## _cr10111 - The economic downturn accelerated coming into 2010. Greek real GDP declined

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### Economic downturn and macro outlook
- Greek real GDP declined by 2 percent in 2009.
- Indicators suggest activity will weaken further in 2010.
- Fiscal and public debt outturns for 2008 and 2009 were significantly worse than reported, triggering:
  - confidence to drop,
  - financing costs to increase,
  - growth and employment to suffer.
- Key macro statistics:
  - Deficit: estimated 13.6 percent of GDP in 2009 (5.1 percent of GDP in 2007).
  - Public debt: over 115 percent of GDP in 2009.
  - External current account deficit at end-2009: still over 11 percent of GDP.
  - Net international investment position: over negative 83 percent of GDP.
  - External interest bill on foreign debt: increased to over 5 percent of GDP.

### Key objectives and growth outlook
- Main program objectives:
  - correct fiscal and external imbalances,
  - restore confidence.
- Growth assumptions under the government program:
  - negative growth of 4 percent in 2010,
  - negative growth of 2½ percent in 2011,
  - return to growth expected from 2012 onward conditional on confidence effects, front-loaded fiscal measures, and comprehensive structural reforms.
- Inflation and competitiveness:
  - inflation needs to be reduced significantly below the euro area average to regain price competitiveness.
  - domestic demand tightening (fiscal adjustment, moderating wages and pensions) and cost-cutting measures are essential.
  - addressing oligopolistic structures and high markups in some sectors is important.
- External deficit projection:
  - projected to decline gradually over the medium term as domestic demand and inflation moderate and structural reforms increase export supply and reduce import dependence,
  - high interest costs on substantial external debt will pressure the current account for some time.

### Fiscal strategy and targets
- Fiscal adjustment is the cornerstone: government committed to durable adjustment measures of 11 percent of GDP in cumulative terms through 2013, with additional remedial measures in 2014 to reduce the deficit to well below 3 percent of GDP.
- Primary balance objective: primary balances to be kept in a sizeable surplus (at least 5 percent of GDP) up to 2020 to sustain the debt trajectory.
- Frontloading and short-term impact:
  - All fiscal measures for 2010–2012 identified; most to be adopted in coming weeks.
  - Three biggest upfront measures in 2010: immediate cut in public sector wage bill, pension outlays, and further increases in the VAT and selected excises (together with other steps yielding 2½ percent of GDP in further savings already in 2010).
  - These measures expected to reduce the deficit from an estimated 13.6 percent of GDP in 2009 to 8.1 percent of GDP in 2010.
- Adjustment path 2011–2013:
  - adjustment needs for 2011 projected at 4 percent of GDP;
  - adjustment measures in 2012 at a pace of 2½ percent of GDP;
  - 2013 projected to be 2 percent of GDP;
  - headline deficit expected to drop to 7½ percent in 2011.
- Expenditure and revenue targets through 2013:
  - expenditures to be cut by the equivalent of around 7 percent of GDP through 2013;
  - revenues to be increased by the equivalent of around 4 percent of GDP through 2013.

### Fiscal measures and quantified yields (selected items and totals)
- 2010 selected measures (yields in millions of Euros; percent of GDP where shown):
  - VAT rates increase (10%→11%; 21%→23%): 800 (2010), full-year 1,800.
  - Broadening VAT base: 0 (2010) 1,000 (2011) 500 (2012) → total 1,500.
  - Excise on fuel: 200 (2010), 250 (2011) → total 450.
  - Excise on cigarettes: 200 (2010), 300 (2011) → total 500.
  - Excise on alcoholic beverages: 50 (2010), 500 (2011) → total 100 (table shows 100 under a different column arrangement).
  - Reduce wage bill by cutting bonuses/allowances: 1,100 (2010), full-year 1,500.
  - Eliminate pension bonuses (except minimum pensions): 1,500 (2010), full-year 2,000.
  - Nominal pension freeze: 0 (2010), 100 (2011), 250 (2012), 200 (2013) → total 550.
- Aggregate totals (Table 1 summaries):
  - Total annual measures by year (millions): 5,800 (2010), 9,150 (2011), 5,575 (2012), 4,775 (2013) → Sum 25,300 (2010–2013) and a memo percent 11.0.
  - Revenue measures (millions): 1,250 (2010), 6,600 (2011), 1,725 (2012), -625 (2013) → total 8,950.
  - Expenditure measures (millions): 4,550 (2010), 2,550 (2011), 3,850 (2012), 5,400 (2013) → total 16,350.
  - Total measures (in percent of GDP): 2.5 (2010), 4.1 (2011), 2.4 (2012), 2.0 (2013) → cumulative 11.0.
  - Memorandum: Nominal GDP: 231 (2010), 224 (2011), 228 (2012), 235 (2013) — table header context preserved.

### Social and incomes policies (distributional safeguards)
- Pension measures and compensation:
  - Elimination of the 13th and 14th pensions compensated for those receiving less than €2500 a month by introducing a new flat bonus of €800 a year.
  - Additional pension reductions weighted toward higher earners; minimum pensions will not be cut.
  - Pension reform timeline and specifics (see Structural reforms for detailed elements).
- Wage measures and compensation:
  - Elimination of the 13th and 14th wage payments for all employees; for those receiving less than €3000 a month, a flat bonus of €1000 a year per employee will be introduced, financed through cutting salary allowances for higher income segments.
- Protections:
  - Minimum pensions and family support instruments will not be cut.
  - Most vulnerable will be compensated for possible adverse impacts.
  - Government will invite representatives of business and labor to sign a social pact for the duration of the program.

### Structural fiscal reforms and administration
- Pension reform (major elements and timing):
  - Reform to be adopted before end-June 2010 (TMU and MEFP specify draft by end-June and adoption by end-September 2010 for parliamentary action).
  - Merge existing pension funds into three funds (by 2018 in TMU/MEFP timelines).
  - New system to strengthen link between contributions and benefits; uniform rules applied pro-rata to current and future workers.
  - Normal retirement age to be set to 65 years, increasing in line with life expectancy; restrict early retirement, index benefits to prices, include means-tested social pension.
  - Objective: reduce projected increase in public spending on pensions over 2010-60 to 2 ½ percent of GDP.
- Tax reform and administration:
  - Income tax system made more progressive; exemptions and deductions reduced; introduce presumptive taxation; tighten VAT receipt obligations and documentation of living expenses.
  - Short-run tax administration focus: safeguard revenue from largest taxpayers, stronger enforcement and auditing of high-wealth individuals and self-employed, prosecute worst offenders, strengthen VAT filing and payment enforcement, collect large stock of tax arrears.
  - Medium-term program: comprehensive compliance risk management framework (including compliance strategy for 2012), taxpayer service capacity, risk-based audits, headquarters strategic management and planning capabilities in tax and customs administration.
- Public financial management and fiscal framework:
  - GAO to monitor and report general government data; introduce commitment control procedures; top-down budgeting with expenditure ceilings; medium-term expenditure framework; contingency reserve and supplementary budget rules; amend Law 2362/1995; consider creation of an independent fiscal agency attached to parliament.
- Reporting and statistics:
  - New government revised under-reporting of the fiscal deficit for 2008 and is working with Eurostat and the European Commission on a Statistical Action Plan.
  - Full independence granted to the Greek Statistical Office and resources allocated to improve statistical systems.
  - Since January 2010, timely monthly central government budget reports on a cash basis have been published.
  - GAO to start publishing monthly data on expenditures pending payment, including arrears, from July 2010.

