Source: EURLEX
Language: en
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# 52012DC0183

**COMMUNICATION FROM THE COMMISSION COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANKGrowth for Greece /\* COM/2012/0183 final \*/**

  

COMMUNICATION FROM THE COMMISSION

COMMUNICATION FROM THE COMMISSION TO THE
EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN
ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN
INVESTMENT BANK
Growth for Greece

1.           Introduction

Greece is going through an economic and
social crisis which is unprecedented in Europe in modern times. To get through
it and to rebuild a successful economy will require a united national
commitment by the population and their political leaders – only Greece can put
itself on a different path for the future. The underlying causes of the crisis
had been building up for several years and reversing these negative trends will
take time. A crisis of such magnitude calls for far-reaching changes in Greece so
that a new, dynamic, competitive Greek economy can emerge, one that is capable
of generating sustainable growth, creating jobs, supporting social cohesion and
delivering on the expectations of Greek citizens.

Greece does not have to face this huge
challenge on its own. It can draw strength and concrete support from its
membership of the European Union and of the Euro area. Supporting Greece in the
effort that lies ahead requires long term solidarity from the rest of the EU.
Other Member States and the EU institutions have made clear their desire to
help Greece and to keep Greece in the Euro – by providing help on a scale that
was unthinkable even a few years ago. The total package of assistance to
Greece, including loans from EU and financial institutions, write-downs on
private sector debt holdings, and grants from the EU structural and other funds,
adds up to about € 380 billion. This is equivalent to 177% of Greek GDP. This
level of assistance is unprecedented (the US Marshall Plan for post-war
reconstruction involved transfers equal to around 2.1% of GDP of recipient
countries).

Table
1. EU and international support to Greece in recent years

Various forms of EU and international support ≈ € 380 bn || The equivalent of: (2011 data) || By comparison:

Financial assistance (loans): € 240 bn || · 3% of EU GDP · 177% of Greek GDP · € 33 600 per Greek inhabitant || ·  Total US Marshall plan 1948-1951: – ≈ USD 13 bn (85% grants, 15% loans) – ≈ 5% of US GDP – ≈ 2.1% of GDP of recipient countries

Private sector involvement (debt write-downs): € 100 bn

EU funding for the period 2007-2013 (grants): > € 40 bn (including € 20 bn from EU structural and cohesion funds and € 20 bn under the Common Agricultural Policy)

The crisis has underlined the
interdependence of all EU Member States, and more particularly among those that
share the same currency. Such an advanced degree of economic, social and
political integration can only work when every member is able to deliver fully
on its obligations. Greece needs the EU to get through this crisis – and the EU
needs a well functioning and dynamic Greece to play its full role as a Member
State, helping to make EU policies work across its full territory.

Throughout the crisis, the Commission has
been active in assisting Greece, delivering direct support and liaising with
the other Member States, EU institutions and the international community to
devise unprecedented solutions and to deliver lasting results on the ground. Across
the Commission, teams have been mobilised to the full and are working actively
with the Greek administration in Brussels and Athens. To provide the technical
assistance required, the Commission also set up a dedicated Taskforce for
Greece in July 2011. Moreover, the Commission is tasked with enhanced monitoring
of commitments and progress. As the annex to this Communication shows, tangible
results are beginning to emerge and promising avenues have been identified
through this work.

The Commission has decided to issue this
Communication now because after many months of uncertainty the main framework
for recovery in Greece is in place. Greece has taken important steps to reduce
its public sector deficit and adopted new fiscal and economic policies. Agreement
on the Second Economic Adjustment Programme and the success of the recent
private sector debt reduction operation provide an opportunity to create a new
dynamic to speed up the badly needed structural reforms.

This Communication will be of interest to a
wide range of readers:

·
To the people of Greece, because it shows that a
more fair, socially cohesive, trustworthy and efficient system can emerge from
the current crisis. Greece has the capacity to change and many valuable assets
to draw on – but all of the unprecedented support that Greece is now receiving
can only produce results if Greek citizens put their weight behind the
programme and work to build a different future.

·
To the democratic institutions of Greece, which have
agreed to the Second Economic Adjustment Programme and are committed to its
implementation. This Communication underlines the need to create a more
positive atmosphere by emphasising the rapid benefits that can be achieved by
the full implementation of the early measures of the programme.

·
To other EU Member States, the EU institutions and
our international partners, who are providing unprecedented support to Greece
and who will want reassurance that their contribution is being put to good use,
and in ways that avoid recurrence of problems.

The purpose of the Communication is to
highlight the positive impact that the full and effective implementation of the
Second Economic Adjustment Programme[1]
can have by laying the foundations for growth, investment and social renewal. This
Communication identifies ways to maximise the impact of early deliverables
through swift actions and EU support.[2]

While Greece is faced with a long process
of transformation and adjustment, implementation of these actions will start
the recovery process. Broad public understanding of the programme and of the
expected results of the major changes that will be made in the coming months
will be needed to convince people that the sacrifices and efforts being made
now will yield tangible results in the future.

2.           An historic opportunity
to build a brighter future

The full and timely implementation of the
Second Economic Adjustment Programme must be the top priority for Greece. The
reform measures it contains are designed to restore the growth and job creating
potential of the Greek economy and to do away with the value-destroying rules
and opportunities for corruption and bureaucracy that prevent Greek citizens
and businesses from engaging in productive activities. Currently,
over-regulation and a poorly performing public administration create
inefficiency and too many cases of rent-seeking behaviour.

The removal of the most blatant obstacles
to growth can significantly improve the situation of citizens and companies in
a relatively short time-frame. In the medium term, more profound reforms of the
Greek public administration and justice system are required to ensure faster,
more efficient procedures, a substantially more effective and equitable tax
collection system, less red tape and more legal certainty for investment and
new business activities.

The reforms agreed under the Second
Economic Adjustment Programme seek to create a more equitable society – where
all segments of the population bear a fair share of the burden of adjustment
and will all enjoy the benefits of reform. The impact of the severe imbalances that
have built up in the Greek economy has hit the less well-off particularly hard,
making the need for reform even more pressing. Vested interests, both inside
and outside the public administration, which have exploited their position in
an opaque and bureaucratic system which lends itself to corruption, should no
longer be tolerated. However, the whole population will benefit from these
changes and deserve better governance.

2.1.        It can be done

Greece has already made important progress
in substantially reducing its public deficit through expenditure and tax
measures. The government deficit has been cut from almost 16 percent of GDP in
2009 to 9.25 percent of GDP last year. The parliament has enacted a huge volume
of new legislation and all of the prior actions which were needed before the
Second Economic Adjustment Programme could enter into force were completed. As
the recent past shows, when the entire system of government is concentrated on
meeting clear goals, it can deliver.

The route to economic renewal is clearly
marked out in the Second Economic Adjustment Programme. This programme will
deliver an historic transformation, equipping Greece with a modern economy and
governance structures to help it face the future with confidence. Greece can
build on its many strengths – such as its shipping sector, its tourism
potential, its universities and generally well-educated work force as well as
its location as a potential logistics and energy hub in South Eastern Europe.

Early implementation of a number of
headline actions will make a decisive contribution to creating growth and jobs,
boosting competitiveness and stimulating investment. Results will be tangible
and visible to citizens and businesses within a relatively short period of
time. Implementing these actions will create momentum in the reform process and
give a strong signal that Greece is committed to reform. It will help Greece to
move from a vicious to a virtuous cycle – where commitment to reform is
rewarded by renewal of confidence and growth, creating the incentives for
further progress.

While the Second Economic Adjustment
Programme must be delivered in full, in this Communication the Commission
highlights three broad areas where action taken by the Greek authorities during
2012 can already be expected to show promising results by the end of 2012.
These are:

·
Getting control over public finances and
revenues so that public finances become sustainable over time;

·
Getting lending flowing to the real economy by
recapitalising the banks and helping SMEs to get affordable loans;

·
Freeing business to drive growth - a major
overhaul of the business environment and labour market is urgently needed so
that Greece becomes once again a place where domestic and foreign investors
have confidence to invest and create jobs.

2.1.1.     Getting control over public
finances - a precondition for growth and jobs

The objective of the programme is to
prepare the economy to be more dynamic and fairer in the medium term.
International experience shows that attempts to generate growth and jobs will
be frustrated unless public debt is put back on to a sustainable path and
competitiveness is restored. To be sustainable, further efforts will be needed
in 2013 and 2014 to enable Greece to reduce its debt ratio to around 117% of
GDP by 2020. Focusing on targeted expenditure reductions will mitigate the short-term
impact on the real economy. Moreover, the reduction in the deficit will improve
the liquidity of Greek firms as less domestic and foreign savings will be
absorbed by the government. It will increase Greece's credibility in the
markets and allow it to finance itself at affordable cost at the end of the
period of official financing, which will ease financing conditions for
businesses. Reform of the tax system and tax administration, as spelled out
below in section 2.3.2, is also crucial for getting control over public
finances.

Actions in 2012 (cf. §1 of the MoU):

The Greek authorities will need to identify measures to close the
existing fiscal gaps for 2013 and 2014. These measures should focus on spending
savings.

2.1.2.     Getting lending flowing to
the real economy through bank recapitalisation and help for SMEs

The Greek banking system has suffered huge
deposit outflows, which has resulted in limited access to liquidity and caused
a deterioration in the value of its assets. This has translated into a
reduction of lending to the real economy.

Tackling this problem and restoring the
flow of liquidity to Greek businesses is a prerequisite for economic recovery.
The Second Economic Adjustment Programme provides financial resources to
recapitalise the Greek banking system with a double objective: ensuring
financial stability and allowing banks to finance the real economy.

Greek SMEs are currently facing very
challenging operating conditions: 6 out of 10 firms saw their earnings
deteriorate in 2011 compared to 2010 and 150,000 jobs were lost. These stark figures underline the need for
quick and targeted action to support SMEs – EU support for their maintenance
and development is described later in this Communication.

To counter this threat it will be essential
to deploy all available resources, notably from the EU structural funds,[3] to inject liquidity into new
activities to support jobs and sustainable growth. Over € 4 billion is already
available in liquidity assistance for SMEs from the EU structural funds, in the
form of financial engineering instruments and grants. In addition, a new SME
Guarantee Fund has been set up with € 500 million from the EU structural funds,
which could be multiplied to release a further € 1 billion in loans from the
EIB to Greek banks, for on-lending to Greek SMEs.

However, at present, this money is not reaching
Greek SMEs because of reduced demand for investment, the high risk associated
with loans for SMEs in the present circumstances and consequently the
difficulty SMEs have in securing the necessary co-financing from the banks.
Changes to EU legislation to permit the co-financing of working capital for
SMEs still need to be implemented by the Greek authorities.

Removing these blockages is an immediate
priority. In addition, there are several projects and
schemes co-funded by the EU structural funds which are designed to boost
entrepreneurial skills and provide support for business start-up, as well as
access to micro-finance schemes.

Actions in 2012:

Bank recapitalisation should be completed by September 2012,
safeguarding the business autonomy of the banks.

In the next 8 months the Greek banking sector and administration
should speed up disbursement of the € 4 billion already available for SME
funding. The change in EU rules to permit the co-financing of working capital
should be implemented in Greek legislation.

The EIB should disburse loans to SMEs backed by the SME Guarantee
Fund with a target of € 160 million in 2012, a further € 400 million by the end
of 2013 and € 440 million before 2015. Moreover, during the course of 2012, the
EIB will provide an additional € 440 million to SMEs, guaranteed by the Greek
authorities.

Increased financial support should also be given to entrepreneurship
training (with a focus on new innovative products and
services), including mentoring, coaching and consultancy.

