The Second Economic Adjustment Programme for Greece – Third Review July 2013

234 Pages·2013·3.8 MB·English

ISSN 1725-3209
EUROPEAN
ECONOMY
Occasional Papers 159 | July 2013
The Second Economic Adjustment Programme for Greece
Third Review – July 2013
Economic and
Financial Affairs
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KC-AH-13-159-EN-N
ISBN 978-92-79-31300-4
doi: 10.2765/14357

© European Union, 2013
European Commission
Directorate-General for Economic and Financial Affairs

The Second Economic Adjustment Programme
for Greece

Third Review – July 2013

EUROPEAN ECONOMY Occasional Papers 159

OUTLINE OF THE REPORT

EXECUTIVE SUMMARY 1
1. INTRODUCTION 11
2. MACROECONOMIC AND FINANCIAL DEVELOPMENTS 12
2.1 Macroeconomic Developments 12
2.2 Financial Market Developments 17
3. PROGRAMME IMPLEMENTATION 19
3.1. Fiscal Policy performance 19
3.2. Fiscal Policy Outlook 22
3.2.1. The Fiscal outlook for the remainder of 2013 and 2014 22
3.2.2. Fiscal outlook for 2015-16 24
3.3. FISCAL Structural reforms 25
3.3.1. Privatising to boost efficiency in the economy and reduce public debt 25
3.3.2. Tax policy reform 28
3.3.3. Revenue administration reforms 28
3.3.4. Anti-Corruption Strategy 30
3.3.5. Public Financial Management Reform 30
3.3.6. Making the public administration more efficient and effective 32
3.3.7. Modernising the healthcare system 33
3.3.8. Upgrading the education system 35
3.4. Stabilising the financial system 35
3.5. Strengthening labour market institutions and promoting employment
38
3.6. Creating favourable conditions for economic activity 40
3.6.1. Promoting an efficient and competitive business environment 40
3.6.2. Reforming the judicial system to support economic activity 41
3.7. Efficient Network Industries and Services 41
3.7.1. Energy policy 41
3.7.2. Electronic communications 42
3.7.3. Transport 42
3.7.4. The Retail Sector 43
3.7.5. Regulated professions and professional qualifications 43
3.8. Increasing the impact of structural and cohesion funds 43
3.9. Technical Assistance and Monitoring 44
4. Debt sustainability analysis and programme financing 45
4.1. Debt Sustainabilty Analysis 45
4.1.1. Baseline and stress scenarios 45
4.2. Programme Financing 47
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Annex 1: Assessment of compliance with the Memorandum of
Understanding on Specific Policy Conditionality 51
Annex 2: Macroeconomic forecast 93
Annex 3: Updated programme documents 99
Letter of Intent 101
Memorandum of Understanding
a) Memorandum of Economic and Financial Policies 105
b) Memorandum of Understanding on Specific Economic Policy conditionality 133
c) Technical Memorandum of Understanding 205

LIST OF BOXES
Box 1. The documents for a comprehensive adjustment strategy 11
Box 2. Monitoring the Pension System 23
Box 3. Recapitalisation of the four core Greek banks 36

LIST OF TABLES
Table 1. Macroeconomic scenario, main features (2011-2016) 16
Table 2. Fiscal quantitative performance criteria (EUR bn) 20
Table 3. Developments in arrears compared to the 31st December 2012 (in cumulative terms) 21
Table 4. Medium-term fiscal projections 25
Table 5. Expected Privatisation Receipts 26
Table 6. Privatisation Plan 27
Table 7. Disbursements under the Greek adjustment programmes (EUR billion) 47
Table 8. Milestones to be achieved by end-September 2013 48
Table 9. Financing programme: quarterly financing needs and disbursements of official assistance 49

LIST OF GRAPHS
Graph 1. Economic Sentiment Indicator (ESI) and Purchasing Managers' Index (PMI) 12
Graph 2. Greek Uncertainty index 12
Graph 3. Industrial production, retail turnover and building permits (y-o-y change) 12
Graph 4. Employment: change in net hiring and change in employment 12
Graph 5. Private Consumption and Disposable Income 13
Graph 6. Investment and New Loans Issuance 13
Graph 7. Contribution of GDP components to GDP growth 14
Graph 8. Credit to tourism 14
Graph 9. Public Investment (cumulative, mn EURs) 14
Graph 10. Arrears clearance and disbursement schedule of official funds 14
Graph 11. Nominal compensation per employee and unemployment 15
Graph 12. Monthly HICP developments and annual averages 15
Graph 13. Unit Labour Cost (ULC) 15
Graph 14. Real Effective Exchange Rates (REER) 15
Graph 15. Current Account components (% of GDP) 16
Graph 16. Balances vis-à-vis the rest of the world 16
Graph 17. Athens Stock Exchange Indices 17
Graph 18. Greek 10y Bond Yield spread against Bund 17
Graph 19. Bank deposits 17
Graph 20. Credit to private sector (% change, y-o-y) 17
Graph 21. Non-performing loans ratio 18
Graph 22. State primary payments 2013 20
Graph 23. Government primary balance 2013 20
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Graph 24. Expenditure arrears 21
Graph 25. Tax refunds vs. Previous years tax refunds clearance 30
Graph 26. Clearance of expenditure arrears against targets (cumulative) 32
Graph 27. Duration of unemployment 39
Graph 28. Greece – General Government Debt (% of GDP) 45
Graph 29. Dynamic profile of stress-test scenarios and overall impact in 2020 (% of GDP) 46

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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, Luis García
Lombardero, Gabriele Giudice, Ignacio Gonzalez-Vazquez, Violeta Iftinchi, Loukas Kaskarelis, Zenon
Kontolemis, Dorin-Emil Mantescu, Vasiliki Michou, Guillaume Prèvost, Kaspar Richter, Christoph
Ungerer, Carlo Viviani and Ana Xavier. George Gavanas and Christos Zavos provided statistical
assistance and were responsible for the layout.
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 25 July 2013

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