### Financial sector policies, liquidity, and the Financial Stability Fund (FSF)
- Banking sector metrics and pressures:
  - Equity base rose from €24 to €33 billion in 2009.
  - Government capital injections amounted to €3.8 billion in 2009.
  - All banks comply with the capital adequacy requirement of 8 percent.
  - Average capital adequacy ratio rose to 11.7 percent at end-2009.
  - Non-performing loans reached 7.7 percent at end-2009.
  - Profitability declined and might become negative in the current year.
- Immediate liquidity support:
  - Greek banks lost wholesale market access since end-2009; maturing interbank liabilities not renewed or only at high costs; moderate deposit outflows in early 2010.
  - Banks increasingly relied on Eurosystem credit operations.
  - Government extended 2009 banking assistance package (€28 billion, of which €11 billion had been used by end-2009) to provide €17 billion in additional liquidity; another extension subject to European Commission approval.
  - Within the Eurosystem framework, Bank of Greece support would be fully guaranteed by the Greek state consistent with ECB and EU requirements.
- Financial Stability Fund (FSF):
  - FSF to be established by June 30, 2010 (structural benchmark) through specific legislation in consultation with IMF, European Commission, and ECB.
  - FSF primary purpose: preserve financial sector soundness and capacity to support the Greek economy by providing equity support to banks as needed.
  - FSF funding: fully funded by the government out of EU-IMF program resources in the amount of EUR 10 billion.
  - Governance: Governing Council with Chairperson, Chief Executive, three directors (appointed by Governor of Bank of Greece) and two ex officio directors representing Minister of Finance and Governor of Bank of Greece; EC and ECB to nominate observers.
  - Instruments and powers: preference shares (convertible), require restructuring plans, veto key bank decisions, appoint board members, conduct diagnostic studies, require conversion of preference into ordinary shares under specified conditions, operate subject to EU state aid rules.
  - Initial lifespan: seven years; ownership rests with Greek state to extent of shareholding after lifespan.
- Supervisory strengthening:
  - Intensified supervision, increased resources, more frequent and faster reporting, comprehensive stress-testing framework, increased on-site inspections and off-site review, flexibility in HR management and legal protection for Bank of Greece staff.

### Program financing and disbursement
- Projected public financing gap for program period: around €110 billion (TMU detailed figures give Financing gap: 109.2 (SUM) and Loan disbursements Q2-2010–Q2-2013 SUM: 110.0).
- Expected sources:
  - bilateral lending support from euro-area member states: €80 billion;
  - IMF support: €30 billion (SDR 26.4 billion).
- Planned disbursement approach:
  - Greece will draw bilateral and IMF resources in parallel throughout the program period in a ratio of 8 to 3 in each disbursement (measured at the program exchange rate).
  - If fiscal consolidation proceeds faster than expected or market conditions improve significantly, Greece would refrain pari passu from drawing on the full bilateral and IMF support.
- Example financing table aggregates (selected SUM entries, billion euro):
  - A. GG deficit: 48.5 (SUM)
  - B. GG deficit + PE borrowing need: 53.0 (SUM)
  - C. Debt amortization (existing bonds): 138.3 (SUM)
  - G. Public sector financing need (B+C+F): 192.8 (SUM)
  - J. New GG borrowing: 77.9 (SUM)
  - O. Bank support scheme: 10.0 (SUM)
  - P. Financing gap (E-G-H-I+J+O): 109.2 (SUM)
  - Q. Loan disbursements: 110.0 (SUM)
  - R. IMF portion: 30.0 (SUM)
  - S. EU portion: 80.0 (SUM)

### Monitoring, performance criteria, and reporting
- Monitoring framework:
  - progress monitored through quarterly (and continuous) quantitative performance criteria (PCs) and indicative targets, structural benchmarks, program reviews and consultation clauses;
  - Quantitative targets up to December 2010 are PCs; targets for 2011–2013 are indicative and 2011 targets will be converted into PCs at the time of the second review before end-2010.
- Selected quantitative performance criteria (cumulative from January 1, 2010 unless indicated; amounts in billion Euros where shown):
  - Floor on the modified general government primary cash balance (MGGPCB): juin-10: -5.0; sept-10: -4.0; déc-10: -5.7; déc-11: -2.1; déc-12: 2.4; déc-13: 7.4.
  - Ceiling on State Budget primary spending: juin-10: 34; sept-10: 50; déc-10: 67; déc-11: 67; déc-12: 68; déc-13: 69.
  - Ceiling on the overall stock of central government debt: juin-10: 342; sept-10: 342; déc-10: 342; déc-11: 365.
  - Ceiling on new guarantees granted by central government: juin-10: 2.0; sept-10: 2.0; déc-10: 2.0; déc-11: 1.0; déc-12: 0.0; déc-13: 0.0.
  - Ceiling on accumulation of new domestic arrears by the general government: continuous target of 0 (from April 30, 2010 onward).
- Data and reporting obligations (selected timelines preserved):
  - Ministry of Finance to provide detailed monthly information on revenues and expenditures, debt redemptions, new debt issuance, changes in cash balances, other financing and arrears within 30 days.
  - Bank of Greece to provide detailed monthly data on assets and liabilities of local authorities and social security funds in line with monetary survey data.
  - Specific publication requirements: GAO to publish monthly central government cash reports; GAO to start publishing monthly data on expenditures pending payment, including arrears, from July 2010.
- Program exchange rates (values on April 30, 2010 for program purposes):
  - €1 = 1.3315 U.S. dollar
  - €1 = 125.81 Japanese yen
  - €1.135 = 1 SDR

### Program risks, contingency stance, and upside potential
- Main downside risks:
  - lower revenue;
  - higher social transfers;
  - further downward revisions of growth;
  - additional fiscal liabilities from the public and financial sector;
  - higher interest costs.
- Contingency measures:
  - reduce discretionary spending as necessary;
  - preserve program objectives by implementing appropriate measures if downside risks materialize.
- Upside potential:
  - 2010–2011 projections include cautious estimates of measures taken; positive confidence effects could boost GDP growth and reduce market risk premia;
  - revenue administration efforts could yield more revenue than currently assumed;
  - if confidence rebounds and market support or stronger supply response from reforms materializes, benefits will be saved and the intended deficit will be brought forward to achieve a speedier return to fiscal sustainability.

### Conditionality, structural benchmarks, and review timetable (selected)
- Prior actions (to be completed as specified):
  1. Reduce public wage bill by cutting bonuses/allowances; and pension bonuses (except minimum pensions).
  2. Increase standard VAT rate from 21 to 23 percent and reduced rate from 10 to 11 percent and excise tax rates on alcohol, tobacco, and fuel with a yield of at least €1.25 billion in the remainder of 2010.
  3. Appoint staff team and leader in GAO responsible for general government in-year cash reporting.
- Structural benchmarks (selected, with timing):
  - Establish the independent Financial Stability Fund (FSF) by June 30, 2010.
  - Adopt and start to implement reorganization of sub-central government (Kalikrates) — aim to reduce number of local administrations and elected/appointed officials (end-June 2010 / end-September 2010).
  - Submit to parliament amendments to Law 2362/1995 to require multi-year fiscal strategy, top-down budgeting with expenditure ceilings, contingency margins, supplementary budget rules for overspending, and commitment controls (end-June 2010 / end-September 2010).
  - National Actuarial Authority to produce a report assessing whether parameters of the new pension system significantly strengthen long-term actuarial balance (end-June 2010).
- Review schedule (selected):
  - First review: expected to be completed in the course of the third calendar quarter of 2010.
  - Second review: actions to be completed by end Q3-2010 (includes draft 2011 budget, structural fiscal measures, pension reform drafting and submission).
  - Third review: to be completed by end Q4-2010 (includes privatization plan, budget targets).
  - Fourth review: to be completed by end Q1-2011.
  - Subsequent quarterly reviews through at least Q4-2011 with specified fiscal and structural actions.

### Key data points for monitoring and reporting (selected)
- Central government revenue (Cumulative from January 1, 2010):
  - June 2010: €25,056 million
  - September 2010: €41,232 million
  - December 2010: €58,382 million
- Stock of arrears:
  - stock of arrears as of end-April stood at 5.6 billion euro.
- Frequency examples for reporting:
  - Preliminary monthly state budget execution: Monthly, 15 days after end of month.
  - Monthly cash data on general government entities other than State: Monthly, 30 days after end of month.
  - Weekly Government cash position (Friday, reporting on previous Thursday).
  - Bank of Greece assets and liabilities: Weekly, next working day.