2.1.3.     Freeing business to drive
growth

A permanent exit from the crisis will
require growth in Greece's productive sector. It is estimated that reform of
product and service markets could add up to 13.5% to Greek GDP over the long
term.[4]
Freeing business from bureaucracy and corruption can unleash pent-up growth
potential in sectors such as tourism, port services and food processing among
many others. It will facilitate the rebalancing of the economy towards stronger
investment and export performance and can trigger a decisive shift towards
higher value-added activities. In this section eight areas for action are
highlighted where progress should be made before the end of 2012.[5]

·
Restoring cost competitiveness

As part of the modernisation efforts of the
Greek labour market, measures are needed to foster a rapid adjustment of unit labour
costs to fight unemployment and restore the cost-competitiveness of the Greek
economy. As agreed in the Second Economic Adjustment Programme, measures to
foster a rapid adjustment of labour costs to fight unemployment and restore
cost competitiveness should aim, together with measures that have already been
taken, at reducing nominal unit labour costs in the business economy by 15
percent in 2012-2014. Such measures should take account of the outcome of the
social dialogue and go hand-in-hand with broader efforts at strengthening
labour market institutions, smoothing wage bargaining at all levels and
fighting undeclared work.

Actions in 2012 (cf. § 4.1 of the MoU):

A timetable for an overhaul of the national collective agreement for
the wage-setting system should be prepared by end July 2012, in consultation
with social partners. The Greek authorities should also enact measures to
reduce social contributions weighing on the cost of labour in a budget-neutral
way.

·
Facilitating exports

It takes an average of 20 days to complete
export clearance and customs formalities in Greece – compared to an EU average
of 10 days. This is estimated to result in total export value which is around
10% less than it would otherwise be.[6]
Disproportionate and often unnecessary documentary or procedural requirements
should be eliminated.

Actions in 2012 (cf. §4.2 of the MoU):

A systematic review of export clearance and customs formalities
should be completed, stripping away excessive controls and aligning control
systems on practices in the rest of the single market. Once
simplification is underway, its benefits can be maximised by developing
migrating procedures to ICT solutions. Efforts should also focus on equipping
exporters to identify opportunities in promising markets.

·
Stimulating new investment

Investment in new facilities or projects is
subject to delays and costs resulting from regulatory and administrative
barriers involving many authorities. Land-use planning and environmental
licensing rules are often cited as obstacles to investment. Companies operating
in the energy sector, distribution and logistics and transport sectors are the
worst affected. Problems are compounded in the event of disputes because of the
suspensive effect of many administrative and legal actions, lack of staff or
competence in key services of the administration. The completion of the land
registry will also facilitate investment by protecting investors from
litigation over ownership of land. Access to skills is also a problem for
research and innovation intensive foreign investors, due to the mismatch
between the public education system and the needs of a knowledge-based economy.

Actions in 2012 (cf. §4.2 of the MoU):

Recently adopted laws to fast track certain licensing procedures for
certain professions and manufacturing activities, and for environmental
licensing of projects and activities should now be fully activated.

Further steps should be taken to make it easier to set up a new
company – the EU target set out in the Small Business Act is 3 days at a cost
of no more than € 100. Greece should also complete the point of single contact
as required by the Services Directive.

·
Modernising public procurement

Public procurement accounts for 12% of
Greek GDP. Bidders for Greek public contracts wait for twice as long as the EU
average for contracts to be awarded (nearly 1 year). Procedures are inefficient
and resource-consuming: the public sector invests twice as many person-days in
running procedures. On average, each procedure triggers two appeals. This
situation penalises suppliers to the public sector and increases costs. It
prevents the acquisition of supplies and services needed to perform public
services, and prevents the completion of works funded by the EU funds.

Actions in 2012 (cf. § 2.6 of the MoU):

Public procurement legislation should be radically overhauled by the
end of the year, and the newly created single procurement authority should
become fully operational. A blue-print for more professional and
transparent procurement administration should be developed and implemented in a
number of large spending Ministries before rolling out successful practices to
other parts of government. In addition, the development of e-procurement, steps
to aggregate public procurement through central purchasing bodies and wider use
of framework contracts for standard supplies and services could yield important
savings.

·
Unleashing competition and freeing prices

Prices have remained high in many sectors
of the Greek economy throughout the economic contraction – adding to the
economic pain felt by consumers and businesses on shrinking incomes. There is a
need for determined action to remove the many regulatory barriers that impede
competition and new entry. This includes continued efforts to change existing
regulations that create protected income streams or shelter regulated
professions from competition. Increased competition and flexibility in prices
is also necessary to ensure that the reduction in labour costs is translated
into a reduction in prices, thereby mitigating the impact on disposable income
and ensuring that the reduction in production costs benefits Greek society as a
whole.

Actions in 2012 (cf. §4.2 of the MoU):

The full implementation of the 2011 law on regulated professions
should be finalised before the end of the year, combined with the additional
liberalising measures included in the MoU. Effective implementation of EU rules
on the recognition of professional qualifications is also needed. A health
check of the regulatory environment in selected economic sectors will be completed
by the autumn and will be the basis for the repeal of anti-competitive and
unnecessarily burdensome legislation.

·
A competitive energy sector

Greece is highly dependent on fossil fuels
(lignite accounts for the bulk of its electricity generation). Most islands
remain isolated and are reliant on diesel generators and oil-fired plants. The
overall efficiency of electricity production is amongst the lowest in Europe.
The energy sector is dominated by a few state-owned enterprises with low
productivity and which still have a quasi-monopoly position in the market.
Transmission system operators still need to be fully unbundled. Industrial
customers complain that their competitiveness is jeopardised by having to pay
some of the highest energy prices in Europe.

Electricity and gas grids need to be
modernised. Improvements in gas storage and pipeline networks, as well as
investments in new pipeline projects that diversify gas sources, will enable
Greece to exploit its strategic geographic position providing a gateway to the
European gas market. Electricity grid interconnection of the larger islands
with the mainland and between smaller islands is a prerequisite for the
large-scale deployment of wind and photovoltaic installations.

Reinforcement of the mainland transmission
grid is also essential to integrate renewable energy installations for the
domestic market and to enable important electricity exports to the rest of
Europe. Greece is a natural passage for much of the gas originating in the
Caspian and Eastern Mediterranean basins. The TEN-E programme and the proposed Connecting
Europe Facility can play a major role in focusing and funding efforts in this
area. Ensuring an open and functioning energy sector and ensuring
non-discriminatory access to its infrastructure and networks, is a prerequisite
to help attract private finance for such investment. Projects such as Helios
could be the springboard to a truly integrated European market for energy from
renewable sources, while simultaneously helping the Greek economy to recover.

Actions in 2012 (cf. §4.2 of the MoU):

Privatisation of public gas and electricity companies this year will
provide private sector investors with the opportunity to enter a huge new
market, and increase the scope for major cost savings from efficiency gains in
the former public companies.

The separation of gas and electricity transmission system operation
from generation and supply activities will increase the transparency of the
sector, and facilitate competition through the entry of new market players.

Technical assistance will help reform Greek support schemes for
renewable energy, to improve the investment climate for developing Greece's
plentiful solar and wind energy resources.

·
Efficient transport services

The Greek transport sector has undergone
important changes, with the creation of a rail regulator, the opening of road
haulage and the liberalisation of the occasional coach passenger transport.

Much, however, remains to be done.
Administrative barriers and poor management prevent the efficient exploitation
of ports and airports, having a negative impact on two of the most important
sectors of the economy: the logistics industry and the tourism sector. In the
case of airports and of air traffic management, significant additional capacity
and lower costs to operators could be made available in a
short time, which would boost the inflow of tourists. Rail operations could be
improved by creating the framework for EU passenger
operators to enter the Greek market and by facilitating procedures for
international freight traffic.

Actions in 2012 (cf. §4.2 of the MoU):

The Transport Policy Paper (due date June 2012) that will set out
the strategic and regulatory framework for the entire transport sector should
be finalised. The regulatory and operational functions of the Hellenic Civil
Aviation Authority should be separated and funding provided for modern air
traffic control equipment, the recruitment of qualified air traffic controllers
and the contracting of modern slot allocation software. The establishment of independent award authorities for rail passenger
services should be completed. Border crossing procedures and agreements to
facilitate freight flows on corridor X should be reviewed and border closures
abandoned.

·
Making a success of the privatisation
programme

The € 50 billion privatisation plan set out
in the Second Economic Adjustment Programme should provide a platform to
attract foreign direct investment, bring new players into the market and
increase competition, as well as helping with the repayment of public debt. It should
also pave the way for more efficient management of key enterprises in the
economy which are currently state owned if implemented with a long-term
strategic vision.

Railways, ports and airports need a more coherent
regulatory framework while they are being prepared for privatisation. The
framework should clarify the respective roles of public authorities and
infrastructure managers, guarantee access to the facilities without
discrimination, facilitate infrastructure development as part of a coherent
transport system, and ensure the efficient use of structural and cohesion funds
and the implementation of the TEN-T priorities.

Actions in 2012 (cf. §2.1 of the MoU):

A sound regulatory and institutional framework for
infrastructure-related assets should be established, the sale of which has been
delayed by technical barriers and uncertainty regarding the conditions under
which they can be exploited. The full inventory of state-owned real estate
assets should be completed. State land registration should also be accelerated.
There is a need to ensure that the planned receipts are achieved to avoid
financing gaps in fiscal accounts and to strengthen the credibility of
privatisation as a tool for debt sustainability.

2.2.        Tackling the social impact
of the crisis

In addition to the three action areas
outlined above, the rapid deterioration of the social situation in Greece
requires an urgent response. Unemployment, particularly among young people, has
increased dramatically since the onset of the crisis and poverty levels are
unacceptably high. The Economic Adjustment Programmes have been designed to
turn this around by reforming the economy so that the benefits of future growth
and employment are enjoyed by all.

Further progress to reduce labour costs and
to improve productivity to help restore the competitiveness of the Greek
economy is essential. These necessary steps must be accompanied by robust
measures to ensure social justice and help the most vulnerable.

These considerations have been reflected in
the design of the programme, for example by reviewing social programmes to make
sure that they target beneficiaries better and protect the vulnerable
effectively; by ensuring that reductions in pensions are targeted and protect
the lowest pensions; by fighting fraud in social benefits; by reducing the
costs of health care without endangering the quality of care; by increasing the
fairness of the tax system; and by fighting tax evasion.

2.2.1.     Promoting youth employment
and training

The Commission is working actively with the
Greek authorities on ways of tackling the extremely high levels of youth
unemployment. This includes taking a fresh look at the use of EU structural
funds in Greece and at how to help the Greek authorities to reallocate them to
projects that will make the biggest difference to growth and jobs in the
shortest time.

An action plan is being defined to focus on
clear priority target groups and policy objectives. A re-orientation of EU
funding of around € 200-250 million from the European Social Fund could be allocated
under existing EU structural fund programmes to support measures which can deliver
immediate results for the young people who are failing to find work.

These measures could include support for
the acquisition of first work experience or short-term job placements in the
private sector or in local communities; expanding apprenticeship or traineeship
opportunities for students and graduates; promoting re-skilling or up-skilling
as part of a growth and development pathway; boosting entrepreneurship,
including social entrepreneurship; and study or training periods abroad, for
instance through the Leonardo and Erasmus programmes.

Actions in 2012:

An action plan to promote youth employment, including through
training and entrepreneurship, should be finalised and implemented before the
end of 2012.

2.2.2.     Active labour market policy

Public employment services should be
strengthened to offer better, more individually tailored services to the rising
number of unemployed. More effective and targeted investment in active labour
market policies is needed to support a job-rich recovery and a more systematic
evaluation of the effectiveness of active labour market measures should be
undertaken. Priority should be given to the most vulnerable groups (low-skilled
unemployed, early school leavers, older workers, long-term unemployed, migrants
and minorities, etc). Efforts at skills development should be geared towards
identifying and responding to the needs of the sectors and clusters which can
become the key drivers of future growth.

The EU structural funds can support various
schemes for short-term recruitment especially focused on the needs of disadvantaged
groups. These can provide temporary economic relief and an opportunity to those
most affected by the crisis to develop their skills and remain in the labour
market.

In addition, Greece could use the currently
untapped potential of the social economy], through the support of the European
Social Fund, which provides an important support for new job creation and can
address the growing need for social services

Actions in 2012:

More effective use of the available European Social Fund resources to
put in place a fully functioning framework to support the social economy and
social enterprises as well as the key drivers
for a job rich recovery and to address the multi-faceted integration needs of
vulnerable groups.

2.2.3.     Invest in education and
training

In order to enable growth to resume and to
fully exploit Greece's competitive advantages, the relevance, quality and
attractiveness of initial vocational education and training should be improved.
Cooperation between business and educational institutions should be encouraged
to ensure that young people leaving education and training have the skills and
competences required by the economy – in terms of both employability and
entrepreneurship. This should also involve the creation of flexible pathways
between general and vocational tracks, and from initial vocational education
and training into further learning and into higher education.

