L 37/36
EN
Official Journal of the European Union
18.2.2022
recovery by making use of the Recovery and Resilience Facility to finance additional investment.
As recommended by the Council, Greece also plans to preserve nationally financed investment.
Commission noted that, given the level of Greece’s government debt and high sustainability challenges in the medium term before the outbreak of the COVID-19 pandemic, when taking supportive budgetary measures, it is important to preserve prudent fiscal policy in order to ensure sustainable public finances in the medium term.
The Commission also recalled the importance of the composition of public finances and the quality of budgetary measures.
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Since the onset of the pandemic, Greece maintained its presence on the bond markets and over-executed its funding plan in 2021, raising €14 billion on the open market.
Greece’s sovereign credit rating has continued to improve in 2021 despite the pandemic, further narrowing the gap to investment grade.
The current favourable financing conditions are supported by liquidity measures agreed at European level, including the European Central Bank’s Pandemic Emergency Purchase Programme.
On the basis of the debt sustainability analysis presented in the 12th enhanced surveillance report, the government gross financing needs are expected to remain elevated in the short term mainly due to the high primary deficit projected for 2021 and 2022, and the recording of the financial flows under the Loan Facility presented in the Recovery and Resilience Plan, although the latter additional financing need is expected to be covered by the disbursement of the Recovery and Resilience Facility loan.
In the following years, financing needs are expected to be moderate and remain below 15 % of GDP until 2030.
Greece continues to maintain a high cash buffer, which protects Greece against short-term fluctuations.
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The Greek banking sector has become more stable and resilient to shocks since the end of the European Stability Mechanism programme, but legacy risks and significant underlying vulnerabilities remain, reinforced by the negative impact of the Coronavirus outbreak.
Deposits have continued to grow steadily and banks maintain adequate liquidity, taking advantage of accommodative monetary policy conditions.
The ratio of non-performing loans in the banking sector has strongly declined to 15 % in September 2021, down from 40,6 % in December 2019 (10), mostly due to a series of securitisations supported by the ‘Hercules’ asset protection scheme.
Further planned transactions under the scheme are expected to continue supporting Greek banks in their effort to reach single digit ratios of non-performing loans in 2022, which would however still remain above the EU average.
The risk of a significant adverse impact on asset quality following the expiry of the debt moratoria measures has not materialized so far.
However, downside risks persist and could materialise in 2022 following the lifting of remaining state support programmes.
The debt repayment capacity of both households and non-financial corporations remains low, while the underdeveloped capital market limits firms’ access to non-debt financing.
The securitisations of non-performing loans result in increased provisioning needs, which weigh on banks’ profitability and their capital positions in the short-term, but will allow banks to reduce their cost-of-risk going forward and free up space in their balance sheets for new lending.
The sovereign-bank nexus was reinforced during the pandemic crisis and overall quality of banks’ capital remains low but successful capital enhancing actions took place in 2021.
The authorities remain committed to relevant financial sector reforms, such as the effective functioning of the new insolvency framework, which entered into force in June 2021 and is now supported by the relevant electronic infrastructure.
The recent adoption of an extensive revision of the Code of Civil Procedure is also expected to increase the efficiency of enforcement proceedings, including the conduct of e–auctions, while work is ongoing to enhance the functionality of the e-auctions platform and complete the clearance of the backlog of household insolvency cases and called state guarantees.
The impact of these reforms will depend on the timeliness and effectiveness of their implementation but it is positive that the debt enforcement process has restarted, following the pandemic-related disruptions to court proceedings.
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In addition, the authorities have adopted a number of other key reforms under enhanced surveillance that are relevant for addressing the root causes of Greece’s economic difficulties, notwithstanding delays in certain areas, in part owing to challenges induced by the ongoing pandemic and, more recently, the wildfires in summer 2021.
Notably, the authorities adopted a wage reform for the Public Revenue Authority, allowing it to attract and retain qualified staff, or public financial management reforms improving the accounting and the cash monitoring systems.
The authorities further sizeably increased the share of centralised procurement for health care purchases and continue well with collecting back from health care providers any excess spending above the legislated spending limits.
They also completed the rollout of the Social Solidarity Income scheme and undertaken a review of the system of subsidies for local public transport.
These measures are expected to increase the efficiency of public spending and revenue collection, thus contributing to the reduction of the high debt ratio going forward.
The labour market is expected to benefit from the actions undertaken to tackle undeclared work and an orderly implementation of the minimum wage updates.
Furthermore, the government completed an energy sector reform and adopted investment licensing legislation to simplify relevant procedures.
The authorities also introduced
(10) Source: Bank of Greece, measured at solo level.