## REFORMS, LABOR MARKET DYNAMICS, AND COMPETITIVENESS (content unit 1grcea2019003) ## Source details **Canonical URL:** [REFORMS, LABOR MARKET DYNAMICS, AND COMPETITIVENESS (content unit 1grcea2019003)](https://www.imf.org/-/media/files/publications/cr/2019/1grcea2019003.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1grcea2019003.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1grcea2019003.pdf.json) --- ### Background and overview - By 2009 Greece had a significantly appreciated real exchange rate and the current account deficit hit record highs. - Program-era labor market policies helped partially reverse competitiveness losses by bringing unit labor costs broadly in line with trading partners, but price adjustments were muted due to product market rigidities and rising non-wage cost factors (e.g., taxes and financing costs). - The paper concludes Greece must preserve labor cost competitiveness while facilitating price adjustment in product markets and reducing non-wage costs. ### Pre-crisis drivers of competitiveness loss - EMU accession effects: - Falling interest rates after 2001 triggered rapid credit growth and strong wage- and pension-related consumption, high domestic demand for imported consumption goods and residential investment rather than productive investment. - Unit labor costs and external performance: - Over 2001–09, Greece’s nominal unit labor costs increased by about 50 percent, compared to around 20 percent for the Euro Area as a whole. - By end-2009 export performance was weak with substantial market loss to main competitors; the current account hit modern era highs. - Institutional contributors: - Public and non-tradable goods sector contributed disproportionately to unit labor cost increases. - Collective bargaining system and a generous minimum wage and bonus framework produced substantial wage drift decoupled from productivity. ### 2011–12 program-era labor and product market reforms - Labor market measures implemented from early 2012 included: - a reduction of 22 percent in the minimum wage and a subsequent freeze through 2019, - suspension of unilateral recourse to arbitration and of collective bargaining principles of ‘extensions’ and ‘favorability’ (later reversed after program exit), - easing of employment protection rules, - modernization of labor market institutions and procedures, - a more flexible framework for part-time and flexible forms of employment. - Outcomes: - Between 2009 and 2018 Greece restored unit labor cost competitiveness through these labor market reforms. - Private sector nominal wages decreased by about 20 percent from their peak in 2010. - The ULC-adjusted real effective exchange rate (ULC-REER) dropped by 20 percent after reforms. - Product market reform progress: - Legislative reforms broadly implemented (including OECD Toolkit implementation 2013–16), but incomplete implementation and remaining restrictions in some sectors (e.g., notaries, lawyers, retail distribution) limited price-level declines; mark-ups started to recover after 2011. ### Post-crisis labor market outcomes and structural constraints - Aggregate dynamics: - Labor productivity shrank by 10 percent since the crisis to date, driven by output contraction of -20 of percent since 2009 and a lower number of workers (-11 percent). - Wage compression and low productivity jointly drove ULC developments: substantial ULC adjustment was partly offset by lower labor productivity. - Structural constraints on productivity: - Predominance of micro-firms: Greek micro firms provide almost 6 out of 10 jobs versus the EU average of 3 out of 10 jobs. - SMEs generate about 64 percent of value-added and 85 percent of employment, compared with EU averages of 57 percent and 66 percent respectively. - Persistent zombie firms and a weak insolvency framework. - Limited R&D spending and low incidence of high-growth enterprises. - Firm dynamics: - Average firm size decreased after the crisis and value-added and output complexity declined. - Growing entry and exit in ICT and knowledge-intensive services, but high-growth enterprises remain low by regional standards. ### Labor market frictions and unemployment - Unemployment and composition: - Structural unemployment estimated at around 13 percent, twice the EA average of 7.5 percent. - Long-term unemployment persistently above 60 percent for the last five years; youth unemployment at 40 percent. - Greece continues to have the highest unemployment rate in the Euro Area. - Skills mismatch and participation: - Oversupply in construction and building trades; shortages of managers and ICT professionals. - Tertiary education attainment 44 percent versus the EU average of 40 percent (2017). - Employment of recent graduates ages 20-34 1-3 years after graduating stands at 50 percent compared to a regional average of 80 percent. - Active labor market policy (ALMP) and VET: - ALMP spending traditionally low; new ALMP system rolled out in June 2018 and tested in Elefsina covering about 10,000 registered unemployed, rollout expected by the end of 2019. - VET participation broadly stable at 31 percent compared to regional average of 45 percent. - Female labor participation constrained by high tax wedges, lack of care options, and cultural attitudes. - The tax wedge in Greece for each of the eight income groups is larger than the OECD average; Greece ranks among top countries with the highest wedge (out of 37) for singles with children and couples with children. ### Policy reversals and risks to competitiveness (2018–2019) - Reversals between August 2018 program exit and mid-2019 pose risks to ULC competitiveness gains: - Return to favorability and extension principles in collective bargaining agreements (CBA) with a market representativeness mechanism requiring signatories to represent a threshold of over 50 percent of labor market share to extend agreements. - A 2014 Council of State decision reinstated unilateral recourse to arbitration. - A statutory minimum wage hike of nearly 11 percent in early 2019; abolition of the youth subminimum wage resulted in an effective 27 percent increase for that group. - The paper warns that the labor cost-driven external adjustment is imbalanced and leaves Greece more vulnerable to reversals; internal devaluations are more likely to be maintained when accompanied by productivity-enhancing reforms. ### Analytical focus of the empirical work - The paper examines: - the role of the minimum wage channel, non-wage costs, and the quality of the external adjustment; - the effects of the 2011 drop/freeze of the minimum wage on wages, prices, employment, and profits at a sectoral level; - developments in non-wage costs to gauge drivers behind lower price competitiveness gains; - priorities to bolster Greece’s growth and competitiveness within the Euro Area. --- ### The minimum wage channel, non-wage costs, and firm-level responses ### Competitiveness and the role of the minimum wage - The MW relative to the actual distribution of wages is a negative contributing factor, "providing disincentives for higher productivity and hindering lower structural unemployment." - Before the crisis and prior to the reduction in the MW in 2012, minimum wages in Greece were high compared to peers and productivity. - After the 2019 increase: - "Inclusive of the 2019 wage hike, Greece’s minimum wage is on the high end compared to GDP per capita and relative to labor productivity." - The MW hike combined with return to "favorability and extensions" risks compressing wage differentials and excluding low-skilled workers from employment; "High wage compression may also act as a disincentive to education and can further reduce labor productivity." ### Impact of the 2012 minimum wage drop-freeze — empirical findings - Empirical strategy: - Distinguishes close to 40 sectors by degree to which MWs are binding. - Uses OLS linking cumulative (log) changes in wages, employment, and prices in sector i after the MW change to the share of employees paid at or below the MW and sector dummies. - Sector shares available only for 2017; relative positions used for identification. - Key quantitative results: - "Sectors with a higher share of workers subject to minimum wages, witnessed a higher drop in wages for a prolonged period." - Normalizing wages to zero at 2012Q1, wages fell on average by "10 percentage points more" in sectors with a higher share of workers paid the minimum wage. - By 2014/15 wages fell by "about 15 percent" in sectors highly constrained by the MW and "about 5 percent" in sectors only weakly constrained compared to the benchmark unconstrained sector. - Employment: "sectors that were constrained by the minimum wage experienced an about 10 percentage points higher employment level than sectors that were unconstrained by the minimum wage." - Elasticity: "after three years following the minimum wage change, sectors that experienced 10 percent lower wages, saw employment fall by about 4 percent less in sectors that are constrained by the minimum wage." - The estimated overall economy elasticity is with "-.27 lower" when including unconstrained sectors; estimated elasticity falls over time. - Prices: - "While sectors with higher minimum wage share experienced lower wages and higher employment—prices did not show the expected adjustment." - Price regression annotation: "Price = 0.11 * Wage + 0.65" with R² = 0.22. - Possible explanations: mismatched price data, offsetting increases in other cost factors (e.g., oil price, taxes), more severe drop in labor productivity in those sectors, limited competition allowing firms to keep prices unchanged and increase mark-ups/profits. - Note: "within the group of sectors with an above median share of employees paid at or below the minimum wage, prices fell more in those sectors where wages fell more." ### Non-wage cost factors and firms' margins - Cost of capital: - "The cost of capital in Greece increased significantly during the program era, thus offsetting some of the lower wage costs." - Higher sovereign yields tightened credit availability; absence of bond issuances by Greek firms noted. - Taxation of capital: - Tax revenue to GDP from capital and the effective average tax rate on non-financial corporations indicate capital costs related to taxes increased from 2012-2016. - "The effective tax rate on capital in Greece increased by 10 percent." - Labor taxation: - "Revenue from labor taxation as a percent of GDP started to increase by more than 2 percent of GDP" beginning in 2012, reflecting largely an increase in revenue from PIT because of new tax scales, reductions and eliminations of tax credits. - Firm profitability and mark-ups: - Median and mean measures of mark-ups (RoE, RoA and profit per employee) across almost all sectors increased after 2012 following their respective low-points. - Firm regression (2013–15 deviation from 2012) on firm return on assets using sectoral MW share for about "23,000 private sector firms" indicates firms in sectors with a higher share of workers paid at or below the MW experienced a significantly higher increase in profit margins following the minimum wage reduction. - This suggests increased mark-ups and possible productivity changes explain muted price declines despite lower wages. - Combined explanation: - "The