2.3.        Building a modern public
administration

The reform of Greece has to begin with the
modernisation of the Greek public administration. Currently Greece suffers from
a lack of capacity to implement policy, manage public finances, collect taxes,
open markets to competition, make public procurement work efficiently and
innovatively, pay suppliers, or offer timely judicial review to its citizens.
Complexity and opacity at all levels create opportunities for corruption that
undermine citizens' confidence in the system and corrode its effectiveness.
Getting these elements right will create a basis for re-establishing a social
contract between Greek citizens and the state, based on transparency, trust and
solidarity. The re-establishment of confidence in official statistics is an
integral part of this social contract.

2.3.1.     Public administration
reform

The structures and working methods of the
Greek public service need root and branch reform. There is a need for clear
assignment of lead policy responsibilities, in order to ensure accountability
and overcome inertia and to end the current dispersion of responsibility for
different aspects of a policy across different Ministries and agencies. A
strong inter-Ministerial coordination capacity is needed to implement complex
reform processes. Reforms are also needed to improve the functioning and
organisation of individual Greek Ministries and public services. All the
principles of coherence and efficiency set up by the reform of the
administration at the central level must be translated at the regional and
local levels.

The EU is
tangibly supporting the administrative reform agenda in Greece, in particular through
the European Social Fund with a budget of € 505 million. Reform of the public
administration is also a central aspect of the Second Economic Adjustment
Programme.[7]

Actions in 2012 (cf. §2.6 of the MoU):

The high level steering group, set up in early 2012 to supervise and
monitor the implementation of administrative reforms, should start operating as
soon as possible under the Prime Minister's authority. A stable structure for
inter-ministerial coordination should be established. Horizontal structures
should be created in each Ministry, implementing the relevant procedures with
Budget/Finance Audit, Internal Control or Human Resource Management, acting
under common rules.

A roadmap and actions for administrative reform at the regional and
local levels should be decided and implemented with a high degree of urgency.
The acceleration of the implementation of the ESF-funded "Administrative
Reform" programme is crucial to achieving timely results.

2.3.2.     Tax reform, tax
administration and public financial management

The Greek tax system is in urgent need of
an overhaul. The design of both direct and indirect – including property –
taxes could be improved to support stability and growth. Extensive exemptions,
special rules and preferential regimes in addition to reducing the size of the
tax base have made the system complex and difficult to administer and to comply
with. By adding complexity, these exemptions and exceptions also create
potential for extensive avoidance and abuse and also lend themselves to tax
evasion and corruption resulting in huge revenue losses to the state and threatening
the viability of businesses. Tax reform should thus also improve the quality of
tax legislation, tax administration and the degree of tax compliance.

Greek tax administration must be the focus
of relentless efforts to strengthen its capacity to collect taxes owed by all
sections of society. Effective measures should be taken to improve the
governance framework and independence of the tax administration. Progress in
improving national budgetary accounting must be sustained. Weaknesses on these
fronts were critical factors in the deterioration of the Greek fiscal
situation. Improving tax administration and curbing tax evasion is also
important so as to ensure that the burden of adjustment is fairly distributed.

Conversely, the Greek tax administration
must urgently refund up to € 700 million in advance VAT tax payments paid by
export companies. It is deeply damaging for struggling companies to delay these
payments subject to performance of discretionary audits by individual tax
officers.

Capacity in relation to the transparent
management of public funds, and in fighting fraud and corruption must also be
increased.

Actions in 2012 (cf. §2.3 and §2.4 of the MoU):

The comprehensive reform of the tax system should be carefully
prepared in the coming months in order to enhance its efficiency and
growth-friendliness.

Efforts on tax debt collection should be stepped up as well as on
the audit of high-wealth individuals, while at the same time making efforts to
fundamentally simplify the legal and procedural taxation framework, drawing on
the technical assistance that is being provided

An antifraud strategy, covering public revenues and public
expenditures, should be adopted.

2.3.3.     Healthcare and pension
system reform

To maintain universal access and improve
the quality of healthcare delivery within a framework of much greater budgetary
discipline, Greece must find ways to contain the costs of inputs and increase
the overall efficiency of the system. This must be done with a view to
enhancing the the overall quality of public healthcare services, including by
addressing inequalities in coverage and reducing the fragmentation in the
governance and administration of the system.

More responsible consumption of healthcare
services and products will help, in particular by reducing outlays and waste on
medical equipment and pharmaceuticals. This can be done through more
transparent and professional prescriptions systems and health procurement
(Greece is implementing e-prescription and has recently held a first e-auction
for pharmaceuticals). Balancing long-term human resource needs with a focus in
particular on training and retention of primary care healthcare professionals
and nurses will be important for the sustainability of the healthcare system.

In 2010 Greece adopted one of the most
ambitious pension reforms in the EU. These reforms will underpin the long term
sustainability of the Greek pension system.

As life expectancy at birth significantly
improved over the last decade - in 2010 it reached 78.4 years for men and 82.8
years for women (respective EU-27 rates for 2008: 76.4 and 82.4 years) - the
impact of ageing on health and pension system should feature prominently in the
reform process.

Actions in 2012
(cf. §2.7 and 2.8 of the MoU):

Greece should work towards a comprehensive set of measures to: i)
strengthen the governance of the health system while reducing fragmentation and
administrative costs; ii) reduce pharmaceutical spending through changes in pricing,
prescription and reimbursement of medicines, as well as via the promotion of
generic medicines; iii) centralise procurement; iv) develop a comprehensive and
uniform e-health system to improve the monitoring, transparency and the
efficiency of the healthcare system; and v) present a human resource planning
instrument to outline long-term health workforce needs. These are necessary
steps towards a truly national health service guaranteeing fairness, equity,
efficiency and quality of services and expenditures.

The reform of the pension system should be finalised through the
reform of secondary and supplementary pension schemes and fighting fraud in
disability pensions.

2.3.4.     Judicial reform

The Greek judicial administration is also
in need of reform as it is highly inefficient by international standards.
People and businesses need to have confidence that the judicial system will
provide effective solutions and uphold their rights. It is characterised by
complex procedures resulting in excessive delays in the resolution of cases
(well above the OECD average) with a significant case backlog despite a
relatively large number of courts and judges relative to the size of the Greek
population. The judicial reform measures set out in the Second Economic Adjustment
Programme can make an important contribution to economic recovery by
stimulating private consumption, foreign investment and domestic
entrepreneurship.

Actions in 2012
(cfr. §4.5 of the MoU):

Greece should work towards i) clearing the existing case backlog in
courts (for tax, civil and commercial cases); ii) encouraging private
individuals and businesses to use alternative modes of dispute resolution, such
as mediation, so as to reduce the work load of court officials; iii)
introducing new e-justice applications; iv) reviewing the Greek Code of Civil
Procedure; and v) adopting and implementing an anti-corruption strategy.

2.3.5.     Improving internal
coordination

The Second Economic Adjustment Programme
sets out a full agenda to be implemented by the Greek authorities. It also
constitutes the "critical mass" needed to put structural reform in
Greece on a self-perpetuating path.

However, there is currently no "nerve
centre" for coordinating and monitoring the reform process inside the
Greek government. Such a mechanism will be needed to keep the reform process on
track, and facilitate transparent and effective government control of the
overall process. This would provide the basis for governmental and
Parliamentary scrutiny of the process and to help correct any slippages. It
would also help to create an autonomous capacity to frame and implement
structural reforms.

Technical assistance is also being provided
to enhance the quality of official statistics, for which the Joint Overall
Statistical Greek Action Plan (JOSGAP) has been put in place.

Actions in 2012 (cf. §5 of the MoU):

A mechanism for the monitoring and coordination of structural
reforms should be created and be fully operational by mid-2012.

3.           The European Union can
help

3.1.1.     Putting the EU funds to
work

The resources available through EU funds
represent significant economic fire-power.[8]
Over € 20 billion has been allocated for the period 2007-2013 under structural
and cohesion funding and a further € 21 billion through the Common Agricultural
Policy. However, less than half of the structural and cohesion fund allocation has
been spent and there is room for improvement in the absorption of rural
development funds. This implies significant unused capacity to boost demand and
investment and create employment in the short term, while laying the
foundations for sustainable growth in the future.

Together with the Greek authorities, the
Commission has identified a number of priority projects that can give an
immediate boost to growth and jobs. The Commission has also proposed a Risk
Sharing Instrument to boost private investment in major infrastructure projects.
This instrument will provide a vital catalyst for key projects such as the
motorway concessions and major waste management investments.

Actions in 2012 (cf. §4.3 of the MoU):

Greece should continue working towards meeting the targets for
absorption of structural and cohesion funds, for the submission of major
project applications and for the gradual reduction in the use of non-targeted
de minimis State aid. Simplification efforts in the management of EU funds
should be pursued by removing unnecessary administrative burden, while ensuring
stability in the framework for implementation.

Technical preparations for the Risk Sharing Instrument should proceed
swiftly so that the instrument can be activated as soon as possible after
political agreement is reached by the European Parliament and the Council.

Greece should finalise agreement on the necessary restructuring of
the motorway concessions to ensure their economic viability.

The number of contracted projects - and in particular the 181
priority projects - should increase substantially and faster so as to ensure
their completion before the end of 2015.

3.1.2.     Technical assistance / the
Taskforce for Greece

The European Commission, through the
specially-created Taskforce for Greece which reports to President Barroso, will
continue to support Greece in framing and mobilising technical assistance
needed to implement these challenging reforms.

The Taskforce is already working closely
with Greek authorities to identify needs, and mobilise expertise from other
Member States and international organisations in the areas of structural fund
absorption, tax administration / public financial management, including the
fight against fraud, smuggling and corruption, the reform of the public
administration, business environment, judicial reform and healthcare reform. Many
Member States are playing their part in making leading specialists available to
advise the Greek authorities.

The Commission will make regular reports on
the implementation of the Second Economic Adjustment Programme and on the work
of the dedicated Taskforce for Greece.

4.           Conclusion

The economic transformation of Greece will
not be completed overnight, but significant steps can be expected already in
2012. Deep structural reform and the correction of imbalances that have built
up over many years will take time but actions spelled out in this Communication
should pave the way for recovery and lead to a more dynamic, modern,
innovative, sustainable and fair Greece.

The challenges are many. Greece needs to
remodel large parts of its public administration and to make the country an
attractive place to invest and to do business. It needs to implement a profound
rebalancing of its economy – towards more productive activities based on
competition and high value added innovative products and services. The Greek
labour market must be reformed to mobilise and upgrade human capital, provide
more and better employment opportunities and restore competitiveness. Preserving the conditions for an effective and meaningful social
dialogue should also contribute to the successful outcome of the reform
process.

Greece has already made important progress
in substantially reducing its fiscal imbalances, reining in expenditure and
increasing tax revenue. The Second Economic Adjustment Programme provides the
right framework for this transformation to continue. It will allow Greece to
turn the page on years of unsustainable policies and declining competitiveness
through decisive steps to return the public deficit and debt to a sustainable
path and to unlock the potential of the Greek economy. The full implementation
of the programme, including through the mobilisation of existing EU support
instruments, will lay the foundations for future growth, employment and social
cohesion, rebuild confidence in Greece at home and abroad and pave the way for a
fairer society for those who have suffered the most from the crisis. The
success of this process ultimately depends on Greece. The solidarity shown by
the rest of the EU and the European institutions throughout the crisis is
expressed in very concrete terms through the considerable financial support and
expertise that is being made available to support this process of
transformation. This Communication highlights key actions to be taken in the
coming weeks and months to show that a negative situation can be turned around
and that real change can follow for the benefit of all Greek citizens.

ANNEX

In this
annex the Commission sets out in more detail the extent of the support
available from the EU level:

–
Section 1 outlines the impact of the crisis on
Greece.

–
Section 2 gives details of financial support
from the EU budget and explains how the general rules have been tailored to the
specific situation of Greece.

