The Second Economic Adjustment Programme for Greece – Fourth

304 Pages·2014·4.34 MB·English

ISSN 1725-3209 (online)
ISSN 1725-3195 (print)
EUROPEAN
ECONOMY
Occasional Papers 192 | April 2014
The Second Economic Adjustment Programme for Greece
Fourth Review – April 2014
Economic and
Financial Affairs
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KC-AH-14-192-EN-N (online) KC-AH-14-192-EN-C (print)
ISBN 978-92-79-35376-5 (online) ISBN 978-92-79-36119-7 (print)
doi:10.2765/74796 (online) doi:10.2765/77940 (print)

© European Union, 2014
Reproduction is authorised provided the source is acknowledged.
European Commission
Directorate-General for Economic and Financial Affairs

The Second Economic Adjustment
Programme for Greece
Fourth Review – April 2014

EUROPEAN ECONOMY Occasional Papers 192

OUTLINE OF THE REPORT

EXECUTIVE SUMMARY 1
1. INTRODUCTION 9
2. MACROECONOMIC AND FINANCIAL DEVELOPMENTS 11
2.1 Macroeconomic Developments 11
2.2 Financial Market Developments 17
3. PROGRAMME IMPLEMENTATION 21
3.1. Fiscal Developments and Policy Outlook 21
3.1.1. Fiscal outcome for 2013 21
3.1.2. Fiscal outlook in 2014 24
3.1.3. MTFS and Fiscal Outlook for 2015-2017 25
3.2. Structural reforms with budgetary relevance 26
3.2.1. Privatising to boost efficiency in the economy and reduce public debt 26
3.2.2. Tax policy reform 30
3.2.3. Revenue administration reforms 33
3.2.4. Anti-Corruption Strategy 35
3.2.5. Public Financial Management Reform 35
3.2.6. Making the public administration more efficient and effective 38
3.2.7. Modernising the healthcare system 39
3.2.8. Reforming the pensions system 43
3.2.9. Upgrading the education system 44
3.2.10. Research, development and innovation 45
3.3. Stabilising the financial system 45
3.4. Strengthening labour market institutions, promoting employment and
developping social safety nets 47
3.4.1. Labour market reforms 47
3.4.2. Social safety nets 50
3.5. Creating favourable conditions for economic activity 51
3.5.1. Promoting an efficient and competitive business environment 52
3.5.2. The Retail Sector 55
3.5.3. Regulated professions and professional qualifications 55
3.5.4. Reforming the judicial system to support economic activity 59
3.6. Efficient Network Industries 60
3.6.1. Energy policy 60
3.6.2. Electronic communications 62
3.6.3. Transport 63
3.7. Increasing the impact of structural and cohesion funds 63
3.8. Agriculture and Rural development 64
3.9. Technical Assistance 65
4. Debt sustainability analysis and programme financing 67
4.1. Debt Sustainabilty Analysis 67
4.1.1. Baseline and stress scenarios 67
4.2. Programme Financing 69
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Annex 1: Assessment of compliance with the Memorandum of
Understanding on Specific Policy Conditionality 75
Annex 2: Macroeconomic forecast 133
Annex 3: Updated programme documents 139
Letter of Intent 141
Memorandum of Understanding
a) Memorandum of Economic and Financial Policies 145
b) Memorandum of Understanding on Specific Economic Policy conditionality 181
c) Technical Memorandum of Understanding 265

LIST OF BOXES
Box 1. The documents for a comprehensive adjustment strategy 9
Box 2. Success stories of the Economic Adjustment Programme 10
Box 3. Competitiveness and Greek export performance 15
Box 4. Public sector arrears to the private sector in Greece 23
Box 5. Measures to increase compliance in social security collection 25
Box 6. Closing the VAT Gap: the need for VAT reform in Greece 31
Box 7. The new ENFIA Property Tax 32
Box 8. The 2013 instalment schemes for tax and social security debt 34
Box 9. Achievements in Public Finance Management and in the fiscal institutional framework since the
beginning of the programme 36
Box 10. Rationalising the social health insurance system and ensuring the financial stability of EOPYY 42
Box 11. Measuring labour market reform intensity in Greece 49
Box 12. Product Market Reforms – A heatmap 52
Box 13. Reforms of Business Registration 54
Box 14. Reforms of Regulated Professions 56
Box 15. Greek courts performance 59
Box 16. Reforms in the energy sector and the case for their acceleration 61

LIST OF TABLES
Table 1. Macroeconomic scenario, main features (2012-2017) 14
Table 2. Bridge table from ESA General Government Balance to Programme Primary Balance Definition
22
Table 3. Fiscal quantitative performance criteria (EUR billion) 22
Table 4. Medium-term fiscal projections 26
Table 5. Expected Privatisation Receipts 28
Table 6. Privatisation Plan 29
Table 7. Greece - employment in public sector (number of persons) 38
Table 8. Capital needs (billion EURs) 45
Table 9. Disbursements under the Greek adjustment programmes (EUR billion) 69
Table 10. Financing programme: quarterly financing needs and disbursements of official assistance 71
Table 11. Greece Financing Needs 2012-2016 72
Table 12. List of Milestones to be achieved by end-May and end-June 2014 73

