  April  and  10.0%  in  December  2020.  The  earlier 
decreasing trend was mainly driven by less net credit to large corporates mainly on the back of 
muted credit demand, as companies make use of precautionary liquidity buffers built up over 
previous quarters. Moreover, the largest non-financial corporations are partially substituting 
bank lending with cheaper funding through corporate bond issuances. At the same time, credit 
growth  to  small  and  medium  enterprises  continues  to  decelerate.  Growth  of  credit  to 
households remained negative but  the decline was  marginally smaller in  December  2021 (-
2.4%)  due  to  a  milder  contraction  in  consumer  loans.  The  weighted  cost  of  credit  to  non-
financial  corporations  decreased  to  2.9%  in  December  2021  from  3.3%  a  year  earlier  and 
remains at historically low levels, substantially less than the cost of credit for unincorporated 
businesses  or  households  (4.6%  and  4.7%  respectively).  The  Hellenic  Development  Bank 
launched five new financing schemes in 2021, mainly targeted to support small and medium-
sized enterprises but they are significantly smaller in size compared to COVID-19 enterprise 
guarantee fund and TEPIX II schemes, which are almost exhausted. In 2022 and beyond, a 
large  support  for  credit  expansion  to  non-financial  corporations  is  expected  to  come  from 
projects financed by Greece’s recovery and resilience plan. 

Discussions progressed well 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. Adoption of the legal amendment is now 
expected to take place in the coming months and will be reported on in the 14th report. The 
Hellenic Financial Stability Fund has also participated in the share capital increase of a less-
significant  institution  where  it  already  had  a  majority  stake,  which  was  a  result  of  the 

(23) Source: European Central Bank Consolidated Banking Data 
(24) 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. 

(25)  Share  capital increases  were concluded by two systemic banks in early May and early July. Third quarter 
figures do not reflect yet a share capital increase undertaken by a less-significant bank in December 2021. 

16 

 
 
                                                           
implementation  of  the  Greek  legislation  for  deferred  tax  assets.  The  bank  has  successfully 
performed a share capital increase, which aims to be the first step in the bank’s transformation 
and development. The Fund has reduced its previous shareholding to allow the participation of 
private investors and has entered, for the first time, into a shareholder agreement with private 
investors on the terms concerning the operations and the business plan of the bank as well as 
its implementation.  

17