–
Section 3 explains how key EU policies can help
to support growth and jobs in Greece and outlines what Greece has to do to tap
into their potential. Results in all of these areas will be enhanced as the
structural reforms of the Second Economic Adjustment Programme are implemented
and start to bring change to the economy.

1.           Impact of the crisis in
Greece

Looking back, it is now clear that Greece's
strong GDP growth of an average of 4% per year in the decade before the crisis
was unsustainable. It was built on real wage increases out of step with
productivity, excessive credit growth, low real interest rates and loose fiscal
policy. Short-term performance masked the many serious weaknesses in the Greek
economy, in particular low competitiveness and productivity, an unfavourable
business environment, weak investment by the private and public sectors, a
complex and outdated tax system and an inefficient judicial system.

Dangerous imbalances built up over this
period. The demand boom coupled with weak external competitiveness led to a
rapid increase in external imbalances. Competitiveness deteriorated by 10-20
percent from 2000 to 2009. The current account deficit had climbed to 14
percent of GDP by 2008. Fiscal imbalances grew and remained persistently high,
as excessive spending was not compensated by higher revenues. The government
deficit consistently exceeded 3% of GDP since the adoption of the euro and in
2009 the deficit soared to almost 16% of GDP.

These imbalances left the country very
exposed to the global economic downturn and led to a very significant increase
in government debt, threatening the financing capacity of the Greek economy.
Government debt increased to 129 percent of GDP in 2009 from around 100 percent
in 2000. Bond spreads surged to record levels as markets lost confidence in the
ability of the Greek economy and government to pay its debts, triggering the
sovereign debt crisis.

The problems were compounded and a corrective
response was delayed by the fact that government budgetary forecasts and
official Greek statistics did not reveal the true extent of the problem. In
2009, when the scale of the problem was officially acknowledged by the
government which took office in October, the government deficit forecasts were revised
up by 6 percentage points of GDP.

Faced with the consequences of a rapid
economic adjustment, Greece is now in the midst of a very deep recession. GDP
has fallen by more than 11 percent since the beginning of the crisis and is
expected to continue to contract in 2012. Part of this contraction in economic
activity was unavoidable given the unsustainable growth prior to the crisis.
However, external demand has been weaker than expected and insufficient implementation
of structural reforms and political and social instability, together with
liquidity shortages relating to capital flight have also deepened the economic
crisis. A possible return to positive growth by 2014 depends critically on the
measures taken in the weeks and months to come.

The social impact of this crisis has been
severe. Unemployment has risen dramatically over the last two years, currently
standing at 17.7% (annual average for 2011). Recent forecasts indicate that
unemployment may rise above 20% in 2012 and 2013 before declining. Long term
unemployment has increased to 9.1% of the labour force and is unlikely to have
reached its peak. Greece has experienced one of the strongest recent increases
in the number of jobless households in Europe. Young people have been hit
especially hard. Youth unemployment stood at 48% in November 2011, twice as
high as two years previously. In the third quarter of 2011, some 45% of the
unemployed aged 15 to 24 were long-term unemployed, against 30% two years
earlier.

Prior to the crisis, Greece already
suffered from one of the highest poverty rates in the EU and the deep economic
downturn has increased levels of poverty and social and housing exclusion and
has hit disposable income. Homelessness is increasing among families with
children and young people, as well as among the rising numbers of irregular
migrants, which have further exacerbated the pressures.

2.           How is the EU supporting
Greece?

2.1.        The First and Second
Economic Adjustment Programmes – programmes for economic reform

The EU and the international community
stepped in quickly to help Greece in 2010 once the true scale of the crisis
became apparent. Support has come in the form of two ambitious economic
adjustment programmes, providing massive financial aid on condition that
comprehensive and lasting action is taken to stabilise public finances, to
restore financial stability and to implement growth-enhancing structural
reforms.

The First Economic Adjustment Programme
was launched in May 2010 and committed a loan package of € 110 billion, of
which € 73 billion was disbursed. The Second Economic Adjustment Programme was
agreed in March 2012 with a loan package of € 130 billion in addition to the
amounts not disbursed from the first programme.

The First Economic Adjustment Programme has
already brought about a very significant fiscal consolidation. Measures
implemented since the start of the crisis amount in total to over 20 percent of
GDP, one of the largest fiscal adjustments ever experienced by an EU country.
This required tough but necessary measures scaling back public sector wages and
pensions, increased taxes as well as labour market reforms, including the
introduction of sub-minima wages for the young and long-term unemployed.

Progress towards the ambitious targets of
the First Economic Adjustment Programme has been mixed although important
efforts have been made. The government deficit has been cut from almost 16
percent of GDP in 2009 to 9.25 percent of GDP last year, while the current
account deficit fell by 4 percentage points between 2009 and 2011 to just above
10% of GDP.

In this context, State aid to the banking
sector in Greece - together with the interventions of the European Central Bank
and the National Central Bank - has contributed to stabilising the Greek
economy, ensuring that the system continues to function and avoiding a
financial meltdown that would further endanger the wider economy, including
depositors.

Agreement was reached in February 2012 on a
new and ambitious Second Economic Adjustment Programme for Greece. Over
2013-2014, a further fiscal adjustment of about 5.5 percent of GDP will be needed to bring the public debt onto a more
sustainable trajectory. Fiscal adjustment will mainly involve reductions on the
expenditure side of the budget to limit the negative impact on the potential
growth of the Greek economy. Savings will primarily come from streamlining and
better targeting welfare benefits, while preserving basic social protection of
the most vulnerable.

The Second Economic Adjustment Programme
gives greater prominence to growth enhancing structural reforms. A growth
friendly tax reform – to be prepared in the coming months - will make the tax
system simpler and more efficient, reducing compliance costs for businesses and
individuals and eliminating exemptions and preferential regimes. The reform
will concern all areas of direct and indirect taxation (personal income,
corporate, VAT and property taxes, as well as employers' social contributions).
By broadening the tax bases, the reform would allow for a reduction of the high
marginal tax rates on labour . This is one of the key areas where the
Commission, working with the IMF and several Member States, is providing
technical assistance to help the Greek authorities overhaul an outdated system
and replace it by a highly performing, modern tax system.

Once the fight against tax evasion and a
fairer tax system start producing results, they will help to build broader
social acceptance of the adjustment programme. Social equity has always
featured strongly in the design of the programmes. This is reflected in reforms
of pensions, other social programmes, labour market, and health care and in the
fight against tax evasion, where particular efforts have been made to protect the
most vulnerable parts of the population.

The programme is designed to ensure debt
sustainability and to build a new Greek economy. The goal is to help Greece
regain competitiveness in the coming years and to respond quickly to the
unacceptably high levels of unemployment by cutting labour costs from the
current unsustainable levels and creating a more modern, flexible labour
market. Product and service markets will also be overhauled so as to increase
competition and price flexibility and to help ensure that lower costs feed
through into higher economic growth to the benefit of all. The programme will
also transform the business environment, improving framework conditions for
entrepreneurship and innovative projects, a prerequisite for the future dynamism
of the Greek economy.

2.2.        Support from the EU budget

Over the period from 2007 to 2013, Greece
has and will continue to receive extensive financial support from the EU
budget. EU funds are helping to drive economic renewal in many sectors of the
economy and to get citizens back into work. In total, over € 20 billion is available
from the EU structural funds: this represents a major investment fund for
growth and jobs in Greece.

Table: How EU funding is helping the Greek
economy and society

Source of funding from EU budget || Amounts available and paid

Structural and cohesion funds || € 20.2 billion allocated; € 8.4 billion already paid

Agriculture: Direct payments and market interventions Rural development || Around € 2.4 billion annually; € 17 billion over the period € 3.9 billion allocated; € 1.7 billion already paid

European Fisheries Fund || € 210 million allocated; € 70 million already paid

Research Framework Programme || Up to € 1 billion may be granted to Greek organisations following calls for proposals over the period

Competitiveness and Innovation Programme || € 14 million paid to Greek beneficiaries so far

Lifelong Learning and Youth in Action || € 188 million allocated, ≈ € 108 million paid

Solidarity and Management of Migration Flows (SOLID) || € 228 million allocated, , ≈ € 70 million paid

European Progress Microfinance Facility (Progress Microfinance) || € 8.75 million allocated for a senior loan and € 0.8 million allocated for a guarantee to a Greek microcredit provider

Action to date

While there is no shortage of EU funding
available to support growth-enhancing projects in Greece, the full benefits of
the structural funds are not yet being fully realised. This is due to a variety
of administrative bottlenecks which prevent financial support from reaching the
real economy where it is needed.

To address this, the Commission has
proposed a number of concrete steps to simplify and streamline the management
of structural funds and to accelerate their absorption so as to boost
investment. Many of these measures have already been put into practice and are
delivering results in Greece.

Box: how
has the Commission helped Greece make the most of EU structural funding?

The
Commission has made a range of proposals to simplify the implementation of
cohesion policy and to make it more flexible. These changes have removed
administrative barriers to investment and made it easier to reprogramme funds
to support the top growth priorities. Proposed in 2008, entered into force
2009.

The
Commission also proposed to increase pre-financing by raising advance
payments for programmes supported by the EU structural funds. This has
allowed money to flow to priority projects much more quickly - total advance
payments to Greece amount to around € 1.5 billion. Implemented in 2009.

The threshold
for projects requiring prior approval from the Commission was raised from € 25
million to € 50 million, making it easier to get projects off the ground while
still ensuring that the funds are spent properly. Implemented in June 2010.

Following
an earlier increase to 85%, the Commission proposed to increase the EU
co-financing rate of structural funding in Greece by a further 10%. This
change means that key projects get more support from the EU budget and will not
be delayed due to the ongoing fiscal consolidation in Greece. The combined impact
of the increased co-financing and of the top-up is very significant: around €
958 million for all structural funds. Proposed August 2011, entered into
force December 2011.

The
Commission modified EU rules to allow the co-financing of working capital
for businesses, thus providing a vital boost to SMEs. Implemented in
November 2011: this legislation now has to be fully implemented by the
Greek administration.

The
Commission is working closely with the European Investment Bank to
unblock a number of financial instruments supported by the structural funds
which aim to provide much-needed credit to Greek SMEs, including JEREMIE, the
ETEAN Entrepreneurship Fund and the European Progress Microfinance Facility.

A Guarantee
Fund for SMEs has recently been created with the support of the
Commission, backed by € 500 million from the structural funds. Once
operational, this will provide banks with up to € 1 billion in additional
liquidity to lend to SMEs. Making this Guarantee Fund operational and working
with the EIB to get liquidity flowing to the real economy is an urgent
priority. Proposed in 2011, signed in March 2012.

The Commission has proposed to create a Risk
Sharing Instrument to support large scale infrastructure projects in the
transport, energy and environmental sectors. Loans backed by the Risk Sharing
Instrument will allow existing investment projects to be completed and will
help to get new projects up and running. Critical projects such as the major
motorway concessions – which cover 1400 km of the Trans European Network – and
essential waste management projects could be supported in this way. Proposed
in October 2011; political agreement expected in May 2012.

Next steps

Working with the Greek authorities, the
Commission has compiled a list of 181 co-funded priority projects of
high investment value in important sectors. These projects total some € 11.5
billion from the EU structural funds. The aim is to produce visible results and
boost the economy, competitiveness and employment.

A dedicated Action Team is working with the
Greek government to identify opportunities to reallocate funds to support
priority projects, for example to combat youth unemployment and support
SMEs.

Several hundred important projects from
the 2000-2006 programming period remain uncompleted, with the consequent
risk that funds allocated to these projects may have to be repaid to the EU
budget. Urgent action is needed from the Greek authorities to ensure that these
projects are completed within the agreed deadlines.

Making the SME Guarantee Fund fully
operational is an urgent priority so as to get liquidity flowing to the real
economy.

More must also be done to unblock funds
that have already been disbursed to the banking system but have not yet been
on-lent to SMEs. Completing the ongoing bank recapitalisation will help in this
regard.

Preparations for using the Risk Sharing
Instrument should start as soon as possible following the formal agreement
foreseen in May. Funding will need to be provided within the existing
structural fund allocations, which should be leveraged significantly. The
Instrument will be managed by the EIB and the Commission is committed to
finalising the operating arrangements as soon as possible in the form of a
cooperation agreement with the EIB.