price reducing effect of lower wages was partly offset by higher labor taxes and higher capital costs." - "Increased mark-ups due to a lack of sufficient competition further limited the fall in prices but increased the fall in real wages." - "The relative cost of capital increased causing production to be more labor intensive and thus labor productivity to decline." ### Conclusions and policy implications from the minimum wage and non-wage cost analysis - Labor market flexibility remains necessary and in need of protection; policy reversals at program exit are risky: - They "revert to a wage-setting process that did not serve Greece well in the first place, and pose risks of slower job growth, hysteresis, exclusion, and in-work-poverty." - Recommended policy priorities: - Address risks to external competitiveness and job growth from rising labor costs. - Prioritize non-wage reforms: product market/business climate/banking reforms to strengthen competition and firm dynamics. - "Priority should also be placed on other areas to leverage (and ameliorate) the burdens put on labor (ALMPs, educational reforms, targeted social support)." - Combined measures aim to: - Stimulate competition, - Support productivity, - Increase the elasticity of labor demand, - Help bring the full beneficial effects from program-era labor reforms to Greece’s external competitiveness, - Address concerns that labor has shouldered the bulk of adjustment burden and help build consensus for reforms. --- ### Current account adjustment: structural versus cyclical drivers (2008–18) ### Model and decomposition approach - A country-specific linear regression model decomposes the current account (CA) into cyclical and structural components using annual data covering 1986–2018. - Cyclical factors: output gap, commodity terms of trade, credit to GDP gap, volatility proxied by the VIX index. - Structural factors: cyclically-adjusted fiscal balance, real unit labor cost (ULC), measures of institutional/political environment, net foreign assets (NFA) to GDP, old-age dependency ratio, expected GDP growth (5 years ahead). - Estimation used Fully Modified OLS (FM-OLS); quarterly specifications produced similar parameters and conclusions. ### Key findings and magnitudes - Greece’s actual headline CA adjustment for 2008–18 around 11 percent (of GDP). - Model-implied adjustment: 9.9 percent (of GDP), decomposed as: - 75 percent (or 7.4 ppts) attributable to cyclical factors. - 25 percent (or 2.5 ppts) attributable to structural factors and policies. - Model-implied structural CA deficit in 2018: 6.4 percent of GDP (close to EBA estimate). - Most of the structural deficit stems from Greece’s negative NFA position. - Subdued credit growth in the medium term dampens the headline CA deficit. - Comparative assessment: - Compared to other EU countries improving external positions during 2009–2016, Greece had the largest cyclical contribution. - By 2018 Greece remained near the bottom of peers in CA performance, reflecting modest price competitiveness improvement and offsetting forces: unsuccessful goods market reforms, rising non-wage costs (including taxation), declining productivity, deteriorating financing conditions, and high economic and policy uncertainty. - Historical context: - Estimated structural deficit on eve of crisis: 9 percent of GDP; estimated structural deficit in 2018: around 6.4 percent of GDP. --- ### Installment schemes, payment culture, and arrears ### Weak payment culture and informal economy indicators - Informal economy size estimates: - Vasardani (2011): informal economy ≈ 30 percent of official GDP; undeclared work ≈ 25 percent of all employees. - Oxfam (2013): on average, 27.5 percent of GDP went untaxed in Greece between 1999-2007. - Medina and Schneider (2018): Greece’s informal economy in 2017 between 14 and 21.5 percent of reported GDP depending on methodology. - Official self-reporting: informal sector ≈ 3 percent of total employment. - SEPE (first 8 months of 2017): undeclared workers in 15 percent of inspected companies, equivalent to 5.9 percent of the total official number of workers. - Electronic transactions and VAT compliance: - Value of electronic transactions as a percentage of private sector consumption: Greece 18 percent in 2017 versus EU average 36 percent. - Reaching EU average use of plastic money would increase VAT compliance by €3.3 billion a year (study conclusion). - Evidence on tax evasion and informal sector cushioning: - Artavanis et al. (2016): between 2003–2009 self-employed Greeks spent 78 percent of monthly reported income on debt servicing; estimated 43-45 percent of self-employed income went unreported prior to the crisis. - Artavanis and Spyridopoulos (2018): 28 percent of defaults in primary residence mortgages are strategic, corresponding to over €5 billion in NPLs. ### Design, proliferation, and performance of installment schemes - Historical proliferation and performance: - More than 50 tax and SSC installment schemes legislated since 2001 with lengthened installments, lower interest rates, and fewer eligibility requirements. - Typical scheme design created incentives to drop out after obtaining tax/SSC payment certificate; drop-out rates as high as 50-80 percent in the first year (particularly for SSC). - Frequent successor schemes created expectations of more generous future schemes. - 2013 reform and subsequent erosion: - 2013: Basic scheme introduced with strict eligibility; late 2014 and March 2015 introduced very generous schemes (100 monthly installments), causing mass switching and erosion of Basic scheme participation. - Enforcement and status as of end-2018: - 4 million (nearly two-thirds of all Greek taxpayers) had arrears to the tax administration. - 800 thousand were included in IAPR installment schemes. - More than 1 million under enforcement measures. - More than 1.4 million taxpayers had social security contribution debt. - Total SSC debt approximately €35 billion, of which €2 billion of arrears under installment schemes corresponding to 116,038 “active” debtors. - KEAO progress report (January - March 2019) SSC installment scheme totals (millions of euros): - Total No of cases: 483,117 - Total Amount: 11,917 - Selected scheme breakdowns (No of cases / Amount / Drop-out (%)): - 100 installments (L. 4321/2015): No of cases 50,749; Amount 440; Drop-out 62.4 - OCW (L.4469/2017): No of cases 57,563; Amount 1,361; Drop-out 44.0 - Standard scheme (L. 4152/2013): No of cases 6,894; Amount 78; Drop-out 69.9 - L. 4305/2014: No of cases 1,644; Amount 258; Drop-out 9.5 - Other schemes: No of cases 832; Amount 105; Drop-out 78.7 ### Mid-2019 measures and design concerns - May 2019 new tax installment scheme: - Rudimentary capacity-to-pay assessment based on 2017 declared income; neglects compliance history. - Installments up to 120 months for individuals; from 24 months and up for businesses. - Reduction of surcharges included. - New SSC debt installment scheme: - No assessment of debtor characteristics. - Up to 120 monthly installments for all participants. - Includes haircuts on principal debt (ostensibly compensated by cuts to future entitlements, partially broken by non-contributory national pension). - Allows for an 85 percent cut in surcharges and interest. - August 2019 modifications: lowered interest rates, extended number of installments, raised business debt ceiling to €1 million, reduced minimum monthly payment from €30 to €20. - Design concerns: - Schemes often lack robust capacity-to-pay assessment and neglect compliance history, creating weak incentives for payment and perpetuating arrears. ### Systemic implications and recommendations - Proliferation of public installment schemes with weak targeting and enforcement has undermined payment culture. - Lack of a well-functioning insolvency regime contributes to persistent household debt overhang and accumulation of mortgage NPEs. - Recommended directions: - Introduce better-targeted, capacity-assessed installment schemes. - Strengthen enforcement and compliance mechanisms to restore payment discipline. - Complement with social assistance targeted at the most vulnerable. --- ### Primary Residence Protection (PRP), Katseli law, and mortgage NPLs ### Overview and key facts - A decade-long policy of primary residence protection focused on a “social” goal rather than resolving debt overhang contributed to deterioration of payment discipline and persistence of high mortgage NPLs. - Household debt as a share of disposable income rose from about 80 percent in 2008 to above 120 percent in 2012. - By 2012, share of non-performing loans in the consumer and residential segments reached 51 percent and 28 percent, respectively. - As of 2019 Q2: - Residential NPEs constituted 43 percent of residential loans. - The stock of residential bad loans remained close to €27 billion—about one-third of total NPEs. - No sales of residential-only loan portfolios have taken place. ### How legal framework contributed to problem (Katseli law and moratoria) - 2009 general moratorium on mortgage enforcement banning auctions up to €200,000 objective value; subsequent Katseli law (Law 3869/10) provided broad moratoria and long repayment plans. - Katseli moratoria and judicial inefficiencies produced lengthy insolvency procedures allowing negligible payments for years: - By 2016, over 200,000 people filed personal insolvency applications (≈2 percent of population). - Biggest wave in 2015; court backlog estimated over 100,000 as of 2019 Q2. - Typical waiting time for a hearing over five years in 60 percent of cases. - Katseli initially allowed write-downs up to 85 percent of objective value and repayment up to 20 years (later up to 35 years). - The process created incentives for strategic filings (estimated over 30 percent), increasing backlog and perpetuating NPLs. ### PRP scheme (post-Katseli) and practical experience - Katseli protections expired in part; PRP launched July 2019 outside insolvency law offering: - Restructuring over 25 years and write-down of loan to 120 percent of commercial value for eligible debtors with NPLs at end-December 2018. - State subsidy between 30-50 percent of monthly repayment depending on income and family size. - PRP perimeter expanded to cover business loans secured by a primary residence. - Automatic platform without case-by-case assessment of capacity to repay. - Use since launch minimal: 41 completed applications and seven agreements reached; over 90 court cases filed regarding proceedings. - Banks view 120 percent LTV over 25 years, even with subsidy, as unlikely to create sustainable restructurings. - PRP application window set to expire end-2019. ### Effects on NPL resolution and banking sector - Banks’ initial loan modifications had high redefault rates: close to 60 percent within one year (Blackrock 2011). - Based on Bank of Greece data, as of mid-2019: - Share of loan modifications with partial debt forgiveness less than six percent. - More than half of long-term loan modifications were extensions of principal only. - Redefault rates on all types of loan modifications over 50 percent over a 12-18 month horizon. - Supervisory and bank actions: - ECB supervisory approach and guidelines (2017, 2019) aim to push banks to resolve NPLs and adopt strategies. - Banks’ announced NPL strategies target still double-digit NPL levels on average by end-2021, emphasizing sales and securitizations for non-residential loans; restructurings remain main tool for household portfolios. - Provisioning coverage for residential NPEs in four systemic banks was between 39 and 45 percent as of Q2 2019. ### Policy implications and reform recommendations - Adopt a personal insolvency law that provides a fresh start for individuals with unsecured debt and does not aim to keep individuals in homes they cannot afford. - Eliminate backlog of personal insolvency cases in courts to reestablish timely processing and reduce prolonged stays on enforcement. - Establish a credible threat of foreclosure to restore payment discipline and enable meaningful debt restructuring. - Use active supervisory oversight to speed bank balance sheet clean-up via sustainable debt solutions. - Provide means-tested social support for housing to protect vulnerable households without perpetuating weak payment incentives. - Complement reforms with targeted measures to facilitate distressed debt market development and specialized bad-debt units within banks. ### Short-term priorities (Box 2 guidance) - Eliminate backlog of household insolvency cases by end-2021, if not before, to weed out strategic defaulters and enable bank recovery of income. - Screen pending Katseli filings with an electronic system to identify ineligible applicants and expedite dismissals. - Allow the PRP scheme to expire at end-December 2019, as planned, to avoid perpetuating perception of state protection against foreclosure. - Ensure judicial capacity improvements, supervisory pressure, and bank readiness to pursue NPL resolution and potential market-based solutions. --- ### Banking sector support, NPLs, and recapitalization—key figures - Total gross public spending on capital support and bank resolutions in 2008-2018: about €57 billion. - Private sector new capital and LME costs in 2008-2018: about €28 billion. - Amount repaid or recovered via liquidations from public support: about €7 billion. - Net budget revenues from all forms of financial support to the system: close to €5 billion. - Net impact on public debt (2008-2018): close to €45 billion (contribution to public debt about €45 bn) — this net impact equals about a quarter of 2018 GDP. - Remaining contingent liabilities as of end-2018 (mainly DTCs): close to €17 billion. - Estimated value of government holdings of equity and debt in banks as of end-2018: just above €5 billion. - Additional unrealized losses cited: about €12 billion. - Fees paid by banks on government guarantees averaged: €400 million per year during 2009-2018. - Initial government guarantee envelope in 2008: €15 billion; bond loan program: €8 billion. - Estimated capital needs from BoG/BlackRock assessment in 2011-2012: approximately €40 billion for 2012–14. - Private investor equity invested in early 2014 recapitalizations: about €8 billion. - 2015 comprehensive assessment revealed a €15 billion capital gap, including a €4.4 billion shortfall related to the baseline scenario. - Private investors provided €5.6 billion through LMEs and new capital in 2015 post-assessment. - Number of banks resolved between 2011 and 2013: twelve banks. - HFSF and Deposit Guarantee Fund spending on recapitalization and related transfers: almost €15 billion; capital transfers to acquiring institutions: about €1.8 billion. - Share of four systemic institutions in total banking assets after M&A/resolutions: about 95 percent. - Public share in the fifth largest bank, Attica, was about 50 percent. --- *Source: IMF staff note "REFORMS, LABOR MARKET DYNAMICS, AND COMPETITIVENESS" (excerpts) — content unit 1grcea2019003.* ### References ______________________________________________________________________________ 24 ### REFORMS, LABOR MARKET DYNAMICS, AND COMPETITIVENESS ### Background and overview - By 2009 Greece had a significantly appreciated real exchange rate and the current account deficit hit record highs. - Program-era labor market policies helped partially reverse competitiveness losses by bringing unit labor costs broadly in line with trading partners, but price adjustments were muted due to product market rigidities and rising non-wage cost factors (e.g., taxes and financing costs). - The paper concludes Greece must preserve labor cost competitiveness while facilitating price adjustment in product markets and reducing non-wage costs. ### Pre-crisis developments and drivers of competitiveness loss - After EMU accession in 2001 falling interest rates triggered rapid credit growth and strong wage- and pension-related consumption, leading to high domestic demand for imported consumption goods and residential investment rather than productive investment. - Over 2001–09, Greece’s nominal unit labor costs increased by about 50 percent, compared to around 20 percent for the Euro Area as a whole. - By the end of 2009 export performance was weak with substantial market loss to main competitors; the current account hit modern era highs. - The public and non-tradable goods sector contributed disproportionately to unit labor cost increases. - The collective bargaining system and a generous minimum wage and bonus framework produced substantial wage drift decoupled from productivity. ### 2011–12 program-era labor and product market reforms - Reforms implemented starting in early 2012 included: - a reduction of 22 percent in the minimum wage and a subsequent freeze through 2019, - suspension of unilateral recourse to arbitration and of collective bargaining principles of ‘extensions’ and ‘favorability’ (later reversed after program exit), - easing of employment protection rules, - modernization of labor market institutions and procedures, - a more flexible framework for part-time and flexible forms of employment. - Between 2009 and 2018 Greece restored unit labor cost competitiveness through these labor market reforms. - Private sector nominal wages decreased by about 20 percent from their peak in 2010. - The ULC-adjusted real effective exchange rate (ULC-REER) dropped by 20 percent after reforms. - Legislative reforms to product markets were broad-based (including OECD Toolkit implementation 2013–16), but incomplete implementation and remaining restrictions in some sectors (e.g., notaries, lawyers, retail distribution) limited price-level declines; mark-ups started to recover after 2011. ### Post-crisis labor market outcomes and structural constraints - Greece’s labor productivity shrank by 10 percent since the crisis to date, driven by output contraction of -20 of percent since 2009 and a lower number of workers (-11 percent). - Wage compression and low productivity jointly drove unit labor cost developments in the post-crisis period: substantial ULC adjustment was partly offset by lower labor productivity. - Structural features constraining productivity growth include: - predominance of micro-firms: Greek micro firms provide almost 6 out of 10 jobs versus the EU average of 3 out of 10 jobs; - SMEs generate about 64 percent of value-added and 85 percent of employment, compared with EU averages of 57 percent and 66 percent respectively; - persistent zombie firms and a weak insolvency framework; - limited R&D spending and low incidence of high-growth enterprises. - Firm-level studies show average firm size decreased after the crisis and value-added and output complexity declined. - There is growing incidence of firm entry and exit in ICT and knowledge-intensive services, but high-growth enterprises remain low by regional standards. ### Labor market frictions and unemployment - Structural unemployment is estimated at around 13 percent, twice the EA average of 7.5 percent. - Long-term unemployment has been persistently above 60 percent for the last five years and youth unemployment is at 40 percent. - Greece continues to have the highest unemployment rate in the Euro Area. - High long-term unemployment reflects limited labor market churning and significant skills mismatch: - oversupply in occupations related to construction and building trades, - shortages of managers and ICT professionals. - Tertiary education attainment is 44 percent versus the EU average of 40 percent (2017), but employment of recent graduates ages 20-34 1-3 years after graduating stands at 50 percent compared to a regional average of 80 percent. - Active labor market policy (ALMP) spending has traditionally been low; a new ALMP system was rolled out in June 2018 and tested in one local office (Elefsina) covering about 10,000 registered unemployed, with rollout expected by the end of 2019. - Vocational education and training (VET) participation has remained broadly stable at 31 percent compared to the regional average of 45 percent. - Female labor participation remains low by regional standards; factors include high tax wedges for secondary earners, lack of early childhood or elderly care options, and persistent cultural attitudes. - The tax wedge in Greece for each of the eight income groups is larger than the OECD average; Greece ranks among the top countries with the highest wedge (out of 37) regarding singles with children and couples with children. ### Policy reversals and risks to competitiveness - Labor market policy reversals between the August 2018 program exit and mid-2019 pose risks to ULC competitiveness gains: - Return to favorability and extension principles in collective bargaining agreements (CBA), with a market representativeness mechanism requiring signatories to represent a threshold of over 50 percent of labor market share to extend agreements. - A 2014 Council of State decision reinstated unilateral recourse to arbitration. - A statutory minimum wage hike of nearly 11 percent in early 2019; abolition of the youth subminimum wage resulted in an effective 27 percent increase for that group. - The current government is reconsidering some elements of these recent changes. - The paper warns that the labor cost-driven external adjustment is imbalanced and leaves Greece more vulnerable to reversals; internal devaluations are more likely to be maintained when accompanied by productivity-enhancing reforms. ### Analytical focus and structure of the remaining paper - The paper examines: - the role of the minimum wage channel, non-wage costs, and the quality of the external adjustment; - the effects of the 2011 drop/freeze of the minimum wage on wages, prices, employment, and profits at a sectoral level; - developments in non-wage costs to gauge drivers behind lower price competitiveness gains; - priorities to bolster Greece’s growth and competitiveness within the Euro Area. *Source: IMF staff note "REFORMS, LABOR MARKET DYNAMICS, AND COMPETITIVENESS" (excerpts).