*Source: _cr10111 - IMF staff report, Technical Memorandum of Understanding and Memorandum of Economic and Financial Policies (Greece), May 3, 2010 (excerpts as provided).*

### 1.      The economic downturn accelerated coming into 2010. Greek real GDP declined

### _cr10111 - 1.      The economic downturn accelerated coming into 2010. Greek real GDP declined

### Economic downturn and macro outlook
- Greek real GDP declined by 2 percent in 2009.
- Indicators suggest activity will weaken further in 2010.
- Following the October elections, the realization that the fiscal and public debt outturn for 2008 and 2009 were significantly worse than reported caused:
  - confidence to drop,
  - financing costs to increase,
  - growth and employment to suffer.
- Fiscal and macro impacts on the financial system:
  - downgrades of government bonds and investors backing out of Greek bonds drove up yields,
  - impaired loans are rising,
  - borrowing costs in the interbank and wholesale markets have increased, putting pressure on bank profitability.
- External position:
  - external current account deficit at end 2009 was still over 11 percent of GDP,
  - net international investment position is over negative 83 percent of GDP,
  - external interest bill on the foreign debt has increased to over 5 percent of GDP.

### Key objectives and outlook
- Main program objectives:
  - correct fiscal and external imbalances,
  - restore confidence.
- Growth outlook under the government program:
  - economic program assumes negative growth of 4 percent in 2010 and 2½ percent in 2011,
  - return to growth is expected from 2012 onward conditional on confidence effects, front-loaded fiscal measures, and comprehensive structural reforms.
- Inflation and competitiveness:
  - inflation needs to be reduced significantly below the euro area average to regain price competitiveness.
  - domestic demand tightening (fiscal adjustment, moderating wages and pensions) and cost-cutting measures are essential.
  - addressing oligopolistic structures and high markups in some sectors is important.
- External deficit projection:
  - projected to decline gradually over the medium term as domestic demand and inflation moderate and structural reforms increase export supply and reduce import dependence,
  - high interest costs on substantial external debt will pressure the current account for some time.

### Economic policies (overview)
- All available fiscal, financial, and structural policies will be used to:
  - correct fiscal imbalances and place debt on a downward path in the medium term,
  - maintain banking sector stability,
  - restore competitiveness.
- Fiscal adjustment as cornerstone:
  - government committed to durable adjustment measures of 11 percent of GDP in cumulative terms through 2013, with additional remedial measures in 2014 to reduce the deficit to well below 3 percent of GDP.
  - primary balances to be kept in a sizeable surplus (at least 5 percent of GDP) up to 2020 to sustain the debt trajectory.
  - commitment to strengthen the fiscal policy framework and fiscal institutions.

### Social and incomes policies
- Incomes and social security policies to support fiscal adjustment and competitiveness by realigning incomes to sustainable levels and addressing structural imbalances from ageing.
- Distributional measures and protections:
  - pension reductions: elimination of the 13th and 14th pensions is compensated, for those receiving less than €2500 a month, by introducing a new flat bonus of €800 a year;
  - wage bill reductions: the 13th and the 14th wage payments will be eliminated for all employees; for those receiving less than €3000 a month, a flat bonus payment of €1000 a year per employee will be introduced, financed through cutting salary allowances for higher income segments;
  - minimum pensions and family support instruments will not be cut;
  - most vulnerable will be compensated for possible adverse impacts.
- Government will invite representatives of business and labor to sign a social pact for the duration of the program.

### Fiscal policies (detailed)
- Rationale:
  - frontloaded multiyear adjustment needed because of very high and still growing debt ratio and large fiscal deficit.
  - policies to restore external price competitiveness will initially weigh on activity, revenue, and debt dynamics.
- Short-term and medium-term fiscal strategy:
  - place debt-GDP ratio on a declining path from 2013 onward,
  - reduce the general government deficit to well below 3 percent of GDP by 2014,
  - strongly frontload fiscal adjustment; all fiscal measures for 2010–2012 have been identified, with most to be adopted in coming weeks.
- Immediate outcomes and 2010 outlook:
  - three biggest upfront measures: immediate cut in the public sector wage bill, pension outlays, and further increases in the VAT and selected excises (together with other steps yielding 2½ percent of GDP in further savings already in 2010);
  - these measures will help reduce the deficit from an estimated 13.6 percent of GDP in 2009 to 8.1 percent of GDP in 2010.
- Adjustment path 2011–2013:
  - adjustment needs for 2011 projected at 4 percent of GDP;
  - adjustment measures in 2012 at a pace of 2½ percent of GDP;
  - 2013 projected to be 2 percent of GDP;
  - headline deficit in percent of GDP expected to drop to 7½ percent in 2011.
- Expenditure and revenue targets through 2013:
  - expenditures will be cut by the equivalent of around 7 percent of GDP through 2013;
  - revenues will be increased by the equivalent of around 4 percent of GDP through 2013.
- Expenditure-side measures:
  - wage and entitlement program costs to be curtailed; wages and pensions to be frozen in nominal terms for the duration of the program;
  - replace over time only 20 percent of retiring employees;
  - consolidate municipalities and local councils;
  - rationalize investment spending and shift to more intensive and efficient use of EU structural and cohesion funds where feasible;
  - independent reviews of public administration and existing social programs by internationally renowned experts.
- Revenue-side measures:
  - boost presumptive taxation on liberal professions, increase luxury goods taxation, temporary surcharges on highly profitable entities and high valued properties;
  - measures to combat tax evasion included in recently adopted tax reform legislation;
  - broaden the VAT base, increase rates and raise excise taxes where Greece is below the euro area average and collection efficiency is low;
  - green taxes and “health” taxes (alcohol and tobacco) to play a part.

### Structural fiscal reforms and administration
- Pension reform:
  - reform to be adopted before end-June 2010;
  - National Actuarial Authority to produce a report verifying long-term actuarial balance;
  - existing pension funds will be merged in three funds;
  - new system to strengthen link between contributions and benefits with uniform rules pro-rata for all current and future workers;
  - normal retirement age will be set to 65 years, increasing in line with life expectancy;
  - benefits will be indexed to prices;
  - reform will restrict early retirement and reduce the list of heavy and arduous professions;
  - new system will include a means-tested social pension for all citizens above the normal retirement age.
- Health sector reform:
  - implement double-entry accrual accounting in hospitals, regular publication of audited accounts, improvements in pricing and costing mechanisms;
  - separate health funds from administration of pensions, merge funds, and bring health-related activities under one ministry.
- Tax reform and tax administration:
  - income tax system made more progressive; exemptions and deductions reduced; reforms to fight tax evasion including tightening obligations to issue receipts for VAT and to document living expenses; introduction of presumptive taxation;
  - short-run tax administration focus on safeguarding revenue from the largest taxpayers, stronger enforcement and auditing of high-wealth individuals and self-employed, prosecuting worst offenders, strengthening enforcement of VAT filing and payment, and collecting large stock of tax arrears;
  - medium-term tax administration program to develop a comprehensive compliance risk management framework (including a compliance strategy for 2012), develop taxpayer service capacity, improve enforcement operations (risk-based audits), and build headquarters strategic management and planning capabilities in tax and customs administration.
- Public financial management and fiscal framework:
  - IMF and European Commission technical assistance to be re-prioritized;
  - General Accounting Office (GAO) to monitor and report general government data;
  - introduce standardized commitment control procedures for all public entities to prevent re-emergence of arrears;
  - ensure budgets are prepared within a medium-term fiscal strategy and presented before the start of the fiscal year;
  - introduce top-down budgeting with expenditure ceilings, a sufficient contingency reserve, and a medium-term expenditure framework for the State budget;
  - require supplementary budget for any overruns above contingency provision;
  - amend the 1995 budget management law to give effect to the above;
  - creation of an independent fiscal agency attached to parliament envisaged.
- Debt management framework:
  - update debt management strategy and tools to ensure risk is adequately managed;
  - review operational and risk management framework for debt management to ensure transparency and predictability;
  - technical assistance sought from the IMF.
- Fiscal and public sector reporting and statistics:
  - new government disclosed under-reporting of the fiscal deficit for 2008 and revised figures;
  - working with Eurostat on fiscal data processing and reporting and a joint action plan with the European Commission to address outstanding statistical issues;
  - full independence granted to the Greek Statistical Office and resources allocated to improve statistical systems;
  - measures in the joint Greek government and European Commission Statistical Action Plan to be fully implemented;
  - since January 2010, timely monthly central government budget reports on a cash basis have been published;
  - GAO to start publishing monthly data on expenditures pending payment, including arrears, from July 2010;
  - efforts to improve collection and processing of general government data compiled according to ESA will be intensified; comprehensive data on employment in the general government will be compiled;
  - detailed information to be furnished to the European Commission, the ECB and the Fund on operating accounts and balance sheets of key public enterprises.