In addition,
Greece also benefits from the European Progress Microfinance Facility. An agreement has been recently reached for a provision of a guarantee
under Progress Microfinance to a Greek microcredit provider, the Pancretan
Cooperative Bank Ltd (PCB) which will allow PCB to offer up to € 6 million of microloans to Greek
micro-entrepreneurs (focus on financing start-ups and new borrowers). A further
senior loan up to EUR 8.75 million
is expected to allow PCB to meet the demand of numerous micro-enterprises
facing difficulties in accessing finance due to the credit crunch and the
stricter eligibility requirements applied by the Greek banking sector. With a
leverage of 1.5 times, this senior loan is expected to generate up to € 13
million microloans to micro-enterprises.

Steps have been taken to simplify
procedures in the Greek administration and to accelerate project selection
and implementation. For example, procedures for issuing archaeological permits
and environmental licenses have been streamlined and shortened in line with the
MoU.

However, much more can be done to accelerate
the absorption of structural funds and maximise their impact by removing
administrative obstacles and streamlining management, while pursuing improved
co-ordination and synergy between all related EU co-funded interventions. The
adoption of the necessary legislation to shorten and simplify procedures on
contract awards and land expropriation will speed up the implementation of EU
co-financed projects. A number of further procedural simplifications, including
speeding up the implementation of new projects and the streamlining of the
payments process, have already been agreed. The revised procedures will be
introduced from April.

2.3.        Other support for Greece
from the EU budget

Support for growth and jobs in Greece from
the EU budget is not limited to the structural funds. A wide range of other EU
programmes are playing their part in modernising the Greek economy, creating
job opportunities and improving competitiveness.

Agriculture, rural development and
fisheries

Greece receives around € 2.4 billion
annually in direct payments to farmers, plus approximately € 70 million
in market-related expenditure.

In addition, € 3.9 billion is available to
support development in rural areas. As for the structural funds, the co-financing
rate for the EAFRD has been increased by 10% on the basis of a Commission
proposal. This will result in national budget savings of around € 567 million.

By December 2011, € 1.7 billion in rural
development funding had already been paid, helping over 8,000 young men and
women to set-up as farmers in rural areas of Greece. These funds have been used
to support economic growth in rural areas through direct investments in the
agricultural sector as well as in the processing and marketing of agricultural
products. The funds also support the necessary diversification of the rural
economy, for example by promoting tourism, small businesses and environmental
protection.

The European Fisheries Fund
contributes to the creation of new jobs, mainly in aquaculture and processing.
It supports the implementation of local development strategies both in the
islands and in coastal areas of mainland Greece, in particular in remote areas
where unemployment is high. EU funds help maintain and develop jobs by
supporting diversification of economic activities and promoting the quality of
the coastal environment, for example through support for eco-tourism and the
preservation of natural and architectural heritage.

Research, innovation and
entrepreneurship

EU support to Greece in the area of research
and technological development takes the form of contributions to costs
incurred by Greek organisations participating in the Seventh Framework
programme for Research and Technological Development. A total of € 622 million
has been granted to Greek organisations during the period from 2007 to 2011,
and several hundred million more may be granted in the forthcoming calls for
proposals by 2013.

Greek organisations have been particularly
successful in the field of Information and Communication Technologies, which
accounts for around € 211 million of the funds awarded to Greek organisations.
This funding will support cutting edge research that will help build the
competitiveness of the Greek economy in technologically advanced sectors. Greek
researchers have also received around € 50 million from the 'Marie Curie'
programme. This has allowed Greek researchers to collaborate with their
counterparts elsewhere in the Union and has attracted top researchers to
Greece.

From 2007 to 2011 Greek beneficiaries have
also received over € 14 million in grants from the Entrepreneurship and
Innovation Programme. These funds have been used to
create hubs for the Enterprise Europe Network in Greece, which offer free of
charge services for businesses in Greece, and to support a variety of projects
to unlock the growth potential of eco-innovations.

The Intelligent Energy-Europe II
Programme provided Greek beneficiaries with € 10 million of grant
financing for projects removing the barriers to market uptake of renewable
energy and energy efficiency. Furthermore, Greek project promoters have access
to the financing products offered by the European Energy Efficiency Fund,
for energy efficiency and renewable energy investment projects in cities and
regions.

Education

The reform of the Greek education system
and the fight against youth unemployment have been buttressed by the
large-scale support provided by the European Social Fund as well as by
extensive assistance for Greek organisations and citizens through the European
Lifelong Learning Programme. Greek organisations will receive around €
165 million over the period and grants worth over € 94 million have already
been made to help students, teachers and trainers study and develop skills in
other countries. In 2009-10 alone, nearly 8,000 students and teachers
participated in the programme. The programme has also facilitated cooperation
between Greek education and training institutions and those in other Member
States, which will help the Greek education system to develop. Several thousand
young people have participated in projects funded by the Youth in Action
programme, helping to boost their employability and mobility. Around € 23
million will be available to Greece through this programme over the period of
which € 13.6 million has already been paid

Home affairs

The Commission has provided considerable
financial support for asylum, migration and border management systems
and to address the humanitarian consequences of the pressure generated by high
numbers of irregular migrants and asylum seekers. Greece has adopted two plans
in this area, an Action Plan on Migration and Asylum Management, identifying
concrete actions to address shortcomings in asylum and return; and a
"Schengen-Greece" Action Plan" identifying concrete actions to
address shortcomings in border management. Progress has been made, though
uneven, in all the areas concerned. It is now important to make more progress,
building on what has been achieved. Sound and efficient migration and asylum
policies in Greece are in the interest of all EU countries.

Greece is one of the main beneficiaries of
the programme for Solidarity and Management of Migration Flows (SOLID).
A total of € 228 million was allocated for the period 2010-2012 to help Greece
in the implementation of effective control at external borders, returns of
irregular migrants and the establishment of credible asylum policy. Steps are
under consideration to help improve the absorption of this funding inter alia
through an increase in the co-financing rate.

2.4.        Technical
Assistance – the Taskforce for Greece (TFGR)

In addition to financial support from the
EU budget, the EU also provides extensive technical assistance to the Greek
authorities. In July 2011, at the request of the Greek government, the Commission
set up a dedicated Taskforce to provide technical assistance to the Greek
authorities to help them implement the Economic Adjustment Programmes and to
support the modernisation of the Greek administration, as well as the
absorption of EU funds.[9]

The Taskforce supports Greece by mobilising
relevant expertise from Member States and European or international
organisations. Since its creation, the Taskforce has been involved in
setting-up and launching technical assistance work-streams. It is currently
working with the Greek authorities on over 20 technical assistance projects in
9 different policy domains. Some of these work-streams are already active; a
number are ripe for launch. In addition, exploratory discussions are underway
on a number of other projects.

During the first months of its operation,
the TFGR coordinated inter alia a total of 200 person/days of short-term
experts from national tax administrations in Athens for the provision of
technical assistance, trainings and seminars, including about 20 meetings in
different areas of tax administration. The Commission also concluded an
agreement with the IMF for reinforced TA in the area of Public Financial
Management and Revenue Administration, which contributes to the financing of
three resident advisors (2 in the field of revenue administration / 1 in the
field of public financial management) until December 2013 and about 900 days of
short term missions.

This technical assistance will focus on
several areas crucial for the success of the programme. It will promote a sound
and sustainable regulatory environment that supports enterprise-led growth and
address market failures in a proportionate and consistent manner. This
programme of technical assistance also aims to improve the ability to implement
legislative or administrative requirements effectively and equitably and to
support the reform of the tax administration and fight against tax evasion and
fraud, public financial management, and the reform of the public
administration.

The EU is also helping Greece to create an
independent and reinforced National Statistical Authority, with priority on
high quality public finance statistics through a dedicated action plan
(JOSGAP). The plan also contains support in a variety of other statistical
domains as well as in re-establishing the organisation of the National
Statistical Authority. A resident high level advisor has been appointed and
sustained technical assistance organised by experts, on a permanent basis in
public finance, and as appropriate in national accounts and other statistical
areas. These improvements, facilitated by the new governance of the National
Statistical Authority, have already yielded positive results, with three
successive deficit and debt notifications validated by Eurostat. This progress
needs to be sustained and the capacity of Greek statisticians enhanced.

3.           Harnessing key policies
to deliver growth and jobs

3.1.        Structural reforms to
support enterprise and investment

Realising the potential of Greek product
and service markets will require sustained efforts and strong political
commitment to remove a tangled web of complex legislation and ineffective
administrative structures. Overly prescriptive rules and disproportionate and
intrusive controls contribute to closed markets and sclerotic competition.
These factors help to explain why Greece consistently scores so poorly in
international rankings on the ease of doing business and corruption.

To succeed, the Greek government should
champion the cause of business and see business as a partner rather than a
source of risk. Business for its part must repay this trust through compliance
with regulatory and fiscal requirements.

There are many obvious - albeit not easy -
steps that the Greek authorities can take to improve the difficult conditions
in which Greek businesses currently operate. Some of these reforms will take
time to deliver. However, early and decisive action will send a clear signal
that Greece is committed to providing a more hospitable environment for
business.

The commitments contained in the revised
MoU constitute a good template for this reform which will require a wholesale
re-engineering of the public administration so that it helps rather than
hinders Greek business. The reform process can continue with areas that
urgently need reform – such as exports, customs and public procurement.

Export
facilitation and promotion

The Greek economy has traditionally been less
open than that of many other similarly-sized economies, importing (33% of GDP)
more than it exports (22% of GDP) and financing the gap through borrowing. It
must now take steps to rebalance its economy, and support the emergence of a
successful export sector.

Removing administrative procedures and
barriers that make it unnecessarily hard to ship goods to other countries can
be done quickly. The current organisation of export clearance and customs
formalities represents a significant hurdle for enterprises – and almost
certainly deters many smaller potential exporters from exploring overseas
markets.

Exports clearance involves a paper-chase of
unnecessary certificates and documents, required by a large number of different
Ministries and agencies. It takes on average 20 days for product shipments to
complete customs clearance in Greece compared to an EU average of 10 days. 90%
of Greek export shipments are subject to physical or documentary control
compared to an EU average of 5%.

The speedy removal of unproductive
documentary requirements and a re-engineering of customs procedures can
eliminate much of these 'pure costs'. Efforts, supported by technical
assistance, are underway to streamline and automate exports clearance and
customs formalities. This work should be completed as a matter of urgency.

These efforts should be supported by a
government strategy, and reform/coordination of all relevant Ministries /
agencies, to assist exporters wishing to broaden their sales strategy towards
overseas markets. Efforts should in particular focus on equipping new exporters
to find opportunities in promising markets.

While exports of goods and manufacturing
products is a short-term priority, linked to the fact that, traditionally,
Greece is an SME-based economy and based on transformation activities from
agricultural productions; further medium term initiatives should aim at
enhancing the export of services and improve the country's potential in the
tourism industry.

Competition and
market access

More competitive markets and less
discretionary public support will benefit Greece. For instance, more
competition in energy markets will help consumers, improve security of supply
and will help achieve environmental targets. Similarly, in the pharmaceutical
sector, more competition is needed in the off patent medicines market in order
to obtain cheaper generic products which can help keep the health budget under
control.

A targeted state aid policy can support the
recovery of the Greek economy while at the same time minimizing the burden of
aid on public resources, provided public spending is directed to areas which
enhance long-term growth and foster job creation. The Greek government has
agreed to set up a central unit for controlling and verifying state aid prior
to notification of potential aid measures to the Commission. The Commission can
provide the necessary technical assistance to the Greek authorities in order to
help them implement this objective.

Important initiatives are underway to
improve access to markets, spur competition and encourage more competitive
pricing. The full application of the 2011 law on regulated professions (law
3919/2011) can strike down many restrictive provisions on the right to or way
in which a profession could be practiced. This law is now being implemented,
and proposals to introduce 'public interest' restrictions are subject to
careful vetting. The Taskforce is coordinating technical assistance, providing
the Greek authorities with legal expertise to adapt secondary legislation which
supports the liberalisation of regulated professions, analyse the impacts of
these measures and review the organisation of certain legal professions,
notably lawyers.

A rigorous health-check of the policy
framework in a number of key sectors should be completed in the autumn. This
should pave the way for legislative action to scrap regulatory provisions that
prevent competition and price flexibility in early 2013.