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LIST OF GRAPHS
Graph 1. Economic climate tracer 12
Graph 2. Economic Sentiment Indicator and Purchasing Managers Index 12
Graph 3. Production indicators: industrial production, retail turnover and building permits 12
Graph 4. Exports of goods and services and exports of travel services 12
Graph 5. Contribution of GDP components to GDP growth 12
Graph 6. Labour market: unemployment rate vs. changes in employment 12
Graph 7. Growth in nominal compensation per employee and unemployment 13
Graph 8. Monthly HICP developments and annual averages 13
Graph 9. Greek 10y and 3m Bond Yield spread against Bund 18
Graph 10. Athens Stock Exchange Indices 18
Graph 11. Bank deposits 19
Graph 12. Credit to private sector (% change, y-o-y) 19
Graph 13. Total borrowing from the Eurosystem 19
Graph 14. Non-performing loans ratio 19
Graph 15. State primary payments 2013 22
Graph 16. General Government primary balance 2013 (cash basis, cumulative balance, EUR million) 22
Graph 17. Tax administration new debt in 2013 and collection of 2013 debt (million EURs) 34
Graph 18. Tax administration collection of debt (million EURs) 34
Graph 19. Greek General Government employment (thousands of persons) 38
Graph 20. Greece – General Government Debt (% of GDP) 67
Graph 21. Dynamic profile of stress-test scenarios and overall impact in 2020 (% of GDP) 68

LIST OF GRAPHS INTO BOXES
Graph 3.1. ULC 15
Graph 3.2. REER 15
Graph 3.3. Exports of goods (volumes; 2008=100) 15
Graph 3.4. Exports of services (volumes; 2008=100) 15
Graph 3.5. Estimate of the Greek competitiveness gap by year (%) 16
Graph 3.6. Estimate of the Greek sector competitiveness 16
Graph 3.7. Institutional quality indicators for Greece and EU-OECD 16
Graph 3.8. FDI in EA countries (average 2000-2007 as % of GDP) 16
Graph 4.1. Special plan for arrears' clearance (cumulative) 23
Graph 4.2. Implied increase of arrears in 2013 (cumulative) 23
Graph 4.3. Stock of general government arrears 23
Graph 5.1. Annual change in wages and contributions paid (2012-13) 25
Graph 5.2. Monthly debt collection by IKA, 2012-14 25
Graph 6.1. Average VAT tax efficiency ratio (2000-2008) 31
Graph 6.2. Evolution of VAT tax efficiency ratio 31
Graph 8.1. Enrolment of tax and social security debt into the fresh start and basic schemes 35
Graph 11.1 labour reform intensity and direction of reforms in EU countries since 2010 50
Graph 13.1. Distance to Frontier of Ease of Doing Business (Frontier=100) 54
Graph 13.2. Average time for Business Registration (days) 54
Graph 13.3. Total Costs (Administrative Burden and Charges) for Business Registration (Euro) 55
Graph 13.4. Business Entry (number) 55
Graph 14.1. Regulatory barriers in professional services 57
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Graph 14.2. Regulatory barriers in legal professions 57
Graph 14.3. Regulation index before and after liberalisation (zero - full liberalisation; 12 - full regulation)57
Graph 14.4. Changes in producer price index of selected business services (change from 2008 to Q3-
2013) 58
Graph 15.1. Greek Courts Performance in 2013 59

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ACKNOWLEDGEMENTS

The report was prepared in the Directorate General Economic and Financial Affairs, under the
direction of Matthias Mors, director and mission chief, and coordination of Gabriele Giudice, head of
unit.
Contributors:
Matthias Mors, Chris Allen, Stefan Appel, Zeta Astra, Karlis Bauze, Peghe Braila, Laszlo Butt, Pedro
Cardoso, Giuseppe Carone, Jakob E. Christensen, Riccardo Ercoli, Olivia Galgau, George Gavanas,
Gabriele Giudice, Christos Gofas, Ignacio Gonzalez-Vazquez, Loukas Kaskarelis, Zenon Kontolemis,
Dorin-Emil Mantescu, Vasiliki Michou, Guillaume Prèvost, Kaspar Richter, Agapi Thomopoulou,
Elena Tsene, Christoph Ungerer, Carlo Viviani and Ana Xavier. George Gavanas provided statistical
assistance and was responsible for the layout. Assistance was also provided by Aristea Politi,
Alexandra Stergidi and Athanasia Varaki.
The report was prepared in liaison with the ECB.
Comments on the report would be gratefully received and should be sent, by mail or e-mail to:
Gabriele Giudice,
European Commission,
Unit ECFIN-G-3,
CHAR 10/236,
B-1049 Brussels.
e-mail: [email protected]

The cut-off date for this report was 23/04/2014

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