*Source: _cr10111 - 1.      The economic downturn accelerated coming into 2010. Greek real GDP declined*

### 14.      The program will be closely monitored and measures will be taken as necessary.

### _cr10111 - 14.      The program will be closely monitored and measures will be taken as necessary.

### Program risks, monitoring, and contingency stance
- Risks to the program:
  - lower revenue;
  - higher social transfers;
  - further downward revisions of growth;
  - additional fiscal liabilities from the public and financial sector;
  - higher interest costs.
- Contingency measures the government stands ready to take:
  - reduce discretionary spending, as necessary;
  - preserve program objectives by implementing appropriate measures if downside risks materialize.
- Upside potential noted:
  - 2010–2011 projections include cautious estimates of measures taken;
  - positive confidence effects could boost GDP growth and reduce market risk premia;
  - revenue administration efforts could yield more revenue than currently assumed;
  - if confidence rebounds and market support or stronger supply response from reforms materializes, benefits will be saved and the intended deficit will be brought forward to achieve a speedier return to fiscal sustainability.

### Financial sector policies — solvency, liquidity, and safety net
- Banking system solvency and profitability:
  - equity base rose from €24 to €33 billion in 2009;
  - government capital injections amounted to €3.8 billion in 2009;
  - all banks comply with the capital adequacy requirement of 8 percent;
  - average capital adequacy ratio rose to 11.7 percent at end 2009;
  - non-performing loans reached 7.7 percent at end-2009;
  - profitability declined and might become negative in the current year.
- Immediate liquidity pressures and government support:
  - Greek banks lost wholesale market access since end-2009;
  - maturing interbank liabilities not renewed or only at high costs; moderate deposit outflows noted in early 2010;
  - banks increasingly relied on Eurosystem credit operations;
  - government extended the banking assistance package of early 2009 (€28billion of which €11 billion had been used by end-2009) to provide €17 billion in additional liquidity;
  - government implementing another extension of this support facility subject to approval by decision of the European Commission;
  - within the Eurosystem framework, national central banks may support temporarily illiquid but solvent institutions; support by the Bank of Greece would be fully guaranteed by the Greek state consistent with relevant ECB and EU requirements.
- Financial Stability Fund (FSF):
  - government will establish a fully independent Financial Stability Fund (FSF) by June 30, 2010 (structural benchmark), through specific legislation and in consultation with the IMF, the European Commission, and the ECB;
  - FSF decision makers: persons of recognized standing in financial matters, appointed by the government and the Governor of the Bank of Greece (Governor will make most appointments);
  - primary purpose: preserve financial sector soundness and capacity to support the Greek economy by providing equity support to banks as needed;
  - shareholders required to immediately bring additional capital or take bridging capital support from the FSF if supervisory assessments conclude a bank’s capital buffer might fall below adequate levels;
  - if banks cannot raise capital and repay the FSF, a restructuring process will be led by the FSF in line with EU competition and state aid requirements.
- Strengthening other elements of the safety net:
  - corporate debt restructuring legislation and the proposal for a personal debt restructuring law will follow international best practices to maintain credit discipline, protect creditor and consumer rights, and preserve borrower track record information.
- Bank of Greece supervision enhancements:
  - implement intensified supervision and increase resources for banking supervision;
  - increase frequency and speed of data reporting;
  - further develop comprehensive framework for regular stress-testing of financial institutions;
  - increase staffing for on-site inspections and off-site review, accounting for new insurance supervision responsibilities;
  - introduce additional flexibility in human resources management and grant strong legal protection for Bank of Greece staff acting in good faith.
- Cross-border supervision coordination:
  - maintain close coordination with home and host country supervisors within the EU framework;
  - note significant presence of Greek banks in South Eastern European (SEE) countries; a number of MoUs with host supervisory authorities (EU and non-EU) have been signed;
  - intensify communication with regulators in SEE on risk assessments and liquidity contingency plans.

### Structural policies to boost competitiveness and recovery
- Objectives:
  - enhance flexibility and productive capacity;
  - restore and sustain international competitiveness through wage and price developments;
  - shift toward a more investment and export-led growth model.
- Specific reform areas and actions:
  - Modernizing public administration:
    - reorganize recruitment procedures and finalize the single payment authority for wages;
    - introduce a simplified remuneration system covering basic wages and all allowances for all public sector employees in a cost-saving manner;
    - strengthen procurement practices to generate efficiency gains and ensure transparency;
    - overhaul health care management, accounting and financing systems;
    - reorganize sub-central government to reduce the number of local administrations and elected/appointed officials;
    - collaborate with the EC to launch an independent external functional review of central government public administration.
  - Strengthening labor markets and income policies:
    - make private sector wages more flexible in line with public sector wage lowering;
    - reform legal framework for private sector wage bargaining, including eliminating asymmetry in arbitration (following consultation with social partners and within EU law);
    - adopt legislation for minimum entry level wages to promote employment for youth and long-term unemployed;
    - implement a new control system for undeclared work and modernize labor market institutions;
    - revise employment protection legislation (extend probationary periods, recalibrate collective dismissal rules, facilitate greater use of part-time work);
    - revise targeting of social expenditures to enhance safety net for the most vulnerable.
  - Improving business environment and competitive markets:
    - adopt legislation establishing one-stop shops for starting new enterprises to cut procedures, costs and delays;
    - introduce legislation to cut licensing and other costs for industry;
    - fully implement key steps of the EU Services Directive in 2010, especially in tourism, education and retail;
    - open restricted professions over the next year by reducing fixed tariffs and other restrictions in legal, pharmacy, notary, engineering, architect, road haulage, and auditing professions;
    - strengthen Hellenic Competition Commission (HCC);
    - progressively liberalize network industries, especially transport and energy, and strengthen sector regulators in line with EU policies.
  - Managing and divesting state enterprises:
    - increase transparency of state enterprises to improve efficiency and reduce losses;
    - publish 2009 financial statements audited by chartered accountants of the ten largest loss makers on the internet as a first step;
    - produce a timetable and action plan to improve financial performance of main loss-makers (notably railway and public transportation), including concrete steps to reduce costs, streamline networks serviced and increase tariffs;
    - review role for divesting state assets, including land owned by public enterprises or the government;
    - review scope for improving corporate governance and oversight of state-ownership.
  - Improving absorption of EU Structural and Cohesion Funds:
    - work with the EC to raise absorption rate, including establishing targets for payment claims based on MIS data every six months measured by certified data;
    - implement a system of "fast track project production" with deadlines for each step of approval and implementation;
    - submit a minimum of ten major projects per annum;
    - establish a central account within the public investment envelope for budgetary appropriations for national co-financing of Structural and Cohesion Funds;
    - establish a specific Task Force with the Commission to ensure faster delivery of high-quality projects.

### Program financing
- Projected public financing gap for program period: around €110 billion.
- Expected sources to cover the gap:
  - bilateral lending support from euro-area member states: €80 billion;
  - IMF support: €30 billion.
- Planned disbursement approach:
  - Greece will draw bilateral and IMF resources in parallel throughout the program period in a ratio of 8 to 3 in each disbursement (measured at the program exchange rate).
  - If fiscal consolidation proceeds faster than expected or market conditions improve significantly, Greece would refrain pari passu from drawing on the full bilateral and IMF support.