* ### 16. The level of the minimum wage relative to the actual distribution of wages is also a ### 1grcea2019003 - 16. The level of the minimum wage relative to the actual distribution of wages is also a ### Competitiveness and the role of the minimum wage - The level of the minimum wage (MW) relative to the actual distribution of wages is a negative contributing factor, "providing disincentives for higher productivity and hindering lower structural unemployment." - Before the crisis and prior to the reduction in the MW in 2012, minimum wages in Greece were high compared to peers and productivity. - Sectoral data on wage compression (only available to 2017) show sectoral variation with higher wage compression in services and manufacturing. - Following the 2019 increase, there is a risk that the pre-crisis situation will re-emerge: - "Inclusive of the 2019 wage hike, Greece’s minimum wage is on the high end compared to GDP per capita and relative to labor productivity." - The MW hike combined with a return to "favorability and extensions" is risky because "high union involvement in wage setting compresses wage differentials in the lower part of the earnings distribution to the point where significant numbers of low-skilled workers are excluded from employment." - "High wage compression may also act as a disincentive to education and can further reduce labor productivity." ### Impact of the 2012 minimum wage drop-freeze — empirical findings - The 2012 change was followed by a significant improvement in the ULC-based REER and to a lesser extent price-based REER. - Empirical strategy: - Analysis distinguishes close to 40 sectors by the degree to which minimum wages are binding. - Estimated relationship (OLS) links cumulative (log) changes in wages, employment, and prices in sector i after the MW change to the share of employees paid at or below the MW in that sector and sector dummies. - Sector shares of employees paid at or below MW are only available for 2017; the relative positions of sectors are used for identification. - Key quantitative results: - "Sectors with a higher share of workers subject to minimum wages, witnessed a higher drop in wages for a prolonged period." - Normalizing wages to zero at 2012Q1, wages fell on average by "10 percentage points more" in sectors with a higher share of workers paid the minimum wage. - By 2014/15 wages fell by "about 15 percent" in sectors that are highly constrained by the minimum wage and "about 5 percent" in sectors that are only weakly constrained compared to the benchmark sector that is unconstrained. - Employment: "sectors that were constrained by the minimum wage experienced an about 10 percentage points higher employment level than sectors that were unconstrained by the minimum wage." - Elasticity: "after three years following the minimum wage change, sectors that experienced 10 percent lower wages, saw employment fall by about 4 percent less in sectors that are constrained by the minimum wage." - The estimated overall economy elasticity is with "-.27 lower" when including unconstrained sectors; estimated elasticity falls over time. - Prices: - "While sectors with higher minimum wage share experienced lower wages and higher employment—prices did not show the expected adjustment." - Price regression: "Price = 0.11 * Wage + 0.65" with R² = 0.22 (figure annotation). - Possible explanations for limited price declines in high-MW-share sectors: - Price data may not fully correspond to sector output prices (considered less likely). - Offsetting increases in other cost factors (e.g., oil price, taxes). - These sectors experienced a more severe drop in labor productivity. - Limited competition (regulation more protective) allows firms to keep prices relatively unchanged and increase price mark-ups/profits. - Note: "within the group of sectors with an above median share of employees paid at or below the minimum wage, prices fell more in those sectors where wages fell more." ### Non-wage cost factors and firms' margins - Cost of capital: - "The cost of capital in Greece increased significantly during the program era, thus offsetting some of the lower wage costs." - Higher sovereign yields tightened availability of credit; absence of bond issuances by Greek firms noted. - Taxation of capital: - Tax revenue to GDP from capital and the effective average tax rate on non-financial corporations indicate capital costs related to taxes increased from 2012-2016. - "The effective tax rate on capital in Greece increased by 10 percent." - This eliminated part of the competitiveness gain from lower wages as peer countries' capital taxes either remained unchanged or declined. - Labor taxation: - "Revenue from labor taxation as a percent of GDP started to increase by more than 2 percent of GDP" beginning in 2012, reflecting largely an increase in revenue from PIT because of new tax scales, reductions and eliminations of tax credits. - These increased labor taxes reduced net take-home wages. - Firm profitability and mark-ups: - Median and mean measures of mark-ups (e.g., RoE, RoA and profit per employee) across almost all sectors increased after 2012 following their respective low-points. - Regression on firm return on assets (2013–15 deviation from 2012) using sectoral MW share for a sample of "about 23,000 private sector firms" indicates firms in sectors with a higher share of workers paid at or below the minimum wage experienced a significantly higher increase in profit margins following the minimum wage reduction. - This increase in mark-ups (and possible changes in labor productivity) could explain why prices did not fall markedly in low wage sectors following the MW reduction; competition was not sufficient to force firms to pass-on lower production costs. - Combined explanation: - "The price reducing effect of lower wages was partly offset by higher labor taxes and higher capital costs." - "Increased mark-ups due to a lack of sufficient competition further limited the fall in prices but increased the fall in real wages." - "The relative cost of capital increased causing production to be more labor intensive and thus labor productivity to decline." ### Conclusion and policy implications - Labor market recovery remains tenuous; "labor market flexibility still necessary and in need of protection." - Labor market policy reversals at program exit are risky: - They "revert to a wage-setting process that did not serve Greece well in the first place, and pose risks of slower job growth, hysteresis, exclusion, and in-work-poverty." - Mitigating factors (improvements to the CB representativeness mechanism, relatively faster price increases in trading partners, low pass-through) may provide short-term cushion, but restoring the full program-era labor market reforms is recommended. - Policy priorities: - Address risks to external competitiveness and job growth from rising labor costs. - Prioritize non-wage reforms: product market/business climate/banking reforms to strengthen competition and firm dynamics. - "Priority should also be placed on other areas to leverage (and ameliorate) the burdens put on labor (ALMPs, educational reforms, targeted social support)." - Combined measures would: - Stimulate competition, - Support productivity, - Increase the elasticity of labor demand, - Help bring the full beneficial effects from the program-era labor reforms to Greece’s external competitiveness, - Address concerns that labor has shouldered the bulk of adjustment burden and help build consensus for reforms. ### Annex — selected retrospective labor market reform facts - Collective bargaining reforms (2011): - Procedures for firm-level agreements simplified; "suspension of ‘extension’ and ‘favorability’ principles." - Firm level agreements rose from "227 in 2010 and 170 in 2011 to 975 in 2012 and 409 in 2013." Average counts reported as: "from an average of 220 in the period 2005–10 to 416 from 2012–17, but then dropped back down to 155 in 2018 when the favorability principle was reinstated." - In 2018 the authorities reintroduced the extension and favorability principles; since then "17 collective agreements have been extended, impacting about 230,000 employees." - Employment protection and dismissal rules: - Collective dismissals (CD) rules were eased, increasing the number of employees for which dismissal is considered collective and replacing administrative pre-approval with a notification procedure. - Under revised definitions, collective dismissal thresholds and related procedures differ from previous rules and EU Directive benchmarks (text provides exact legal thresholds and comparisons). - Individual dismissal: severance pay reduced "up to 50 percent" and notice/notification periods shortened as a function of tenure. - Bureaucracy and digitalization: - ERGANI platform created in 2013 to allow electronic notification of hires, fires, contract modifications and other actions, increasing transparency and reducing business costs associated with bureaucracy. - Collective dismissal incidence: - From 2008 until 2016, "26 requests for CDs were reported to have been submitted to the MoL." - Of these, "In 10 cases, there seems to have been an agreement between the company and the employees that prevented layoffs. In 10 other cases the company was reported to have withdrawn the request and laid off workers in stages, remaining below the limits of CDs. Five CD submissions are reported to have been rejected. The single, first CD reported as approved was for Chalyvourgia SA in June 2014." - Data and sample notes: - Sectoral employment and wage data (NACE) taken from Eurostat; ERGANI data referenced; sectoral price data drawn from multiple sources; firm-level results drawn from Orbis; sample size for firm regression about "23,000 private sector firms." *Source: IMF staff analysis and text as provided in the content unit.* ### 3. In 2010–11, adjustments to public sector ### 1grcea2019003 - 3. In 2010–11, adjustments to public sector ### Labor market adjustments and minimum wage policy - Public wages and bonuses were cut in 2010–11; private-sector wage adjustment lagged. - In March 2012 the national minimum wage was lowered by 22 percent, generally, and 32 percent for those under 25 years of age; it was then frozen at this level until the end of the adjustment program. - Several allowances were abolished, and seniority premiums were frozen. A seniority premium of 10 percent was granted to workers for every three years of work experience, up to 30 percent; the freeze is effective until unemployment falls below 10 percent. - In July 2013 the decision over the minimum wage was transferred from social partners to the government (Law 4172/2013, art. 103), following consultation; the new legislated framework was to take effect only after program exit. - In September 2018 the government activated the 2013 framework six months earlier than originally mandated, resulting in: - a 10.9 percent increase of the minimum wage; - the abolition of sub-minimum wage for youth; - the maintenance of seniority premiums. - Law references: Law 4046/2012 (minimum wage adjustment and related measures); Law 4172/2013, art. 103 (minimum wage decision authority). ### Product market reforms and regulatory changes (2010–2018) - Competition: - The OECD toolkits process (three-phase sectoral review, 2013–2016) reviewed existing legislation and made 673 recommendations to lift restrictions to competition in 10 macro-critical sectors (manufacturing, trade, tourism, constructions, etc.). - Most recommendations were implemented; several with significant delays and some cornerstone reforms were watered down. - Red tape: - The aim was to reduce administrative burdens by 25 percent in 13 selected areas (agriculture, energy, public procurement, taxation, pharmaceuticals, etc.). - The OECD made 86 recommendations; the