Transparent and
efficient public procurement markets

Greek procurement markets are hugely
inefficient to the detriment of both public purchasers, who cannot buy the
inputs needed to deliver public services, and suppliers. The award of contracts
is slow, costly, opaque and leads to poor procurement outcomes. Procedures are
often suspended due to litigation. Public procurement is dispersed across large
numbers of small contracts organised by myriad purchasing entities that lack
the capacity to define their needs and organise procedures effectively.

The Greek government has undertaken to
implement a coherent and ambitious agenda to overhaul Greek procurement
legislation, structures and practices. This will involve simplification of the
rules, creation of a procurement oversight body, greater use of specialised
purchasing bodies and framework contracts, a wider use of new procurement
techniques, as well as the creation of a portal for all public procurement
tenders, building e-procurement solutions and increased attention to conflict
of interests. The Greek government has undertaken to publish a road-map for comprehensive
reform of its procurement legislation and administration by mid 2012. The
European Commission will support this important project though technical
assistance.

Reduce
administrative burdens and implement 'better regulation' practices

Greek legislation is often developed on a
sectoral basis, without sufficient regard for the overall impact on
stakeholders and businesses. Greek businesses cite numerous examples of
regulations or administrative practices that give rise to disproportionate
costs or restrictions. The soon-to-be-adopted better regulation law will ensure
that greater discipline is brought to new rule-making by tackling
administrative burdens that hinder commercial transactions, and applying
'better regulation' methods to new legislative initiatives.

The commitment to create a Directorate in
the Finance Ministry with overall responsibility for planning, management and
monitoring of structural reforms provides an opportunity to place business and
enterprise at the heart of a new growth strategy. This can serve as the 'nerve
centre' for the entire reform process. This reform management capacity urgently
needs to be created and nurtured.

Facilitate new
investment

Investment in new facilities or projects is
subject to delays and costs resulting from regulatory and administrative
barriers involving many authorities. Land-use planning and environmental
licensing rules are often cited as obstacles to investment. Companies operating
in the energy (and especially renewable energy), distribution and logistics and
transport sectors are the worst affected. Problems are compounded in the case
of disputes both in the administrative but also in the judicial phase due to
the suspensive effect of many legal actions, lack of staff or competence in key
services of the administration etc.

The Greek government has undertaken to
implement a number of recent laws to fast track certain licensing procedures
for certain professions and manufacturing activities, and for environmental
licensing of projects and activities. The expropriation processes, which were
subject to complex administrative and judiciary proceedings are also about to
be revised. Developments related to judicial reform will accelerate judicial
procedures and reduce / eliminate the existing case backlog.

The Greek government has also taken steps
to make it easier to set up a new company. However, there is scope to
rationalise further these procedures.

The completion of the land register will
also help to stimulate investment. € 83 million has already been provided
through the EU structural funds to create an IT infrastructure for the digital
registration of active property rights and validation of state ownership
claims, including the delimitation of forests and the digitisation of active
property rights retained on paper by the mortgage offices in urban areas. The
MoU concerning the Land register stipulates specific objectives and provides
for the establishment of a complete cadastral register and exclusively
operating cadastral offices nationwide by 2020. The Commission will support the
efforts of the Greek authorities to respect the above timetable in order to
complete the land register which provides security and can help in attracting
investment.

While a number of disparate actions are
underway or planned to remove administrative obstacles to investment, there is
scope for a systematic and concerted project to tackle these barriers.

Helping business
through tax reform

Progress in reforming the tax
administration and necessary reforms of tax legislation would also greatly
improve the business environment in Greece. The fight against tax evasion is
essential to level the playing field in favour of those economic actors who
comply with tax regulation and who suffer from unfair competition from tax and
social security contribution evaders. The Memorandum of Understanding for the
Second Economic Adjustment Programme contains a number of provisions aimed at
creating a modern, responsive and efficient tax administration.

This effort will be helped by technical assistance
provided within the framework of an IMF/EU action plan, covering nine areas
identified with the Greek authorities (audit, debt collection, dispute
resolution, large taxpayers, high wealth individuals and high income self
employed, risk and revenue analysis, taxpayer services, registration, filing
and payment enforcement, organization and management).

The simplification of tax legislation will
also play a crucial part in the success of the overall effort. In this field,
efforts can build on the decision taken under the MoU of the First Economic
Adjustment Programme to repeal the Code of Books and Records and to replace it
with substantially simpler legislation as current rules render compliance
difficult, hamper entrepreneurship and act as a strong deterrent to foreign
investment in Greece.

The streamlining of the tax administration
should also speed up due VAT refunds and would thus help in particular SMEs and
Greek exporters by removing administrative burdens on their liquidity.

Finally, in the context of ongoing efforts
to combat tax evasion, the Commission is ready to assist Greece in negotiating
a tax agreement with Switzerland which could help it recoup taxes owed by its
citizens. Such an agreement would need to be fully consistent with the relevant
requirements of EU law.

3.2.        Increasing
liquidity for SMEs

SMEs are key drivers for economic growth
and employment in Greece. They represent 99.9 % of all companies in Greece,
with micro-enterprises representing 96.5%. SMEs face serious survival problems:
6 out of 10 firms saw deterioration in their earnings in 2011 compared to 2010.
150,000 jobs were lost in SMEs in 2011. A recent survey
commissioned by the Greek association for SMEs estimated that in 2012, 60,000 small- and medium-sized firms will close their doors
and a further 240,000 jobs will be lost.

As described in section 2 of this annex, the EU structural funds provide extensive support for SMEs. More than
€ 4 billion is available to provide liquidity, working capital and guarantees
for lending to SMEs and a further € 1 billion will be made available through
the newly-created SME Guarantee Fund. Yet this funding is not always finding
its way to the real economy. The Greek authorities and Greek banks should
undertake stronger efforts to monitor the disbursement of existing schemes and
overcome together the obstacles to their effective implementation.

In particular, greater efforts are needed
to accelerate processes and remove administrative bottlenecks in the approval
of grants (notably intensive monitoring of disbursements, simplification of
contracts and approval processes, reduction of approval deadlines and number of
actors intervening in the process etc). Moreover the relevant legislation and
contracts for grants needs urgent adjustment to provide for the lending of
working capital. In addition, early implementation of the Late Payments Directive
would be of great benefit to Greek SMEs.

3.3.        Using
privatisation to improve the functioning of important sectors of the economy

Privatisation is a crucial part of the
reform process. The most compelling reason for privatisation in Greece is that assets
may be better utilised in the private sector, thus enhancing the
competitiveness of the real economy. In addition, successfully privatised and
better managed firms will act as "role models", generating additional
positive externalities.

The Hellenic Republic
Asset Development Fund (HRADF) has been set up to dispose of state-owned assets. It invites submissions of interest for state-owned assets on a
regular basis including recent tenders for real estate assets and the sale of
the gas utility. This development points in the right direction in terms of
sustainability and anchoring the privatisation process on a growing variety of
asset classes.

However, for many assets, current market
conditions and the technical barriers existing in Greece are not yet conducive
to advancing privatisation on a large scale. This uncertainty stems, inter
alia, from current difficulties in arriving at reasonable valuations of
state-owned assets. Moreover, there are a number of challenges to
be addressed by the Greek authorities, the HRADF and the European Commission.
These include, inter alia the existence of 'golden share' regulations in a
post-privatisation environment and the need for ex ante clearance of state aid
measures for state-owned enterprises. Other issues which need to be resolved
are the acceleration of state land ownership registration, the legal status of
land titles, the provision of economic information on individual property
titles or the mapping/zoning capacity through the land registry.

Assets need to be appropriately 'prepared'
prior to sale. The pre-privatisation process includes the establishment of
properly audited accounts, restructuring roadmaps, personnel changes, financial
engineering etc. Taking these factors into account suggests that the value enhancement
of assets should normally take place prior to their privatisation. In addition,
the successful ownership transfer of public assets requires the development of
a suitable regulatory framework and a clear long-term strategy. Such frameworks
define public policy priorities in order to avoid the creation of unregulated
private monopolies.

The Commission is in close contact with
both the HRADF and the Ministry of Finance, to make the privatisation programme
a success and to help design measures in compliance with state aid rules. In
this regard, the Commission has provided a guidance paper on the application of
State aid rules when restructuring and/or privatising State-owned enterprises.

In some well-defined cases and without
taking away from the priority projects mentioned in section 3.4, the EU structural
funds may be able to play a role in supporting the privatisation programme
through technical assistance or by supporting physical investment in areas such
as energy or transport to help prepare state owned assets for sale by first
improving their operations, thereby delivering better results to users and
enhancing the potential value creation of these assets.

3.4.        Growth and jobs through
boosting infrastructure investment

The lack of suitable infrastructure in
Greece is a major obstacle to growth. Well targeted infrastructure investment
can make an important contribution to growth and employment. The EU structural
funds can make an important contribution in this area. The Risk Sharing
Instrument, once agreed, will help to attract essential private investment.

Among the 181 priority projects for growth
and employment identified by the Greek authorities and the Commission in
November 2011 were numerous infrastructure projects in the field of transport,
waste management or energy. Some are in the phase of implementation while
others are in preparation to be implemented. A number are experiencing serious
blockages that need to be promptly addressed.

Their full implementation at the latest by
2015 should improve the competitiveness of the Greek economy, have a positive
impact on other sectors like tourism and improve quality of life. The resources
mobilised through the structural funds should be complemented by additional
public resources and private investments. Obstacles to the full implementation
of these projects should be removed.

In terms of size and impact, the most
important projects are five motorway concessions (1,400 km of the
Trans-European-Network) which currently account for €3.2 billion of national
and EU expenditure. If completed, they may represent up to an estimated 30,000
direct and indirect jobs and inject a much-needed boost to investment and
employment. Four of these projects are currently blocked and need to be
restarted without further delay. The implementation of these networks can
contribute to the modernisation of infrastructures which remains a crucial
factor for boosting the development of the country. It will also strengthen the
position of Greece in South-Eastern Europe by completing the main corridors
linking the country with other Member States and candidate and potential
candidate countries. It will also contribute to better road safety.

Transport
networks

More than in other Member States, the
economy and living standards in Greece depend on the quality and efficiency of
port services and maritime connections. Ports handle
more than 85% of the external freight trade of Greece and ensure the security
of supply of the islands. Passenger traffic through Greek ports accounts for 22%
of the total number of sea passengers in the whole EU.
Greek ports also have the potential to capture a large part of the
intercontinental trade flows to Eastern Europe.

Greek ports have three main problems: poor
equipment and low capital expenditure on infrastructure; very poor connections
with the hinterland (railways, road) and administrative and operational
deficiencies. Often, port developments have been made on a local or regional
basis, without considering strategic priorities at the national level.

The tourism sector accounts for 15% of the
Greek economy – when the indirect impact on other economic sectors is taken
into account - and relies fundamentally on affordable and efficient travel
connections. Air connections to Greece, particularly to regional airports,
suffer from a lack of modern Air Traffic Management, inefficient airport
operations (limited operation time, etc) and costly airport fees. The lack of adequate infrastructure – for example marinas and cruise
embarkation points – also negatively affects the quality of tourism.

The new TEN-T strategy includes the ports
of Igoumenitsa, Patras, Piraeus and Thessaloniki in the core European transport
network. The crucial rail connection between Piraeus and Thessaloniki and
the motorway of the seas between Athens/Piraeus and Limassol are part of one of
the transport corridors included in the proposed Connecting Europe Facility.

The transport system in Greece could be
modernised by:

–
Opening passenger transport services by coach
and taxis by removing remaining restrictions.

–
Establishing single window administrative
services for vessel related reporting. Ships are now subject to a number of
obligatory formalities which cause delays for cargo and passengers. These
formalities also absorb resources from the shipping industry and the state.

–
Providing a suitable governance model and a
framework for privatisation of ports and airports that avoids the creation of
private monopolies and does not discriminate between users and imposes full
transparency of accounts and adequate supervision by public authorities. New
owners or concessionaires should be required to respect the commitments taken
in relation to projects that have been granted EU support.