### Program monitoring, targets, and institutional arrangements
- Monitoring framework:
  - progress monitored through quarterly (and continuous) quantitative performance criteria (PCs) and indicative targets, structural benchmarks, program reviews and consultation clauses;
  - Quantitative targets up to December 2010 are PCs; targets for 2011–2013 are indicative and 2011 targets will be converted into PCs at the time of the second review before end-2010;
  - a joint EC/ECB MoU specifies the structural policies recommended in the MEFP and sets precise time frames.
- Bank of Greece safeguards assessment and financing modalities:
  - Bank of Greece will undergo a safeguards assessment in accordance with the IMF safeguards policy;
  - authorities have provided requested information to commence the assessment and authorized external auditors to provide information and hold discussions with IMF staff;
  - as IMF financing will be used for direct budget support, a memorandum of understanding between the government and the Bank of Greece will establish modalities for repayment of IMF financing and servicing of interest and other charges;
  - Fund disbursements will be deposited into the government’s single treasury account at the Bank of Greece pending their use.
- Selected fiscal measures and yields (Table 1 excerpts, in millions of Euros, yields of measures relative to the previous year):
  - VAT rates increase by 10 percent (10% to 11%; 21% to 23%): 800 1,000 0 0 1,800 0.8
  - Broadening VAT base: 0 1,000 500 0 1,500 0.7
  - Excise tax on fuel: 200 250 0 0 450 0.2
  - Excise tax on cigarettes: 200 300 0 0 500 0.2
  - Excise tax on alcoholic beverages: 50 500 0 0 100 0.0
  - Gaming royalties: 0 200 0 400 600 0.3
  - Special levy on highly profitable firms: 0 600 0 0 600 0.3
  - Presumptive taxation of professionals: 0 400 100 0 500 0.2
  - Increase legal value real estate: 0 400 200 100 700 0.3
  - Reduce wage bill by cutting bonuses/allowances: 1,100 400 0 0 1,500 0.7
  - Workforce reduction beyond 5:1 (add. 20,000): 0 0 600 500 1,100 0.5
  - Eliminate pension bonuses (except for minimum pensions): 1,500 500 0 0 2,000 0.9
  - Additional pension reduction above a certain threshold: 350 150 0 0 500 0.2
  - Nominal pension freeze: 0 100 250 200 550 0.2
  - Cut intermediate consumption: 700 300 0 0 1,000 0.4
  - Cut in transfers to public enterprises: 0 0 1,500 0 1,500 0.7
  - Cut domestically funded investment spending: 500 500 500 0 1,500 0.7
  - Yet to be quantified yield from structural reform initiatives: 0 0 0 4,200 4,200 1.8
  - Total annual measures: 5,800 9,150 5,575 4,775 25,300 11.0
  - Revenue measures: 1,250 6,600 1,725 -625 8,950 3.9
  - Expenditure measures: 4,550 2,550 3,850 5,400 16,350 7.1
  - Total measures (in percent of GDP): 2.5 4.1 2.4 2.0 11.0
  - Memorandum item: Nominal GDP: 231 224 228 235 229
- Selected quantitative performance criteria (Table 2 excerpts, cumulatively from January 1, 2010 unless indicated, in billion of Euros unless otherwise indicated):
  - 1. Floor on the modified general government primary cash balance: -5. 0 -4. 0 -5.7 .. .. .. -2.1 2.4 7.4
  - 2. Ceiling on State Budget primary spending: 34 5 0 67 .. .. .. 67 68 69
  - 3. Ceiling on the accumulation of new domestic arrears by the general government 5/: .. .. .. 0 0 0 0 0 0
  - 4. Ceiling on the overall stock of central government debt: 342 3 42 342 .. .. .. 365 .. ..
  - 5. Ceiling on the new guarantees granted by the central government: 2.  0 2.0 2.0 .. .. .. 1. 0 0.0 0.0
  - 6. Ceiling on the accumulation of new external payments arrears on external debt contracted or guaranteed by general government 5/: 0 0 0 .. .. .. 0 0 0
- Selected prior actions and structural benchmarks (end-June 2010 / end-September 2010):
  - Prior actions:
    1. Reduce public wage bill by cutting bonuses/allowances; and pension bonuses (except minimum pensions) — improves fiscal sustainability and signals for private sector wage setting.
    2. Increase standard VAT rate from 21 to 23 percent and reduced rate from 10 to 11 percent and excise tax rates on alcohol, tobacco, and fuel with a yield of at least €1.25 billion in the remainder of 2010 — improves fiscal sustainability.
    3. Appoint staff team and leader in GAO responsible for general government in-year cash reporting — establishes in-year oversight responsibilities of general government fiscal policy.
  - Structural benchmarks:
    1. Establish the independent Financial Stability Fund (FSF) to preserve the financial sector's soundness and capacity to support the Greek economy by providing equity support to banks as needed — enhances financial stability.
    2. Adopt and start to implement a reorganization of sub-central government with the aim to reduce the number of local administrations and elected/appointed officials (Kalikrates) — improves fiscal sustainability.
    3. Submit to parliament amendments to Law 2362/1995 to require multi-year fiscal strategy, top-down budgeting with expenditure ceilings, contingency margins, supplementary budget rules for overspending, and commitment controls — improves budget credibility.
    4. The National Actuarial Authority to produce a report assessing whether parameters of the new system significantly strengthen long-term actuarial balance — reduces budgetary costs of ageing and improves long-term fiscal sustainability and labor force participation.

*Italicized source attribution line provided separately by the pipeline.*

### 1. Adopt a comprehensive pension reform that reduces the projected increase in public spending on pensions over the peri

### _cr10111 - 1. Adopt a comprehensive pension reform that reduces the projected increase in public spending on pensions over the peri

### Major recommended reforms and structural benchmarks
- 1. Adopt a comprehensive pension reform that reduces the projected increase in public spending on pensions over the period 2010-60 to 2 ½ percent of GDP.
  - Improves fiscal sustainability.
- 2. Establish a commitment register in all line ministries and public law entities. Begin publishing monthly data on general government in-year fiscal developments (including arrears).
  - Reduces budget overruns.
- 3. Publish 2009 financial statements of the ten largest loss-making public enterprises, audited by chartered accountants, on the official website of the Ministry of Finance.
  - Increases transparency of fiscal risks to fiscal sustainability.
- 4. Put in place an effective project management arrangement (including tight MOF oversight and five specialist taskforces) to implement the anti-evasion plan to restore tax discipline through:
  - strengthened collection enforcement and recovery of tax arrears—coordinated with the social security funds—of the largest debtors;
  - a reorganized large taxpayer unit focused on the compliance of the largest revenue contributors;
  - a strong audit program to defeat pervasive evasion by high-wealth individuals and high income self-employed, including prosecution of the worst offenders;
  - a strengthened filing and payment control program.
  - Outcome: Achieves revenue targets and enhances sustainability of the consolidation by increasing burden sharing of the adjustment.
  - Timing target: End-December 2010.

### Additional 2010 structural actions
- 1. Publish a detailed report by the ministry of finance in cooperation with the single payment authority on the structure and levels of compensation and the volume and dynamics of employment in the general government.
  - Reduces wage escalation. Improves transparency of public sector employment.
- 2. Adopt new Regulation of Statistical Obligations for the agencies participating in the Greek Statistical System.
  - Enhances confidence in fiscal reporting and supports the formulation of fiscal policy.
- 3. Prepare a privatization plan for the divestment of state assets and enterprises with the aim to raise at least 1 billion euro a year during the period 2011-2013.
  - Reduces state intervention in the real economy; improves market efficiency; and cuts fiscal contingencies.
- Note: Structural benchmarks for 2011 will be determined in the reviews for end-September and end-December 2010.

### Program definitions, reporting, and exchange rates
- Program exchange rates (values that prevailed on April 30, 2010):
  - €1 = 1.3315 U.S. dollar
  - €1 = 125.81 Japanese yen
  - €1.135 = 1 SDR
- General government definition includes:
  - entities covered under the State Budget as defined in Law 2362/1995;
  - local authorities (municipalities, prefectures, regional governments) including basic and special budgets and agencies classified under ESA 95;
  - social security funds as registered by the National Statistical Service;
  - any new funds or special budgetary and extra budgetary programs created during the program period (authorities will inform IMF, European Commission and ECB staff immediately).