majority were adopted, though about 20 percent took over three years to be implemented. - Investment licensing: - Reforms supported by World Bank technical assistance aimed to simplify procedures horizontally and sector-by-sector. - Legislation in 2011 and 2014 implemented a system focused on notification and simplified environmental licensing. - From 2015 until 2018, over 70 percent of the sectors of the economy were reviewed under the investment licensing project; the rest were covered by other reforms or specialized regulation. - Regulated professions: - Prior to the crisis “closed professions” accounted for 30 percent of total private sector employment. - Substantial liberalization occurred from 2010 until 2014 through a framework law establishing professional freedom and abolishing horizontal entry/operation restrictions. - Reforms broadly stalled in 2015, with little progress in controversial areas. ### Empirical evidence and theoretical considerations on minimum wage effects (Annex II) - Theoretical note: - In perfect competition, a binding minimum wage leads to lower employment. - Under monopsony, an increase in wages can increase wages, employment and output toward perfect competition levels. - Cross-country meta-analyses (selected findings): - Doucouliagos and Stanley (2008), 64 studies, United States: Little or no impact on employment; negative but small on youth employment. - Boockmann (2010), 55 studies, 15 industrial countries: Negative, but varies across countries. - Nataraj et al. (2014), 17 studies, 15 low-income countries: Ambiguous. - Leonard, Stanley and Doucouliagos (2014), 16 studies, United Kingdom: No impact. - Belman and Wolfson (2014), 23 studies, Mostly United States: Small negative impact. - Chletsos and Giotis (2015), 77 studies, 18 developed and developing countries: No impact; more negative for youth but not always significant. - Broecke, Forti and Vandeweyer (forthcoming), 74 studies, 10 major emerging economies: Little or no impact; more negative but still very small for youth. - Greece-specific empirical findings: - Koutsogeorgopoulou (1994): small to marginal negative elasticities between -0.05 and -0.11 (focus on industry). - Kapopoulos, Papadimitriou & Siokis (2003): not statistically important (focus on industry; 1970–1997). - Kanellopoulos (2015), using 2004–2013 data, concluded the minimum wage has a negative effect on employment; elasticity estimated at -0.17. (Table also reports Kanellopoulos (2015) entry as: 2004-2013 — Negative -0.17-0.4.) - Karageorgiou (2004): not statistically important for youth; positive for teenagers (1974–2001, 1981–2000). - Yannelis (2014), 2009–2013: significant negative effect for youth, especially for low earners; elasticity between -0.28 and -0.46 (for 22-27 years-old). - Policy trade-offs and complementary measures: - Inequality and poverty considerations may tilt the balance toward minimum wage setting, but minimum wages are unlikely to be the first-best policy. - Potential gains in inequality and in-work poverty reduction must be weighed against disincentives for effort and education, unemployment, and out-of-work poverty increases. - Recommended complementary/alternative policies: means-tested cash transfers; active labor market policies (ALMPs) focused on individual worker re-training and support. - Other considerations affecting minimum wage policy: - Cyclical conditions and spillovers to overall wage levels (benchmarking) shape overall effects. - Minimum wages create downward rigidities; in a recession, rigid minimum wages can be problematic within a currency union where the exchange rate cannot adjust. - Product market reforms can increase competition; effective ALMPs can address information asymmetries. ### External adjustment: structural versus cyclical drivers - Context and summary: - Prior to the crisis Greece became increasingly uncompetitive; by 2009 the real exchange rate had appreciated significantly and the current account deficit hit record highs. - Program-era reforms helped partially reverse this trend, but the note concludes the current account adjustment was driven far more by cyclical than structural factors. - Price declines were not commensurate with wage declines; productivity growth was weak; CPI-based REER showed a more muted adjustment than unit labor costs (ULC). - Model and decomposition approach: - A country-specific linear regression model decomposes the current account (CA) into cyclical and structural components using annual data covering 1986–2018. - Cyclical factors: output gap, commodity terms of trade, credit to GDP gap, volatility proxied by the VIX index. - Structural factors: cyclically-adjusted fiscal balance, real unit labor cost (ULC), measures of institutional/political environment, net foreign assets (NFA) to GDP, old-age dependency ratio, expected GDP growth (5 years ahead). - Estimation used Fully Modified OLS (FM-OLS); quarterly specifications produced similar parameters and conclusions. - Key findings: - Between 2004–08 the largest part of the deterioration in the CA was structural: headline deficit rose sharply reflecting a decline in private and especially public savings (pension and public wage bill spending rose rapidly), exceeding the slowdown in private investment; NFA position deteriorated substantially. - The recession starting in 2009 largely eliminated the CA deficit within four years; the gradual structural improvement began only from 2012 onwards following the fiscal turnaround and, to a lesser extent, competitiveness gains from lower ULC after labor reforms. - Exports of traditional products increased substantially, but Greece’s pattern of comparative advantage did not change materially during the past decade, suggesting no emergence of new dynamic goods sectors. - Graphical/quantitative indicators mentioned: - Figure 1: Current Account Balance in Selected Countries (Percent) — Greece among countries shown. - Figure 2: Greece CA decomposition into Structural, Cyclical, Residual (percent of GDP) for years 2001–2018. *Source: GREECE — INTERNATIONAL MONETARY FUND (content unit 1grcea2019003).* ### 5. For the period as a whole (2008–18), according to model estimates, about 75 percent ### 1grcea2019003 - 5. For the period as a whole (2008–18), according to model estimates, about 75 percent ### Current account adjustment (2008–18) - Greece’s actual headline CA adjustment for 2008–18 was around 11 percent (of GDP). - Model-implied adjustment: 9.9 percent (of GDP), decomposed as: - 75 percent (or 7.4 ppts) attributable to cyclical factors. - 25 percent (or 2.5 ppts) attributable to structural factors and policies. - Model-implied structural CA deficit in 2018: 6.4 percent of GDP (close to the structural CA deficit estimated by EBA). - Most of the structural deficit stems from Greece’s negative NFA position. - Subdued credit growth in the medium term dampens the headline CA deficit. - Comparative assessment: - Compared to other EU countries that improved their external position during 2009–2016, Greece had the largest cyclical contribution. - By 2018 Greece remained near the bottom of peers in CA performance, reflecting modest improvement in price competitiveness and offsetting forces: unsuccessful goods market reforms, rising non-wage costs (including taxation), declining productivity, deteriorating financing conditions, and high economic and policy uncertainty. - Historical context: - The recession starting in 2009 wiped out almost the entire CA deficit in four years, but the bulk of the adjustment was cyclical (considerably more than in Portugal and Spain). - Estimated structural deficit on the eve of the crisis: 9 percent of GDP; estimated structural deficit in 2018: around 6.4 percent of GDP. ### Installment schemes, arrears, and payment culture — overview - Weak payment culture symptoms: large informal sector, widespread tax evasion, strategic defaulting. - Consequences: persistently high tax and social security (SSC) debt; complications in reducing banks’ non-performing exposures. - Policy approach: long history of generous installment schemes and legal protections, often motivated by social policy objectives; installment schemes have been largely ineffective with very high drop-out rates and lack of detailed assessment of debtor payment capacity and compliance history. - Recent legislative actions: - March 2019: extension (and expansion) of primary residence protection (PRP) with subsidies for mortgage debtors. - May 2019 (legislated) and August 2019 (further expanded): new installment schemes for tax, social security, and local government debt. ### Informal economy and tax compliance evidence - Estimates of informal economy size: - Vasardani (2011): informal economy ≈ 30 percent of official GDP; undeclared work ≈ 25 percent of all employees. - Oxfam (2013): on average, 27.5 percent of GDP went untaxed in Greece between 1999-2007. - Medina and Schneider (2018): Greece’s informal economy in 2017 between 14 and 21.5 percent of reported GDP depending on methodology. - Official self-reporting: informal sector ≈ 3 percent of total employment. - SEPE (first 8 months of 2017): undeclared workers in 15 percent of inspected companies, equivalent to 5.9 percent of the total official number of workers. - Payment methods and VAT compliance: - Value of electronic transactions as a percentage of private sector consumption: Greece 18 percent in 2017 versus EU average 36 percent. - Reaching EU average use of plastic money would increase VAT compliance by €3.3 billion a year (study conclusion). - Evidence on tax evasion and informal sector cushioning: - Artavanis (2015): negative relationship between tax rates and compliance, particularly for smaller restaurants. - Dellas et al. (2017): adding an informal sector implies the actual impact of fiscal consolidation on output during 2010–2015 was considerably smaller than officially reported; underground economy cushioned downturn but hindered orderly public debt consolidation. - Artavanis et al. (2016): between 2003–2009 self-employed Greeks spent 78 percent of monthly reported income on debt servicing (with some professions at or above 100 percent), implying substantial tax avoidance; estimated 43-45 percent of self-employed income went unreported prior to the crisis. - Strategic mortgage defaults: Artavanis and Spyridopoulos (2018) estimate 28 percent of defaults in primary residence mortgages are strategic, corresponding to over €5 billion in non-performing loans (NPLs). - Declared taxpayer data (2017): - Around 85 percent of business income taxpayers reported earning well below per capita GDP. - Per capita GDP in 2017: €16,736. - Vasardani (2011) (2009 data): of 3 million non-wage/salary earners and non-pensioners, 2.5 million (or 83%) reported personal income < €10,000; 47% reported zero income. - Change in social security contribution base to actual net earnings in early 2017: number of business income declarations declined cumulatively by 50,000 despite positive overall economic growth that year. ### Design, performance, and fallout of installment schemes - Historical proliferation: - More than 50 tax and SSC installment schemes legislated since 2001, with lengthened installments, lower interest rates, and fewer eligibility requirements. - Taxpayer participation has been