Rail operations could be improved by:

–
Leasing passenger rolling stock that is not
needed by the incumbent;

–
Creating a framework for EU passenger operators
to start new business in fair competition with the incumbent;

–
Reviewing border crossing procedures and
agreements to facilitate freight flows on Corridor X and abandon border
closures.

The Commission can organise technical
assistance to help the Greek authorities to adapt to best practice in
cooperation with their counterparts in other Member States. It can also provide technical assistance for Air Traffic Management and possibly
financing for modern equipment.

Shipping

Shipping has traditionally been a main
pillar of the Greek economy. A combination of factors (low freight rates,
abolition of a dedicated Ministry) have influenced shipowners' decisions to
flag-out their vessels. If this trend continues, apart from employment on-board
and tax revenues, it may also affect employment in shore-based shipping
companies. The economic crisis has affected the Greek coastal shipping
industry. Companies are operating at marginal or no profit, even where they
have public service contracts. In some cases this has affected the network
coverage and quality of services especially (but not exclusively) towards
smaller islands which see their growth opportunities undermined. In order to
make full use of its maritime potential and exploit the opportunities for
maritime growth, Greece needs to develop a more appropriate administrative
structure in the shipping industry overall.

ICT and broadband infrastructure

Greece is still lagging behind the EU
average in broadband penetration, mainly due to the lack of development of
e-services. Efforts should be concentrated on the completion of projects of
national importance in order to extend the broadband network to more towns and
to provide high-speed broadband connections (optical fibre) to additional
public buildings to deliver savings on public telecom expenditure, and to
citizens.

An increase in broadband penetration
depends on broadening the offer of e-services. Emphasis should be given to sectors
highlighted in the MoU. The use of ICT is expected to bring considerable
benefits both to citizens and to public finances in areas such as healthcare
(e.g. e-prescription, interoperability between Ministry of Health and public
hospitals), the land registry (e.g. further digitisation of the real property
rights) and public procurement (e.g. e-procurement). In the corporate sector,
the opportunities afforded by digital services should be exploited to the full,
for example by helping SMEs to take advantage of the internet to access
international markets.

3.5.        Sources
of future growth

3.5.1.     Harnessing the potential of
the energy sector for growth and jobs

Energy policy in Greece has the potential
to make a significant contribution to the country's economic recovery. In
addition, the development of energy infrastructures interconnected with the
rest of the region will help to boost the competitiveness and the productivity
of the energy sector in Greece.

In the energy area Greece faces huge
challenges. It is highly dependent on fossil fuels (lignite accounts for the
bulk of its electricity generation). Most islands remain isolated and are
reliant on diesel generators or oil-fired plants. The overall efficiency of
electricity production is amongst the lowest in Europe. The energy sector is
dominated by a few state-owned enterprises with low productivity and still to
be unbundled. Industrial customers complain that their competitiveness is
jeopardised by having to pay some of the highest energy prices in Europe.
Especially in the building sector there is considerable scope to improve energy
efficiency.

Greece has the opportunity to be at the
vanguard of sustainable energy production. Few European countries benefit from
such a variety of renewable energy sources: abundant wind and sunshine but also
hydro, geothermal and biomass offer the potential of moving to the forefront of
green electricity production. Greece’s strategic geographic position as well as
the exploration of off-shore hydrocarbon reserves provides the opportunity of
developing the country into a gas hub. The implementation of EU liberalisation
measures and privatisation efforts should lead to a more competitive industry.

In order to achieve this potential, for the
benefit of Greek energy consumers but also in support of EU targets on supply
security and climate, the following actions will need to be pursued.

The privatisation of the gas and
electricity sector provides an opportunity to enhance their efficiency. The
privatisation process must be finalised swiftly whilst at the same time
creating a framework for competitive markets to develop in the near future.
With a well-functioning framework, including the proper unbundling and the full
opening up of both the electricity and gas markets, new investment
opportunities arise for large and small energy producers. This will ensure that
the Greek energy sector will become a dynamic, competitive sector, yielding
economic benefits to all other sectors of the economy.

Electricity and gas grids need to be
modernised. Improvements in gas storage and pipeline networks will enable
Greece to exploit its strategic geographic position providing a gateway to the
European gas market. Electricity grid interconnection of the larger islands
with the mainland and between smaller islands is a prerequisite for the
large-scale deployment of wind and photovoltaic installations. Reinforcement of
the mainland transmission grid is also essential to integrate renewable energy
installations for the domestic market and to enable massive electricity exports
to the rest of Europe. Greece is a natural passage for much of the gas
originating in the Caspian and Eastern Mediterranean basins.

The TEN-E programme and the new Connecting
Europe Facility can play a major role in focusing and funding efforts in this
area. Clear signals that the energy sector is an open and functional sector of
the Greek economy, and access to its infrastructure is based on
non-discriminatory network access, will also help attract private finance for
such investment.

The widespread deployment of renewable
energy sources requires a comprehensive reform of the support scheme. To
attract the necessary investment the framework will have to adhere to the
principles of cost-efficiency and financial stability. To exploit its
comparative advantage Greece is placing special emphasis on the development of
solar and wind resources. With investor confidence restored, a competitive
renewable energy sector can develop across the value chain. The contribution of
the sector to economic growth could be additionally increased by the
HELIOS initiative. It should start by launching a few large-scale photovoltaic
installations, initially for domestic consumption, but as the project scales up
and as transmission capacity becomes available exports to the rest of Europe
should be pursued, helping other Member States to achieve their 2020 goals
cost-efficiently.

Public and private building renovation
is critical to achieving energy efficiency goals but also creates jobs. The
funding available for households under the “Exoikonomo” scheme is not used to
its full effect and should be made available to SMEs. Additional instruments
are required to support efforts in public buildings, urban transport and local
energy infrastructure. In this respect, the proposed risk-sharing instrument
could help de-risk the investments in the building retrofits sector and as such
boost jobs and local growth.

3.5.2.     Promoting sustainable
growth - environment and waste management

Solid waste management can make a significant
contribution to the quality of life of Greek citizens and in the development of
economic activity. Full implementation of the existing legislation could create
thousands of jobs in Greece and increase the annual turnover of the waste
sector substantially. Progress with solid waste management will also facilitate
compliance with EU environmental legislation, and avoid potentially costly
infringement procedures.

Even though Greece has already benefited
massively from the EU structural funds for its basic infrastructure in this
sector, it is still lagging behind, in particular as regards solid and waste
water management. Perhaps more than in any other sector, there is an urgent
need to work towards respecting the EU acquis in order to create the necessary
infrastructure in line with EU standards.

In order to comply with its obligations
under EU law and with judgements of the European Court of Justice, Greece needs
to urgently:

(a)
build waste facilities (i.e.
mechanical-biological treatment plants, landfills) and close and rehabilitate
all remaining illegal and uncontrolled dumping sites (as regards the
rehabilitation process, co-financing is available); and

(b)
build several UWWT plants (with special
attention needing to be paid to the Attica region, but also other major urban
agglomerations like Thessaloniki, Patras, etc).

In addition, full compliance with two Court
rulings (one concerning the construction of an urban waste water treatment
plant in Western Attica, in the area of Thriassio Pedio, a project which is
co-financed by the EU structural funds and one concerning the absence of
collection and treatment of Urban Waste Water in five Eastern Attica
agglomerations) must be ensured.

Legal clarity on producer responsibility
(currently absent from Greek legislation) can provide Greece with the
instruments to collect the resources needed for implementing schemes on
separate collection and recycling. Progress in establishing land-fill taxes or
pricing can also contribute to enhance resource efficiency as would the
application of incentive systems to favour prevention and participation to
separate collection ('pay-as-you-throw' schemes).

As mentioned above, the new EIA
(environmental impact assessment) legislation for Greece should lead to
streamlined and more effective procedures. A new law on environmental permits
was included in the MoU and the Medium-Term Fiscal Strategy Framework. This law
was adopted in September 2011 and implementing decisions will be adopted in
2012 (the first was adopted in January 2012 and is related to the
categorisation of projects to be subject to an environmental
assessment/permit). The new law is expected to reduce the time needed for
issuing permits, mainly because it introduces specific deadlines for each of
the administrative steps and milestones of the authorisation process. This
practice is based on experience in other Member States.

The EAFRD supports the sustainable
development of rural areas across the whole Greek territory through a variety
of agri-environmental measures. € 720 million has already been disbursed for
this purpose.

3.5.3.     Building an innovative,
knowledge-based economy

In the last decade, R&D intensity in
Greece has stagnated at 0.6% of GDP (2007) and is marked by a very low private
R&D intensity, which increased slightly from 0.15% in 2000 to 0.17% in
2007, according to the latest official data available. In absolute terms,
however, overall R&D investment grew significantly during the years
2001-2007.

The main engine behind the Greek research
and innovation system is EU cohesion policy. For the current programming period
2007-2013and in addition to the main national operational programme, several
regional programmes include research, innovation and business competitiveness
support measures. The core programme "Competitiveness and
Entrepreneurship" has a total budget of € 1.5 million of which EU cohesion
policy provides € 1.3 million. The Operational Programme has 3 strategic
objectives for the period 2007-2013, with Research and Innovation as one of the
major intervention areas. However, the take-up of EU structural funds for
research is low and the incentives for the use of the funds in the private
sector, in order to encourage the transformation of the economy, are currently
insufficient.

The private sector has a low share in total
R&D expenditure, reflecting the weak demand for research-based knowledge
from the business sector. Also, the low absorptive capacity of the business
sector is both a cause and effect of the low demand for knowledge. Restricted
access to capital, especially for new firms, due to the reluctance of the
financial system to finance innovation and risky investments is among the
factors hindering mobilisation of resources for R&D.

Based on the Innovation Union Scoreboard
2011, Greece ranks among the moderate innovators
and its performance is below average. Its relative strengths are in human
resources, linkages and entrepreneurship and innovators and relative weaknesses
are in finance and support, firm investments and intellectual assets.
High growth is observed for Community designs while a relatively strong decline
is observed for non-R&D innovation expenditure and knowledge-intensive
services exports.

Technological collaboration as expressed
through co-patenting applications is very modest when compared with the EU
average. More than 65% of the total patent applications are made by a single
inventor and thus less than 35% in collaboration. From these, 7.4% are
co-patents involving a non-EU country, a low figure evidencing the need for a
higher degree of collaboration and internationalisation of the research and
innovation activities.

Looking ahead, the main challenges are to:

–
Ensure adequate and effective R&I public
investment and increase the efficiency of the use of EU structural funds, through
focussing on a range of clusters and technology platforms.

–
Finalise the development of an integrated legal
framework for R&D performers and implement it. This should include the
setting of a Europe 2020 headline target for R&D investment, associated with
multi-annual budgetary programming;

–
Ensure a much more effective and
growth-enhancing use of structural funds by promoting private investment in
R&I in support of a smart specialisation strategy.

3.5.4.     Exploiting Greece's
potential as a tourist and cultural destination

Greece has a comparative advantage in
culture and tourism, both of which bring important growth and job-creating
potential. Monuments and archaeological sites are poles around which economic
activities can now be developed. It is important to design rapidly a strategy
to explore and develop more synergies among culture, tourism, entrepreneurship,
education, medical and gastronomy sectors and to invest in new technology (use
of ICT to promote Greece cultural treasures) with a view to improving
value-for-money and positioning Greece as a high-quality tourist destination
while focusing on environmentally-friendly tourism.

Tourism is one of the key sectors in the
Greek economy, both in terms of economic growth and employment. The direct
contribution of the Travel and Tourism industry to the country's GDP was €12.6
billion in 2011 (5.6% of total GDP, the figure for EU is 2.9%). Travel and
Tourism supported directly 332,000 jobs or 8.0% of the country's total
employment (3.2% in the EU), and 768,000 jobs or 18.4% of total employment if
indirectly supported jobs are added (8.4% in the EU). Yet Greece has had
limited success in attracting visitors from emerging markets. The tourist
season is concentrated in the summer months and tourists spend relatively less
money in Greece than tourists visiting competing destinations.

The Greek tourist industry can be developed
in a variety of ways, including:

–
Increasing demand for tourism: The primary objectives of actions taken in
this field focus on extending the tourism season, empowering people to go on
holiday as well as increasing the number of tourists (mainly from outside the
EU). With a mild climate year round, Greece is very well placed to benefit from
receiving tourists outside the core season. The main initiatives aiming at
boosting tourism demand in the EU include the Calypso social tourism
initiative, 50,000 tourists or low season initiative (aimed at combating
seasonality) and a web portal to attract visitors from outside of the EU.