### Quantitative indicators, monitoring, and data provision
- Reporting and data provision obligations:
  - Ministry of Finance to provide detailed monthly information on revenues and expenditures, domestic and foreign debt redemptions, new debt issuance, changes in central government cash balances, all other financing including capital transactions, and arrears within 30 days.
  - Bank of Greece to provide detailed monthly data on assets and liabilities of local authorities and social security funds in line with monetary survey data.
- Central government revenue (Cumulative from January 1, 2010):
  - June 2010: €25,056 million
  - September 2010: €41,232 million
  - December 2010: €58,382 million
- Stock of arrears:
  - The stock of arrears as of end-April stood at 5.6 billion euro.
- Data delivery timelines:
  - Cash balances of ordinary and investment state budgets: within three weeks after the end of the month (General Accounting Office).
  - Net financial assets of local authorities and social security funds: within four weeks after the end of the month (Bank of Greece Statistics Department).
  - Monthly expenditure arrears: within four weeks after the end of the month (Ministry of Finance).
  - Total stock of central government debt: no later than 30 days after the end of each month (General Accounting Office).
  - New central government guarantees: reported monthly within three weeks after the end of each month (General Accounting Office).
  - External arrears stock: provided with a lag of not more than seven days after the test date (General Accounting Office).

### Key performance criteria and continuous targets (selected)
- Floor of the Modified General Government Primary Cash Balance (MGGPCB):
  - Definition: MGGPCB = modified general government cash balance (MGGCB) minus interest payments by the state budget.
  - MGGCB = cash balances of ordinary state budget + cash balance of investment state budget + change in net financial assets of local authorities + change in net financial assets of social security funds.
  - Privatization receipts excluded from cash receipts. Net lending operations by the state budget recorded as cash expenditures.
- Ceiling of State Budget Primary Spending (Performance Criterion):
  - Definition: state budget primary spending = state budget spending (ordinary + investment) minus interest expenditures paid by the state budget.
  - Excludes cash payments related to bank restructuring under the program’s banking sector restructuring strategy.
- Non-accumulation of Domestic Arrears by the General Government (Continuous Indicative Target):
  - Definition: domestic arrears = accounts payable to domestic suppliers past due date by 90 days.
- Ceiling on the Overall Stock of Central Government Debt (Performance Criterion):
  - Definition: total outstanding gross debt liabilities of the central government (securities and loans). Program exchange rate applies to non-euro denominated debt.
  - Excludes debt arising from payments for bank restructuring under the program’s banking sector restructuring strategy.
  - Adjusted by revisions to the stock of end-December 2009 central government debt.
- Ceiling on New Central Government Guarantees:
  - Excludes guarantees to support banks and guarantees related to EIB financed loans.
- Non-accumulation of External Debt Payments Arrears by the General Government (Continuous Performance Criterion):
  - Definition: an external debt payment arrear = a payment on debt contracted or guaranteed by the general government not made within seven days after falling due.

### Pension reform specifics and expectations
- Timing:
  - Pension reform should be adopted by the end of September 2010.
  - Draft law for the new actuarially-balanced system should be available by the end of June, 2010.
- Key elements expected from the reform:
  - Merge pension funds in three funds by 2018.
  - Introduce a new system to strengthen the link between contributions and benefits, with uniform rules that will apply pro-rata (as a sum of the accrued rights under the old system and the benefits accrued under the new system) to all current and future workers.
    - Workers retiring in and after 2015 will collect benefits from this system.
  - Set the normal retirement to age 65 across all systems, including for those insured before 1993 and women in the public sector, by 2015.
    - After 2020, the normal retirement age will increase in line with life expectancy.
  - Restrict early retirement to age 60 by 2011, including for those insured before 1993, workers in heavy and arduous professions, and those with 35 or more years of contributions.
  - Index benefits to changes in the consumer price index, starting in 2014 (benefits will be frozen 2010–2013).
  - Include a means-tested pension for all citizens older than the normal retirement age to provide a safety net consistent with fiscal sustainability.
  - Lengthen the years over which the pensionable earnings base is calculated from the top 5 out of the last 10 years of earnings to lifetime earnings.
  - Review conditions for disability pensions by the end of March of 2011 and introduce stricter conditions for eligibility by December of 2011, including periodic re-examination of those with disability pensions.
- Objective:
  - Reduce the projected increase in public spending on pensions over the period 2010-60 to 2 ½ percent of GDP and improve long-term actuarial balance (National Actuarial Authority to produce assessment).

### Program financing and commitments
- Requested financial assistance:
  - From euro area Member States: a total amount of €80 billion over a 36 months period.
  - From the IMF: a total amount of €30 billion (SDR 26.4 billion).
- Program monitoring:
  - Quarterly reviews of the arrangement in coordination with the IMF; first review expected to be completed in the course of the third calendar quarter of 2010.
  - Reviews will assess progress, financing, and additional measures as needed.

*Source: Technical Memorandum of Understanding and Memorandum of Economic and Financial Policies (Greece), May 3, 2010.*

### 1.      The economic downturn accelerated coming into 2010. Greek real GDP declined

### The economic downturn accelerated coming into 2010. Greek real GDP declined

### Macroeconomic context and crisis impact
- Greek real GDP declined by 2 percent in 2009 and indicators suggest that activity will weaken further in 2010.
- Following the October elections, realization that fiscal and public debt outturns for 2008 and 2009 were significantly worse than reported caused confidence to drop, financing costs to increase, and growth and employment to suffer.
- The deficit was 5.1 percent of GDP in 2007 (at the top of the cycle), indicating Greece entered the downturn with a large underlying public deficit.
- The deficit jumped to an estimated 13.6 percent of GDP and public debt rose to over 115 percent of GDP in 2009.
- External position:
  - External current account deficit at end 2009 was still over 11 percent of GDP.
  - Net international investment position is over negative 83 percent of GDP.
  - External interest bill on the foreign debt has increased to over 5 percent of GDP.

### Financial system effects
- Downgrades of government bonds and investor pullback drove up yields and financing costs.
- Deep macroeconomic and structural problems combined with strong fiscal adjustment over the medium term are likely to weigh on activity and negatively affect the banking system.
- Impaired loans are rising while borrowing costs in the interbank and wholesale markets have increased, putting pressure on bank profitability.
- Current capital buffers in the banking system are described as reassuring, but supervisors will need to monitor liquidity and nonperforming loans closely.

### Key objectives and outlook of the program
- Main objectives: correct fiscal and external imbalances and restore confidence.
- Growth outlook and assumptions:
  - The economic program assumes negative growth of 4 percent in 2010 and 2½ percent in 2011.
  - A return to growth is expected from 2012 onward, conditional on front-loaded fiscal measures, confidence effects, and comprehensive structural reforms.
- Inflation and competitiveness:
  - Inflation needs to be reduced significantly below the euro area average to regain price competitiveness.
  - Domestic demand tightening (fiscal adjustment, moderation of wages and pensions, cost-cutting) and addressing oligopolistic structures and high markups are essential.
- External deficit projection:
  - External deficit is projected to decline gradually over the medium term as domestic demand and inflation moderate and structural reforms improve exports and reduce import dependence.
  - Interest costs on substantial external debt will pressure the current account for some time.

### Fiscal policy strategy and targets
- Fiscal adjustment is the cornerstone: government committed to put in place durable adjustment measures of 11 percent of GDP in cumulative terms through 2013, with additional remedial measures in 2014 to reduce the deficit to well below 3 percent of GDP.
- Debt and primary balance targets:
  - Place debt-GDP ratio on a downward trajectory from 2013 onward.
  - Maintain primary balances in a sizeable surplus (at least 5 percent of GDP) up to 2020.
- Frontloaded approach: all fiscal measures for remainder of 2010-2012 identified; most to be adopted in coming weeks. Fiscal measures for 2013 identified with some residual gap to be addressed in coming reviews.
- Immediate impact and 2010 target:
  - Three biggest upfront measures: immediate cut in public sector wage bill, cuts in pension outlays, and further increases in VAT and selected excises (together with other steps yielding 2½ percent of GDP in further savings already in 2010).
  - Deficit estimated to drop from 13.6 percent of GDP in 2009 to 8.1 percent of GDP in 2010.
- 2011–2013 adjustment pacing:
  - Adjustment needs for 2011 projected at 4 percent of GDP.
  - Adjustment in 2012 projected at 2½ percent of GDP.
  - Adjustment in 2013 projected at 2 percent of GDP.
  - Headline deficit in percent of GDP expected to drop to 7½ percent in 2011.