essentially voluntary with insufficient enforcement. - Typical installment scheme design created strong incentives to drop out after obtaining tax/SSC payment certificate; drop-out rates as high as 50-80 percent in the first year (particularly for SSC). - Frequent introduction of successor schemes created expectations of more generous future schemes, reinforcing weak payment culture. - 2013 reform and subsequent erosion: - 2013: past schemes closed to new applicants; new “Basic scheme” introduced with strict eligibility criteria. - Late 2014: authorities introduced a very generous scheme granting 100 monthly installments to debtors with outstanding debt below €1 million; most Basic scheme debtors dropped out and entered the 2014 scheme. - March 2015: even more generous scheme granting 100 installments to all taxpayers, lower interest rates, looser drop-out definitions; many switched into 2015 scheme. - Enforcement changes mid-2015 through 2018: - 2015 installment scheme closed to new applicants; only Basic Scheme remained open. - Interest rates raised to market-based rate for existing 2014 and 2015 debtors. - Tax and SSC administrations authorized to shorten installment duration for debtors with stronger capacity to pay. - Status as of end-2018: - 4 million (nearly two-thirds of all Greek taxpayers) had arrears to the tax administration. - 800 thousand were included in IAPR installment schemes. - More than 1 million under enforcement measures. - More than 1.4 million taxpayers had social security contribution debt. - Total SSC debt approximately €35 billion, of which €2 billion of arrears are under installment schemes corresponding to 116,038 “active” debtors. - Table 2 (SSC installment scheme participation as of March 2019) totals (KEAO progress report January - March 2019), header units: (millions of euros): - Total No of cases: 483,117 - Total Amount: 11,917 - Selected scheme breakdowns (No of cases / Amount / Drop-out (%)): - 100 installments (L. 4321/2015): No of cases 50,749; Amount 440; Drop-out 62.4 - OCW (L.4469/2017): No of cases 57,563; Amount 1,361; Drop-out 44.0 - Standard scheme (L. 4152/2013): No of cases 6,894; Amount 78; Drop-out 69.9 - L. 4305/2014: No of cases 1,644; Amount 258; Drop-out 9.5 - Other schemes: No of cases 832; Amount 105; Drop-out 78.7 - Mid-2019 measures (outgoing government): - New tax installment scheme legislated in May 2019: - Rudimentary capacity-to-pay assessment based on declared income data from 2017; neglects compliance history. - Installments up to 120 months for individuals; from 24 months and up for businesses. - Reduction of surcharges included. - New SSC debt installment scheme: - No assessment of debtor characteristics. - Up to 120 monthly installments for all participants. - Includes haircuts on principal debt (ostensibly compensated by cuts to future entitlements, partially broken by non-contributory national pension). - Allows for an 85 percent cut in surcharges and interest. - August 2019 modifications: - Lowered interest rates, extended number of installments, raised business debt ceiling to €1 million, reduced minimum monthly payment from €30 to €20. - Government described the arrangement as the ‘final’ exceptional debt installment arrangement. - March 2019 PRP remodeling: - Includes business loans secured by a primary residence. - Provides standardized restructuring and partial write-off of mortgage debt for loan-to-value ratios above 120 percent with generous eligibility criteria proxying for payment capacity or business viability. - Restructured debt rolled into 25-year installments with government subsidizing 30-50 percent of the payments. - Other sectoral installment schemes and outcomes: - Voluntary Disclosure of Income (VDI) program (2016–November 2017): - 507 thousand applications; approximately €10 billion of previously undisclosed tax liabilities assessed as €795 million unpaid taxes. - Through April 2018: €262.2 million paid by taxpayers (€231.3 million as lump sum). - Electricity arrears and PPC: - Mounting unpaid electricity bills; PPC offered flexible installment schemes up to 24 months. - Larco’s debt to PPC: €300 million; agreement to repay in 120 monthly installments in exchange for discounts. - Municipal debt: - Total debt to Municipalities and their legal persons estimated at €800 million by 1.2 million citizens. - Scheme allowing settlement in 100 monthly installments introduced in 2017. - Illegal construction fines: - Over 1 million properties included in special installment schemes to pay fines for legalizing illegally built buildings in 2011. - Banks’ restructuring options: - Out-of-court workouts, settlement prior to e-auction, NPL forum, PRP scheme, bilateral agreements. - Bank restructuring solutions tend to be more case-by-case with forward-looking assessment of debtor capacity to pay. - Systemic implications: - Proliferation of public installment schemes with weak targeting and enforcement has undermined payment culture. - Lack of a well-functioning insolvency regime contributes to persistent household debt overhang and accumulation of mortgage NPEs. _International Monetary Fund (IMF) staff calculations and projections as presented in the source document._ ### 12. This experience underscores the importance of ending the string of ad hoc ### PRIMARY RESIDENCE PROTECTION IN GREECE: IMPACT AND RECOMMENDATIONS FOR REFORM ### Overview and context - A decade-long policy of primary residence protection focused on a “social” goal rather than resolving debt overhang has contributed to a deterioration of payment discipline and the persistence of high mortgage NPLs. - Household debt as a share of disposable income rose from about 80 percent in 2008 to above 120 percent in 2012. - By 2012, the share of non-performing loans in the consumer and residential segments reached 51 percent and 28 percent, respectively. - Real estate prices collapsed and banks largely stopped new mortgage lending; household FX-denominated borrowers were affected by swiss franc appreciation. ### Key findings on banks, NPLs, and mortgage lending - More than ten years after the start of the crisis, banks still suffer from persistently high NPLs, and net mortgage lending remains negative. - Residential NPEs constituted 43 percent of residential loans as of 2019 Q2. - The stock of residential bad loans remained close to €27 billion—about one-third of total NPEs. - No sales of residential-only loan portfolios have taken place. - Banks’ initial loan modifications had high redefault rates: close to 60 percent within one year (Blackrock 2011). - Based on Bank of Greece data, as of mid-2019: - the share of loan modifications with partial debt forgiveness was less than six percent; - more than half of long-term loan modifications were extensions of principal only; - redefault rates on all types of loan modifications were over 50 percent over a 12-18 month horizon. - The cost of new mortgage loans is prohibitive and mortgage lending is essentially non-existent. ### How the legal framework contributed to the problem - Greece introduced a general moratorium on mortgage enforcement in 2009 banning auctions of property tied to claims by credit institutions of up to €200,000. - In 2010, the Katseli personal insolvency law (Law 3869/10) provided an effectively blanket moratorium on foreclosure of primary residences and allowed write-downs and decades-long repayment plans. - The moratorium applied to homes with an objective (tax assessed) value below €300,000 (with ceilings up to €450,000 depending on marital status and number of children). - The Katseli law’s protections became effectively permanent through a series of extensions and de facto bank non-foreclosure policies, reinforced by judicial inefficiencies that allowed stays on enforcement for years. ### Katseli law: usage, effects, and procedural details - In practice, lengthy insolvency procedures allowed debtors to make negligible payments for years. By 2016, over 200,000 people had filed personal insolvency applications (approximately 2 percent of Greece’s population). - The biggest wave of filings occurred in 2015; the court system was overwhelmed, producing a backlog of cases estimated at over 100,000 as of 2019 Q2. - Typical waiting time for a hearing was over five years in 60 percent of cases. - The law initially allowed debtors to write down mortgage debt up to 85 percent of the objective value and repay over up to 20 years (subsequently extended up to 35 years). - The Katseli process often produced: - automatic suspension of enforcement actions upon filing (temporary injunctions), - repeated rollovers of six-month injunctions until final hearings years later, - incentives for strategic filings (estimated at over 30 percent), further increasing the backlog and perpetuating NPLs. - As of mid-2018, almost half of applications under the insolvency law were eventually rejected. ### Recent reforms and the PRP (post-Katseli developments) - Various elements of Law 3869/10 expired: Article 19 (moratorium) expired December 31, 2014; Article 9 (primary residence protection and restructuring) expired end-February 2019. - Article 9’s expiration did not fully eliminate stays on enforcement given court inefficiencies. - Legal reforms in 2018 mandated electronic auctions, but their practical use has been limited: - Total number of successful auctions for residential real estate in 2018-2019 was about 1500 with a total value of €200 million; - 70 percent of all auctions end in failure. - Mortgage protection provisions of Katseli expired end-February 2019 and were immediately replaced by a primary residence protection and state subsidy scheme (“PRP”), outside the insolvency law. - PRP offers restructuring over 25 years and write-down of the loan to 120 percent of the commercial value of the property for eligible debtors with non-performing loans at end-December 2018. - Debtors are eligible for a state subsidy of between 30-50 percent of the monthly repayment installment, depending on income and family size. - The PRP perimeter was expanded to cover business loans secured by primary residences. - The process uses an automatic platform without case-by-case assessment of capacity to repay. - Since launch in July 2019, use has been minimal: 41 completed applications and seven agreements reached; already over 90 court cases have been filed regarding the proceeding. - Banks have recognized that 120 percent LTV over 25 years, even with a subsidy, may not create sustainable restructuring solutions. - The window for applying for PRP is set to expire at end-2019. ### Policy implications and recommended reforms - Adopt a personal insolvency law that provides a fresh start for individuals with unsecured debt and does not aim to keep individuals in homes they cannot afford. - Eliminate the backlog of personal insolvency cases in the courts to reestablish timely case processing and reduce prolonged stays on enforcement. - Establish a credible threat of foreclosure to restore payment discipline and enable meaningful debt restructuring. - Use active supervisory oversight to speed up bank balance sheet clean-up via sustainable debt solutions. - Provide means-tested social support for housing to protect vulnerable households without perpetuating systemic weak payment incentives. - Complement reforms with targeted measures to facilitate distressed debt market development and specialized bad-debt units within banks to manage legacy mortgage NPLs. *Prepared by Chanda DeLong (LEG) and Natalia Novikova (EUR); excerpted content from the provided IMF chapter.