–
Raising awareness and promoting destinations: The main actions include European
Destinations of Excellence (EDEN), which promotes sustainable tourism
development of small emerging destinations, development of thematic cultural
routes (i.e. olive tree route) and raising awareness of cycling tourism in the
EU.

–
Providing a platform for exchange of best
practices: The
Tourism Advisory Committee (TAC) constitutes a discussion forum for tourism
policy representatives from EU Member States. Greece can benefit from best
practices of other Member States

–
The extension of the tourism season, the
diversification of tourist products and the improvement of the quality of the
services offered, to attract higher income tourists,
should be the main drivers of development of the Greek tourism industry.

3.6.        Strengthening public
administration and the judicial system

3.6.1.     A
modern public administration for a new economy

The Greek public administration currently
lacks the stable, coordinated and empowered structures that would provide the
necessary ownership and accountability for the reforms set out in the Second
Economic Adjustment Programme and described in this Communication. It is caught
up in a very complex legal framework, which has detrimental impacts on all
aspects of the public service and the economy. The approach of the
administration is too focused on producing laws rather than on their
implementation.

The EU is
supporting the administrative reform agenda in Greece among others through a European
Social Fund programme with a budget of € 505 million. The main objective of this
programme is to enhance the quality of public policies through the modernisation
of the regulatory framework and the reform of structures and procedures. The
planned operations include among others flagship projects for the
establishment, organisation and operation of "Units for Planning and
Budgeting" in line ministries, the reorganisation of the tax and customs
administration, the reorganisation of the General Accounting Office of Greece
and the standardisation of the implementing procedures of the New Civil
Servants’ Code.

To ensure that Greece has a modern
administration capable of supporting a revitalised and dynamic economy there is
a need to improve the effectiveness, accountability and integrity of the administration
and to simplify the administration's decision making processes. The MoU provides for the modernisation of the public administration
by December 2012, by setting up, inter alia, a high-level transformation
steering group (created in February 2012), chaired by the Prime Minister, which
will supervise the implementation of administrative reforms. In January 2012,
France and Greece, in collaboration with the Taskforce, signed a memorandum of
understanding paving the way for the implementation of the central
administrative reform. The German government has started to provide technical
assistance for administrative reform at the local and regional levels.

A strong centre of decision making with
real inter-ministerial coordination is required - under the MoU of the Second
Economic Adjustment Programme this has to be delivered by May 2012. It will
provide better guidance and a more strategic vision across the central
government by improving and speeding coordination among Ministries, breaking
the currently vertical and intra-Ministry attitude, and by arbitrating on
ongoing inter-ministerial issues. This structure will be crucial for the
implementation of all reform processes towards growth and jobs and of the
decisions issued by the High Level transformation steering group.

Greece also needs to create the necessary
structures in each line Ministry for effective monitoring of administrative
procedures (including expenditure, internal control and audit, Human Resource
Management and ICT) with a view to applying common rules and harmonised
procedures before end 2012.

All the principles of coherence and
efficiency underlying the reform of the administration at the central level
will have to be replicated at regional/local level with a view to supporting
growth and jobs at all levels of the economy. In April 2012, Germany and
Greece, in collaboration with the Taskforce, signed a memorandum of
understanding, including a roadmap to implement reform in areas such as as
improving the supervision and effectiveness of municipalities and regions in
urban planning, rural development and strengthening the capacity of local
government to effectively plan, design, implement and monitor investment
programmes.

In order to make sure that these funds can
be used as effectively as possible, and in order to increase transparency of
the economy, fighting fraud and corruption is essential. Greece, with the
support of the Commission should prepare an antifraud strategy covering all
aspects of public revenues and expenditures, and including the protection of
the financial interests of the EU. This will help restoring confidence and
establishing a fair and equal level playing field. At the same time, an
effective fight against fraud and corruption, including the fight against
smuggling at the borders, will contribute to stabilising Greece's revenue
further.

Government use of IT in Greece is currently
very low.. Improving the situation
would help to speed-up procedures, streamline processes and increase
transparency for the administration and business. The Greek authorities have
started the implementation of projects in several major e-government fields,
namely Enterprise Resource Planning (ERP) (Finance and HRM), Citizen
Relationship Management and e-Procurement. The Greek Authorities intend to
deploy these projects in the priority sectors of finance, administrative reform
and health. The deployment of e-Government will have to be done in coordination
and as a complement to the reform of the administrative procedures.

The restoration of the credibility of
official statistics is an essential part of the social contract that will allow
the stabilisation of Greece. While significant progress has been made since
2009, statistics remain a divisive issue in Greek society. The reestablishment
of confidence in statistics will require the full implementation of the action
plan included in the recent Commitment on Confidence in statistics, signed on
29 February by the Greek government, the Commission and approved by the
Parliament. This implies the review of the Statistical law and the provision of
the necessary financial and human resources to the National Statistical
Authority.

3.6.2.     Restoring confidence in the
judicial system

A dysfunctional judiciary is an obstacle to
economic development and undermines Greece's social fabric. It is a system that
allows debtors - including unwilling tax payers - of all kinds to abscond at
will, knowing that none but the most determined of creditors will pursue them
through court and enforcement action. A backlog of hundreds of thousands of
cases in the courts and long delays in obtaining a hearing date are the most
visible signs of the malfunctioning of the Greek justice system. This has led
to a general feeling of ‘injustice’ amongst Greek people. The Greek authorities
have shown a clear willingness to change this situation and to make important
efforts to create an efficient and citizen- and business-friendly judiciary. A
comprehensive and much-needed review of the judicial system is underway. These
reforms are designed to re-establish trust in the functioning of the Greek
State and its institutions and support economic recovery.

The Greek government has committed to meet
a series of targets for the elimination of the backlog of tax cases before the
administrative courts and for the reduction of the backlog in civil cases. It
has also undertaken to promote alternative dispute resolution methods to
free-up resources in courts and help to develop a non litigious culture and
find more economic ways of resolving problems and conflicts. The Commission is
working with the Greek authorities and stakeholders in this area.

As long as potential investors do not
believe that the Greek judiciary is efficient and fair and will uphold their
rights, they are unlikely to take important investment decisions. Taking
further measures to find efficient ways of recovering debt owed to the State
and streamlining the legal framework for transactions in immovable property
will boost investor confidence and at the same time increase state revenue.
Building a modern e-justice system will make justice swifter and more
transparent with substantial gains in time and efficiency likely to be felt by
users of the justice system and improved performance of judicial officials.
Rationalisation and reorganisation of the magistrates’ courts will not only
lead to cost savings but also bring justice closer to the citizen by
establishing these courts as a one-stop gateway to justice for most of the
common justice issues with which citizens are confronted (e.g. authentication
of documents, family law and inheritance matters etc.).

A modern insolvency regime is key to
facilitating both the orderly market exit of inefficient companies and the
restructuring of viable companies. Insolvency reform is one of the areas for
close attention and the Commission stands ready to work with the Greek
government in this regard.

3.7.        Tackling
the social impact of the crisis

Prior to the crisis, Greece already
suffered from one of the highest poverty rates in the EU. The overall at-risk-of-poverty
or social exclusion rate for the total population stood at 27.7 % in 2010,
higher than the EU average of 23.5%. The in-work poverty rate in Greece was the
second highest in the EU in 2010. The deep economic downturn has increased
levels of poverty and social and housing exclusion and has hit disposable
income (down 9.3% in 2010). Homelessness is increasing among families with
children and young people, as well as among the rising numbers of irregular
migrants, which have further exacerbated the pressures. Urgent action is needed
to address these problems.

The Commission is working with the Greek
authorities to tackle the unacceptably high levels of youth unemployment. In
order to focus financial support where it is needed most, funding could be
redirected to boost measures supporting youth employment. These measures
currently include actions supporting the acquisition of first work experience;
subsidising short-term job placements in the private section or in local
communities; expanding apprenticeship or traineeship opportunities for students
and graduates; promoting re-skilling or up-skilling; boosting entrepreneurship,
including social entrepreneurship; and study periods abroad.

An additional €200-250 million could be
available for reallocation in this way, potentially leading to the creation of
thousands of jobs.

There are a number of other short-term
priorities where immediate action is necessary. The European Social Fund can
help to improve the functioning of the labour market, strengthen the links
between education/training and the labour market, enhance human capital and
tackle widespread undeclared labour. Public employment services should be
strengthened to offer better services to the rising number of unemployed. More
effective and targeted investment in active labour market policies is needed
and a more systematic evaluation of the effectiveness of active labour market
measures should be undertaken. Priority should be given to the most vulnerable
groups (low-skilled unemployed, early school leavers, older workers, long-term
unemployed, migrants and minorities, etc).

EU structural funds could also be mobilised
to set up and finance an integrated urban regeneration strategy to fight
against poverty and social exclusion.

In order to prevent social marginalisation
and provide members of vulnerable groups with the skills required for entering
or re-entering the labour market, the national lifelong learning strategy
announced in 2011 should be implemented. This should include widening the access
to education and training to non traditional learners by involving regional and
local communities as well as higher education institutions.

Improved access to employment, notably
through the increased financial support to entrepreneurship (with focus on new
innovative products and services) and the wider use of wage subsidies for
short-term recruitment especially focused on disadvantaged groups, should be
considered to provide temporary economic relief and an opportunity to those
most affected by the crisis to remain in the labour market. The development of
the social economy will also create new employment opportunities led by social
entrepreneurs and innovators in key sectors such as social care, services for
the unemployed, local and community development, food production and
distribution and energy efficiency.

3.8.        Managing
migration and asylum

Greek membership of the Schengen area
provides freedom of movement for Greek citizens to other countries and for
travellers to Greece. This underpins travel, tourism and business relations,
which are beneficial to the economy. However, the strong, irregular migratory
pressures faced by Greece in recent years, coupled with the current economic
crisis, is having a negative social and economic impact, and endangering the
smooth functioning of the Schengen area. The humanitarian situation faced on
occasions by migrants and asylum seekers is tarnishing the image of Greece and
is not in line with its long standing human rights and hospitable tradition.

In order to tackle this issue, Greece needs
to continue to reform its asylum and migration policies and to efficiently
manage its external borders. The frameworks for action, namely the Action Plan
on Migration and Asylum Management and the Action Plan "Schengen-Greece"
are already in place. They must now be implemented including through the
adoption and implementation of standards in the field of migration and asylum
which are in conformity with existing EU law and Greece's international
obligations. Greece needs to improve the humanitarian situation of migrants and
asylum seekers in the Greek/Turkish border region and in Athens and to enhance
reception capacity for both irregular migrants and asylum seekers, with a
particular focus on vulnerable groups. It should also build capacity in the
field of voluntary return, in full respect of fundamental rights. There is
considerable untapped potential, as many migrants find themselves trapped in
Greece, with no real opportunities for integration and would be interested to return
to their countries of origin.

The EU has provided significant financial
support for asylum, migration and border management systems and to address the
humanitarian consequences of the pressure generated by high numbers of
irregular migrants and asylum seekers. Greece is one of the main beneficiaries
of the Solidarity and Management of Migration Flows (SOLID) programme.

[1]               The
full text of the Programme can be found at: http://ec.europa.eu/economy\_finance/publications/occasional\_paper/2012/pdf/ocp94\_en.pdf

[2]               This
Communication does not modify or add to the formal decisions regarding Greece
adopted within the applicable Treaty procedures of economic policy
coordination.

[3]               For more information on EU funding and liquidity for
SMEs, see sections 2.2 and 3.2 in annex.

[4]               Foundation of Economic and Industrial Research,
Quarterly Bulletin 2/10, 2010

[5]               For more information on these areas, see section 3 in
annex.

[6]               Source: Trading on Time: World Bank Policy Research
Working Paper 3909

[7]               For more information on the reform of public
administration, see section 3.6 in annex.

[8]               For more information on EU funding, see sections 2.2
and 2.3 in annex.

[9]               MEX/11/0720 'Commission appoints Task Force for
Greece'

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