### Fiscal composition of adjustment
- Expenditure measures:
  - Expenditures to be cut by the equivalent of around 7 percent of GDP through 2013.
  - Wage and entitlement program costs to be curtailed; wages and pensions subsequently frozen in nominal terms for the duration of the program.
  - Replacement hiring: replace over time only 20 percent of retiring employees.
  - Consolidation of municipalities and local councils.
  - Investment spending to be rationalized and shifted to more efficient use of EU structural and cohesion funds where feasible.
  - Independent reviews of public administration and social programs to rationalize organization and improve targeting.
- Revenue measures:
  - Revenues to be increased by the equivalent of around 4 percent of GDP through 2013.
  - Measures include: presumptive taxation on liberal professions, increased luxury goods taxation, temporary surcharges on highly profitable entities and high valued properties, measures to combat tax evasion, broadening the VAT base, increasing rates, raising excise taxes where below euro area average, and green and “health” taxes (alcohol and tobacco).
- Other fiscal-strengthening initiatives:
  - Strengthen fiscal policy framework and fiscal institutions.
  - Create an independent fiscal agency attached to parliament (implementation measures described).
  - Update debt management strategy and operational/risk management framework; technical assistance has been sought from the IMF.

### Social and income policy measures and distributional safeguards
- Government committed to fairness and protecting the most vulnerable.
- Pension reductions:
  - Elimination of the 13th and 14th pensions is compensated, for those receiving less than €2500 a month, by introducing a new flat bonus of €800 a year.
  - Benefit reduction is weighted toward higher pension earners.
- Wage bill reductions:
  - Elimination of the 13th and 14th wage payments for all employees.
  - For those receiving less than €3000 a month, a flat bonus payment of €1000 a year per employee will be introduced, financed through cutting salary allowances for higher income segments.
- Protection measures:
  - Minimum pensions and family support instruments will not be cut.
  - Most vulnerable will be compensated for possible adverse policy impacts.
  - Government will invite representatives of business and labor to sign a social pact for the duration of the program to maintain social cohesion, fight poverty, and maintain employment.

### Structural reforms and public sector reforms
- Structural reforms to boost capacity to produce, save, and export are critical.
- Public sector and markets:
  - Ambitious program to modernize the public sector and render product and labor markets more efficient and flexible.
  - Create a more open environment for domestic and foreign investors and reduce the state’s direct participation in domestic industries.
- Specific reform programs:
  - Pension reform:
    - Reform to be adopted before end-June 2010.
    - National Actuarial Authority to verify long-term actuarial balance.
    - Existing pension funds to be merged into three funds.
    - New system to strengthen link between contributions and benefits; uniform rules pro-rata to all current and future workers.
    - Normal retirement age set to 65 years, increasing in line with life expectancy.
    - Benefits indexed to prices.
    - Restrictions on early retirement, reduction in list of heavy and arduous professions.
    - Inclusion of a means-tested social pension for all citizens above the normal retirement age.
  - Health sector reform:
    - Implement double-entry accrual accounting in hospitals and periodic publication of audited accounts.
    - Improvements in pricing and costing mechanisms.
    - Separate health funds from administration of pensions; merge funds; bring all health-related activities under one ministry.
  - Tax reform:
    - Income tax system made more progressive; exemptions and deductions reduced to broaden the tax base.
    - Reforms to fight tax evasion: tightening obligations to issue receipts for VAT, documenting living expenses, introduction of presumptive taxation.
    - Government will further review the tax system to simplify and increase efficiencies as necessary.
  - Tax administration reform:
    - Technical assistance from the IMF obtained.
    - Short-run focus: safeguard revenue from largest taxpayers; stronger enforcement and auditing of high-wealth individuals and self-employed; prosecute worst offenders; strengthen enforcement of VAT filing/payment; collect large stock of tax arrears.
    - Medium-term program: develop comprehensive compliance risk management framework (prepare compliance strategy for 2012); develop taxpayer service capacity; improve enforcement operations using risk-based approaches; build headquarters strategic management and planning capabilities in tax and customs administration.
  - Public financial management and fiscal framework reforms:
    - GAO to monitor and report general government data.
    - Introduce standardized commitment control procedures for all public entities to prevent arrears.
    - Ensure budgets are prepared within a medium-term fiscal strategy and presented before start of fiscal year.
    - Introduce top-down budgeting with expenditure ceilings, sufficient contingency reserve, and medium-term expenditure framework for State budget.
    - Require supplementary budget for overruns above contingency; amend the 1995 budget management law accordingly.
    - Continue working with IMF and European Commission technical assistance and implement recommendations, including creation of an independent fiscal agency attached to parliament.
  - Fiscal and public sector reporting/statistics:
    - New government disclosed that 2008 fiscal deficit was under-reported and revised it upon taking office in October 2009.
    - Working with Eurostat, remedial measures and a joint Action Plan with the European Commission have been designed to address statistical issues.
    - Full independence granted to the Greek Statistical Office and resources to improve statistical systems.
    - Measures in joint Greek government and European Commission Statistical Action Plan to be fully implemented.
    - Since January 2010, timely monthly central government budget reports on a cash basis have been published.
    - GAO to start publishing monthly data on expenditures pending payment, including arrears, from July 2010.
    - Efforts to improve general government data compiled according to ESA and to compile comprehensive data on employment in the general government.
    - Detailed information to be furnished to the European Commission, the ECB and the Fund on operating accounts and balance sheets of key public enterprises.

*Source: _cr10111 - 1.      The economic downturn accelerated coming into 2010. Greek real GDP declined*

### 14.      The program will be closely monitored and measures will be taken as necessary.

### _cr10111 - 14.      The program will be closely monitored and measures will be taken as necessary.

### Monitoring, Risks, and Policy Response
- Risks to the program from:
  - lower revenue;
  - higher social transfers;
  - further downward revisions of growth;
  - additional fiscal liabilities from the public and financial sector;
  - higher interest costs.
- Government stance:
  - these risks "can be managed and the government stands ready to take appropriate measures to preserve the program objectives, including by reducing discretionary spending, as necessary."
- Upside potential noted:
  - 2010‒2011 projections include cautious estimates of the measures taken;
  - positive confidence effects could boost GDP growth and reduce market risk premia;
  - revenue administration efforts could yield more revenue gains than currently assumed.
- Contingency for stronger-than-expected outcomes:
  - "Should confidence rebound and the market support Greece earlier than expected, or the supply response from reforms comes in more vigorously, these benefits will be saved and bring forward the correction to the intended deficit to achieve a speedier return to fiscal sustainability."

### B. Financial Sector Policies — Key Findings and Measures
- Banking system position and trends:
  - equity base strengthened from €24 to €33 billion in 2009 (including government capital injections of €3.8 billion, capital increases from owners, and retained earnings);
  - all banks comply with the capital adequacy requirement of 8 percent;
  - average capital adequacy ratio rose to 11.7 percent at end 2009;
  - non-performing loans reached 7.7 percent at end-2009;
  - profitability declined and "might become negative this year."
- Immediate liquidity challenge:
  - Greek banks lost wholesale market access since end-2009;
  - maturing interbank liabilities not renewed or only at high costs;
  - moderate deposit outflows noted in first months of 2010;
  - increased reliance on Eurosystem credit operations.
- Government liquidity support:
  - extended the banking assistance package of early 2009 (€28 billion, of which €11 billion had been used by end-2009) to provide €17 billion in additional liquidity;
  - government implementing another extension subject to European Commission approval;
  - within Eurosystem, national central banks may support temporarily illiquid but solvent institutions; such support by Bank of Greece would be fully guaranteed by the Greek state consistent with ECB and EU requirements.
- Financial Stability Fund (FSF):
  - government will establish a fully independent FSF by June 30, 2010 (structural benchmark), through specific legislation and in consultation with the IMF, the European Commission, and the ECB;
  - FSF decision makers to be persons of recognized standing in financial matters, appointed by the government and the Governor of the Bank of Greece (who will make most appointments);
  - primary purpose: preserve financial sector soundness by providing equity support to banks as needed;
  - shareholders invited to bring additional capital or take bridging capital support from the FSF if supervisory assessments indicate inadequate capital buffers;
  - if banks cannot raise capital and repay the FSF, a restructuring process will be led by the FSF in line with EU competition and state aid requirements.
- Complementary measures:
  - corporate debt restructuring legislation and proposal for personal debt restructuring law to follow international best practices, preserve credit discipline, protect creditor and consumer rights, and preserve borrower track records.
- Bank of Greece supervisory strengthening:
  - intensified supervision and increased resources for banking supervision;
  - increased frequency and speed of data reporting;
  - further development of a comprehensive framework for regular stress-testing financial institutions;
  - increased staffing for on-site inspections and off-site review, including insurance supervision responsibilities;
  - additional flexibility in human resources management and strong legal protection for Bank of Greece staff for actions in good faith.
- Cross-border coordination:
  - maintain close coordination with home and host country supervisors within EU framework;
  - MoUs signed with host supervisory authorities in SEE (both EU and non-EU);
  - intensified communication with regulators in SEE on risk assessments and liquidity contingency plans.