* ### Box 2. History of Residential Mortgage Protection Laws ### Box 2. History of Residential Mortgage Protection Laws ### History and timeline of protections - 2008‑ 3714/08 - Prohibition of all property auctions at a price lower than their objective value. - Prohibition of primary residence auctions for debt related to credit cards and consumer loans up to €20,000. - 2009‑2013 3814/10 - Suspension of all property auctions tied to claims by credit institutions up to an objective value of €200,000 from September 16, 2009 to June 30, 2010; subsequently extended until to December 31, 2013. - 2010‑2014 3869/10 - The auction of the primary residences is prohibited from August 3, 2010 to December 31, 2013 (initial deadline extended by L.3910/11, L.3986/11, L.3996/11, L.4047/12, L.4128/13). - From January 1, 2014‑December 31, 2014 (L. 4224/2013), auctions could be suspended provided the debtor and the property met eligibility and property value requirements. - 2010 ‑ 2019 - Exemption of a debtor's primary residence from liquidation in insolvency; allows for restructuring of mortgage loan, provided the property’s objective value does not exceed €300,000 (up to €450,000 depending on family size). - Amended through L.4336/15, L.4346/15, L.4549/18, and L.4592/19 to introduce stricter income, wealth and property value criteria and help banks identify strategic defaulters. - 2019 4605/2019 - Primary residence protection and rescheduling, with a government subsidy, under stricter income and wealth criteria and introduction of an electronic platform for applications. - Note: In July 2015, the legislation imposing capital controls was passed, which also banned auctions and foreclosures. This was subsequently extended through October 2015. ### Assessment of effects of elevated primary residence protection - The Greek experience demonstrates the negative effects of a policy that elevates primary residence protection well-above other considerations. - The existing framework: - does not provide a lasting solution to the indebtedness problem for either debtors or creditors; - merely absorbs already-stretched judicial and administrative resources; - further weakens payment culture. - Identified problems: - poor payment culture; - high mortgage NPL levels and lack of new credit; - limited ability to enforce against non-compliant debtors; - a perpetual state of debt overhang at the expense of sustainable debt relief; - the use of the banking system to substitute for missing elements of social policy. - These distortions contribute to preserving impaired balance sheets and disappointing lending growth, implying elevated financial stability and fiscal contingency risks. ### Short-term reform priorities and measures - Eliminate backlog of household insolvency cases by end-2021, if not before, to: - weed out strategic defaulters; - provide more substantial income to the banks (until a final plan is reached debtors make only minimal payments, and NPLs cannot be resolved). - Guidance to judges (or a law) to ensure restructuring solutions are sustainable for debtors, including: - maximum length of repayment plans given the debtor’s ability to pay as determined by debt service to income ratios. - Authorities plan in 2019 Q4 to screen pending Katseli filings with an electronic system to identify ineligible applicants; courts should act quickly to dismiss these cases once ineligible applicants are identified. - Increase efforts to identify and foreclose on debtors engaging in strategic behavior and ensure debtors cannot use legal loopholes to thwart foreclosure. - Banks’ announced discontinuation of de facto policy not to liquidate residential properties of lesser value is welcomed, but the threat must be credible. - Allow the Primary Residence Protection (PRP) scheme to expire at end-December 2019, as planned, to avoid perpetuating the perception that the state will always step in to prevent foreclosure. ### Overhaul of personal insolvency framework — guiding principles - Debtors should be relieved from the burden of their unsustainable debt so they have incentives to maximize income and avoid hiding income or seeking informal work. - Creditors should realize their losses so banks’ balance sheets better reflect actual assets and free up capital for new lending; insolvency systems serve as a disciplining mechanism to prevent over-lending. ### Proposed features of a new personal insolvency law - Discharge of unsecured debt after liquidation of all the debtor’s nonexempt assets. - To protect against moral hazard: debtors would dedicate their income (minus an amount for reasonable living expenses) to repay creditors for a period of three years, after which a discharge would be granted. - The discharge would be subject to revocation and the face value of debt fully reinstated if creditors present evidence of debtor bad behavior (e.g., substantive failure to disclose or misrepresentation of income/assets). - Applications screened immediately by an electronic filing system for eligibility. - Explicit provision that a filing for insolvency does not inhibit a secured creditor’s ability to enforce against collateral (i.e., there would be no stay on secured creditor action). - A stay on action by unsecured creditors could be provided while the proceeding is ongoing (e.g., for a period of six months). - Such a framework would not include primary residence protection, consistent with most other insolvency systems (debtors will not be able to keep the home in the personal insolvency procedure; creditors can sell the home or file for forced sale if the debtor is in default on secured debt irrespective of a personal insolvency procedure). ### Judicial capacity, supervision, and data needs - The new framework should be coupled with substantial resources to improve courts’ capacity to implement the law. - Build on Ministry of Justice efforts to increase institutional capacity of magistrate courts and judges overseeing insolvency cases. - Include financial training courses in the syllabus of the National School of Judges to increase financial literacy for existing and future judges. - Authorities must collect reliable data about insolvency proceedings to identify bottlenecks and procedural abuses. ### Supervisory and bank actions on mortgage NPLs - Supervisory pressure should help speed up NPL reduction: - ECB supervisory approach aimed to help banks resolve their NPLs and to push for discontinuation of “wait and see” approaches (ECB (2019)). - ECB guidelines for banks on non-performing loans require banks to adopt their own strategies for NPL resolution (ECB (2017)). - More recent supervisory steps (thematic review of mortgage portfolios across Europe, introduction of provisioning calendar from 2020) could put more pressure on banks by ensuring fair assessment and enforcing more demanding provisioning requirements. - Banks should proactively engage with delinquent debtors and ensure sustainability of restructuring solutions. - NPL strategies announced by Greek banks target still double-digit NPL levels on average by end-2021, emphasizing sales and securitizations for non-residential loans; restructurings are viewed as the main tool for household portfolios. - Some banks have initiated programs envisaging partial debt write-downs targeting monthly payments calibrated to match the debtor’s repayment capacity and within banks’ ability to absorb related losses. - Banks have begun using the interbank platform Tiresias to share information about debtors who filed under the Katseli law to offer multi-lateral restructuring solutions. - As of Q2 2019, provisioning coverage for residential NPEs in the four systemic banks was between 39 and 45 percent. - Banks should be ready to seize market opportunities to bolster capital buffers and absorb costs of more aggressive write-off policies. ### Social policy and housing assistance considerations - Removal of primary residence protection should be balanced with appropriate social policy: - The role of social policy is to protect those in need with an appropriately tailored system of housing benefits. - Housing cost and social assistance context: - In 2018, about 40 percent households had to spend more than 40 percent of their disposable income on housing. This is four times higher than the EU-28 average (10 percent) and more than double the second highest in Europe (18 percent). - Over 90 percent of households at risk of poverty were overburdened by housing costs. - In 2017, the Greek government spent only 0.02 percent of GDP on social assistance for housing, only one tenth of the EU-28 average. - 2019 measures (noted as steps in the right direction but marginal in impact if fully implemented): - New means-test housing benefit targeting households living in rented primary residences with budgeted envelope set at €300 million; about 250 thousand applications have been filed. - Government subsidy under the primary residence protection law (Law 4605/2019) for eligible delinquent households whose mortgage debt was restructured to satisfy certain requirements. - Allocated budget resources for this scheme: €150 million in 2019, and €200 million annually in the following years. - As of September 2019 no application for subsidy was approved. *Source: 1grcea2019003 - Box 2. History of Residential Mortgage Protection Laws* ### References ### References ### References cited - Andritzky, J.R., 2014, “Residential Mortgage Distress: Time to Modify?” WP/14/226, IMF, Washington, D.C. - Artavanis N. and Spyridopoulos I., 2019, “Foreclosure Moratorium and Strategic Default.” - Aiyar S., Bergthaler W., Garrido J., Ilyina A., Jobst A., Kang K., Kovtun D., Lui Y., Monaghan D., Moretti M., 2015, “A Strategy for Resolving Europe’s Problem Loans,” SDN/15/19, IMF, Washington, D.C. - BlackRock Solutions, 2011, “Diagnostic Assessment of Greek Banks.” - European Central Bank, 2016, “Stock-take of national supervisory practices and legal frameworks related to NPLs,” ECB, Frankfurt. - European Central Bank, 2019, “Communication on supervisory coverage expectations for NPEs,” ECB, Frankfurt. - European Central Bank, 2017, “Guidance to Banks on Non-Performing Loans,” ECB, Frankfurt. - European Commission, June 2019, “Enhanced Surveillance Report, Greece,” EC, Brussels. - Ferretti F., Salomone R., Sutschet H., Tsiafoutis V., 2016, “The Regulatory Framework of Consumer Over-Indebtedness in the UK, Germany, Italy, and Greece: Comparative profiles of responsible credit and personal insolvency law,” Civil Justice Programme of the European Union. - Garrido J., Bergthaler W., DeLong C., Johnson C, Rasekh A., Rosha A., Stetsenko N., 2019, “The Use of Data in Assessing and Designing Insolvency Systems,” WP/19/27, IMF, Washington, D.C. - International Monetary Fund, 2017, Greece: Selected Issues: Insolvency and Enforcement Issues in Greece, Country Report 17/41, IMF, Washington, D.C. - Laeven L. and Laryea T., 2009, “Principles of Household Debt Restructuring”, SPN/09/15, IMF, Washington, D.C. - Liu, Y. and Rosenberg C., 2013, “Dealing with Private Debt Distress in the Wake of the European Financial Crisis: A Review of the Economics and Legal Toolbox,” WP/13/44, IMF, Washington D.C. - Ministry of Justice, Transparency and Human Rights of the Hellenic Republic, 2018, Action Plan for Improving the Implementation of Law 3869/10. - Stournaras, Y., “The Greek economy 10 years after the crisis and lessons for the future both for Greece and the Eurozone,” June 28, 2019, European Court of Auditors, Luxembourg, Speech. - Venieris I., Greece, May 2019, A Guide to Consumer Insolvency Regimes in Europe, (ed. Graziano et al.), Elgar Comparative Guides. - World Bank, 2013, “Report on the Treatment of the Insolvency of Natural Persons.” - Bank of Greece. 2012. “Report on the Recapitalization and Restructuring of the Greek Banking Sector.” - Bank of Greece. 2014a, “2013 Stress Test of the Greek Banking Sector.” - Bank of Greece. 2014b. “The Chronicle of the Great Crisis 2008-2013.” - European Central Bank. 2019. Government Assistance to the Financial Sector Tables (May 2019). - European Commission (EC). 2008. “Support Measures for the Credit Institutions in Greece”, State Aid N560/2008. - Eurostat. 2019. Supplementary Tables for Reporting Government Interventions to support Financial Institutions (April 2019). - Igan D., Moussawi H., Tieman A., Zdzienicka A., Dell’Ariccia G., and Mauro P. 2019. “The Long Shadow of the Global Financial Crisis: Public Interventions in the Financial Sector.” IMF Working Paper, WP/19/164, International Monetary Fund. - International Monetary Fund. 2019. “Greece: First Post-Program Monitoring Discussions”. Country Report No. 19/73, International Monetary Fund. ### Public financial support to Greek banks over the crisis — Key facts and figures - Total gross public spending on capital support and bank resolutions in 2008-2018: about €57 billion. - Private sector new capital and LME costs in 2008-2018: about €28 billion. - Amount repaid or recovered via liquidations from public support: about €7 billion. - Net budget revenues from all forms of financial support to the system: close to €5 billion. - Net impact on public debt (2008-2018): close to €45 billion (contribution to public debt about €45 bn). - This net impact equals about a quarter of 2018 GDP. - Remaining contingent liabilities as of end-2018 (mainly DTCs): close to €17 billion. - Estimated value of government holdings of equity and debt in banks as of end-2018: just above €5 billion. - Additional unrealized losses cited: about €12 billion. - Fees paid by banks on government guarantees averaged: €400 million per year during 2009-2018. - Initial government guarantee envelope in 2008: €15 billion; bond loan program: €8 billion. - BoG-mandated increase in core tier 1 minimum requirement from 8 percent to 10 percent starting from 2012 (noted in footnote). - Estimated capital needs from BoG/BlackRock assessment in 2011-2012: approximately €40 billion for 2012–14. - Private investor equity invested in early 2014 recapitalizations: about €8 billion. - 2015 comprehensive assessment revealed a €15 billion capital gap, including a €4.4 billion shortfall related to the baseline scenario. - Private investors provided €5.6 billion through LMEs and new capital in 2015 post-assessment. - Number of banks resolved between 2011 and 2013: twelve banks. - HFSF and Deposit Guarantee Fund spending on recapitalization of bridge banks, funding gaps, etc.: almost €15 billion; capital transfers to acquiring institutions: about €1.8 billion. - Share of the four systemic institutions (SIs) in total banking assets after M&A/resolutions: about 95 percent. - Public share in the fifth largest bank, Attica, was also high (about 50 percent). ### Capital and liquidity support measures (2008–2018) — Summary points - Liquidity measures: government guarantees on new bank debt; bond loan scheme; ELA funding from Bank of Greece during stress periods. - Guarantees remained in place until 2016; bond loan program extended until mid-2015 with unused envelope later added to guarantee scheme. - No government guarantees were called. - Preferred shares capital injections in 2008 package: €5 billion via preferred shares in exchange for special purpose bonds. - By end-2018, all preference shares from the 2008 package had been either absorbed in resolutions (5 banks), repaid (2 banks in 2014), converted into common shares (1 bank in 2015), or exchanged for Tier 2 bonds (2 banks in 2018). - ELA funding major source of liquidity in 2012–13 and 2015–mid-2018; state guarantees used to safeguard BoG claims when Greek government bonds ceased to be accepted as collateral by the Eurosystem in February 2012. - Tax code amendment allowed extended amortization of PSI losses over a 30-year period through recording DTAs on banks’ balance sheets. ### Outcomes: governance, ownership, and subsequent recapitalizations - By end-2013 the state became the main shareholder of a highly concentrated banking system; operational control remained mainly in private hands. - Some state-controlled banks that attracted at least 10 percent of capital increases from private sources were kept largely under private control subject to targeted HFSF governance vetoes. - Eurobank was unable to attract required private participation and remained under full HFSF control for several months in 2013–early 2014. - Subsequent recapitalizations in early 2014 by private investors: about €8 billion; legislative changes introduced to allow conversion of banks’ DTAs into tax credits in case of losses (creating contingent liabilities). - End-2015 AQR/stress test revealed further capital needs (see figures above); following private and public measures, HFSF holdings in four systemic banks were significantly diluted. ### Cost-effectiveness of state support and guidance for evaluation - First-best solution for additional bank capital: private capital support (e.g., issuance of non-dilutive instruments). - Publicly funded alternatives discussed include: - Asset Protection Scheme (APS / ‘Hercules’): issuance of State guarantees on senior tranches of securitized NPE portfolios; voluntary participation on first come, first served basis. - Asset Management Company (AMC): consolidate denounced NPEs of the four major banks and receive half of their DTCs, with State and banks holding junior tranches. - Stand-alone conversion of DTCs triggered by aggressive NPE resolution strategies that lead to after-tax losses. - Compliance with EU state aid framework is a key prerequisite; calibration of scheme parameters may be required to ensure compliance (noted that calibration was recently completed for the Hercules scheme). - Cost-effectiveness analysis should assess multiple criteria: - Impact on banks’ balance sheets and income statements: asset quality (NPE rate; composition: unlikely-to-pay, past-due, denounced), provisioning rate; capital adequacy (phased-in or fully-loaded CET1 ratios; share of DTCs in CET1). - Impact on the State’s balance sheet: overall expected cost, timing, type of support, and potential compensation to the State. - Speed of materialization: trade-off between rapid bank clean-up and the State’s capacity to absorb one-off shocks to debt/deficit. - Impact on bank-sovereign nexus: prioritize options that do not exacerbate this vulnerability. - Other qualitative considerations: governance of NPE resolution, efficiency for borrower balance-sheet clean-up, potential moral hazard and effects on payment discipline, capacity to attract investor interest, consistency with initiatives pursued by individual banks, and effect on banking system concentration. - Ultimate aim: prompt and sustainable financial system clean-up to help banks attract private capital, become more resilient, revive healthy lending, and boost GDP growth. ### Noted caveats and methodological points - Estimates are based on a bottom-up analysis using publicly available information; modest discrepancies exist with Eurostat (2019) and ECB (2019) estimates due in part to valuation effects. - Net revenues calculation includes difference between budget revenues and funding costs, including accrued and imputed borrowing costs; revenues include fees on government guarantees, interest and dividends received, and fees paid by banks on DTC-eligible DTAs. ### Headings present without substantive text in this unit - B. Preliminary Assessment *Source: 1grcea2019003 - References.* ### 4. In the absence of sufficiently granular information, preliminary assessments could be ### 1grcea2019003 - 4. In the absence of sufficiently granular information, preliminary assessments could be ### Key assumptions for preliminary simulations - Preliminary assessments can be guided by simulations based on assumptions when sufficiently granular information is absent. - Key assumptions include: - the level of provisioning related to the targeted NPEs portfolio; - the absence of additional incurred losses in the current loan books; - the sale/transfer prices for these NPEs. - Some parameters would need adjustment to ensure compatibility with the EU/State aid rules. ### Baseline scenario for benchmarking - Options should be benchmarked against a baseline scenario where banks only aim to achieve SMM-agreed NPE reduction targets over a three-year horizon, but still face the risk of loss-triggered DTC conversion. ### Metrics and indicators for assessment - Efficiency of bank clean-up: - Measured by the change of the Texas ratio, which provides a synthetic assessment of a bank’s cushion, combining both capital and provisions, compared to a starting point. - The Texas Ratio is defined as the ratio: (Total NPEs) / (Capital + Provisions). - For the four Greek Significant Institutions (SIs), this ratio stood at 125 percent at end-March 2019. - To allow for the quality of capital, a DTC-adjusted Texas ratio can be considered as a synthetic indicator of the bank clean-up. - The DTC-adjusted Texas ratio is defined by: (Total NPEs) / (Capital - DTC + Provisions). - The DTC-adjusted Texas ratio was 167 percent as of end-March 2019. - Complementary indicators: impact on capital (CET1 ratios), NPE ratios, and profitability. - Cost-effectiveness: - Can be assessed by assuming instantaneous implementation of the various options, i.e. by end of the present fiscal year. - Ideally, a dynamic, forward-looking assessment would include assumptions on banks’ profitability prospects, the speed of materialization of the schemes, and the timing of incoming supervisory constraints (provisioning backstop, phasing of regulatory capital requirements). - Fiscal impact: - Could be measured as a one-off total disbursement of public funds in nominal terms on an undiscounted basis, assuming that all the costs associated with the scheme are triggered at the time of the scheme launch. - Footnote: A more granular and dynamic approach could be considered at a later stage to account for the timing of realization of these costs, impact on cash balances, deficit, debt level, but also to take into account potential income flows, e.g. on guarantees. - Bank-specific impacts: - Ideally should be considered, but a preliminary assessment could proceed without bank-specific detail. *International Monetary Fund — GREECE, March 2019* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1grcea2019003.pdf_