### C. Structural Policies — Objectives and Measures
- Objective: boost competitiveness, enhance flexibility and productive capacity, restore and sustain international competitiveness, and shift structure toward investment and export-led growth.
- Commitment: government to work with the European Commission and the ECB to pursue reforms as specified in the MoU attached to the MEFP.
- Main reform areas and measures:
  - Modernizing public administration:
    - reorganize recruitment procedures and finalize the single payment authority for wages;
    - introduce a simplified remuneration system covering basic wages and all allowances for all public sector employees in a cost-saving manner;
    - strengthen procurement practices for efficiency and transparency;
    - overhaul health care system via reforms in management, accounting and financing systems;
    - reorganize sub-central government to reduce number of local administrations and elected/appointed officials;
    - collaborate with EC to launch an independent external functional review of public administration at central government level.
  - Strengthening labor markets and income policies:
    - private sector wages to become more flexible following public sector wage lowering;
    - reform legal framework for private sector wage bargaining, including eliminating asymmetry in arbitration;
    - adopt legislation for minimum entry level wages to promote employment for at-risk groups (young and long-term unemployed);
    - implement new control system for undeclared work and modernize labor market institutions;
    - revise employment protection legislation (extend probationary periods, recalibrate collective dismissal rules, facilitate greater use of part-time work);
    - revise scope for improving targeting of social expenditures to enhance social safety net for the most vulnerable.
  - Improving business environment and competitive markets:
    - adopt legislation establishing one-stop shops for starting new enterprises;
    - cut licensing and other costs for industry;
    - fully implement key steps of the EU Services Directive in 2010, especially in tourism, education and retail;
    - over next year, open restricted professions by reducing fixed tariffs and other restrictions in legal, pharmacy, notary, engineering, architect, road haulage, and auditing professions;
    - strengthen role of the Hellenic Competition Commission (HCC);
    - progressively liberalize network industries, especially transport and energy, and strengthen regulators in line with EU policies.
  - Managing and divesting state enterprises:
    - increase transparency of state enterprises to raise efficiency and reduce losses;
    - publish 2009 financial statements audited by chartered accountants of the ten largest loss makers on the internet;
    - produce a timetable and action plan for improving financial performance of main loss-makers, notably railway and public transportation companies, including cost reduction steps, network streamlining, and tariff increases;
    - review role for divesting state assets, including land owned by public enterprises or the government;
    - review scope for improving corporate governance and oversight of state-ownership.
  - Improving absorption of EU structural and cohesion funds:
    - work with EC to raise absorption rate, establish targets for payment claims based on MIS data every six months measured by certified data;
    - implement a system of "fast track project production" with deadlines for each step of approval and implementation;
    - submit a minimum of ten major projects per annum;
    - establish a central account for budgetary appropriations for national cofinancing of Structural and Cohesion Funds within the public investment envelope agreed in the program;
    - establish a specific Task Force with the Commission to ensure faster delivery of high-quality projects.

### IV. Program Financing — Projections and Arrangements
- Projected public financing gap for the program period: "around €110 billion";
- Expected coverage:
  - matching bilateral lending support from euro area member states: €80 billion;
  - IMF support: €30 billion;
- Disbursement ratio: Greece will draw on bilateral and IMF financing "in a ratio of 8 to 3 in each disbursement (measured at the program exchange rate)";
- Conditionality on drawing: if fiscal consolidation proceeds faster than expected or market conditions improve significantly, Greece would refrain from drawing on the full bilateral and IMF support.

### V. Program Monitoring — Framework and Safeguards
- Monitoring mechanisms:
  - quarterly (and continuous) quantitative performance criteria (PCs) and indicative targets;
  - structural benchmarks, program reviews and consultation clauses;
  - detailed in Tables 2 and 3; definitions in the attached TMU;
  - quantitative targets up to December 2010 are PCs; targets for 2011‒2013 are indicative and for 2011 will be converted into PCs at the time of the second review before end-2010.
- Bank of Greece safeguards assessment:
  - Bank of Greece will undergo a safeguards assessment in accordance with IMF safeguards policy;
  - authorities provided requested information and authorized external auditors to provide information to and hold discussions with IMF staff;
  - because IMF purchases will provide direct budget support, a memorandum of understanding between the government and the Bank of Greece will establish modalities for repayment of IMF financing and servicing of interest and other charges;
  - Fund disbursements will be deposited into the government’s single treasury account at the Bank of Greece pending use.

### Fiscal Measures Included in the Programme — Key Figures (Table 1 summaries)
- TOTAL MEASURES 2010‒2014: 30000 (represented) 13.0
- 2010 — TOTAL ANNUAL IMPACT: 5800 2.5
  - Revenue measures:
    - Increase in VAT rates 800 0.3
    - Increase in excise tax on fuel 200 0.1
    - Increase in excise tax on cigarettes 200 0.1
    - Increase in excise tax on alcohol 50 0.0
  - Expenditure measures:
    - Wage bill cut by reducing the Easter, summer and Christmas bonuses and allowances 1100 0.5
    - Intermediate consumption 700 0.3
    - Pension cuts (highest pensions) 350 0.1
    - Elimination of solidarity allowance (second instalment) 400 0.2
    - Pensions cut by reducing the Easter, summer and Christmas bonuses 1500 0.6
    - Public investment reduction 500 0.2
- 2011 — TOTAL ANNUAL IMPACT: 9150 4.1
  - Carry over from last year 1.1
  - Revenue measures (selected):
    - Increase the VAT rates 1000 0.4
    - Increase in excise tax on fuel 250 0.1
    - Increase in excise tax on cigarettes 300 0.1
    - Taxation on unauthorised establishments 800 0.4
    - Luxury goods tax 100 0.0
    - Gaming licenses 500 0.2
    - Special levy on profitable firms 600 0.3
    - VAT - changes in the sub-categories and broadening base 1000 0.4
    - Green tax 300 0.1
    - Presumptive taxation 400 0.2
    - Increase of legal values of real estate 400 0.2
    - Taxation of wage in kind (cars) 150 0.1
  - Expenditure measures (selected):
    - Intermediate consumption 300 0.1
    - Savings from the introduction of unified public sector wages 100 0.0
    - Pension freeze 100 0.0
    - Kalikrates savings 500 0.2
    - Pension cuts (highest pensions) 150 0.1
    - Public investment reduction 500 0.2
- 2012 — TOTAL ANNUAL IMPACT: 5575 2.4
  - Revenue measures (selected):
    - Excise non-alcoholic beverages 300 0.1
    - Gaming licenses 225 0.1
    - Gaming royalties 400 0.2
    - VAT - broadening base 300 0.1
    - Presumptive taxation 100 0.0
    - Increase of legal values of real estate 200 0.1
  - Expenditure measures (selected):
    - Reduction in public employment in addition to the 5-to-1 replacement rule 600 0.3
    - Means test unemployment benefit 500 0.2
    - Pension freeze 250 0.1
    - Kalikrates savings 500 0.2
    - Cut transfers to public entities 800 0.4
    - Public investment reduction 500 0.2
    - Unidentified cuts in operational expenditure 900 0.4
- 2013 — TOTAL ANNUAL IMPACT: 4775 2.0
  - Revenue:
    - Presumptive taxation 100 0.0
    - Gaming licenses -725 -0.3
  - Expenditure:
    - Reduction in public employment in addition to the 5-to-1 replacement rule 500 0.2
    - Pension freeze 200 0.1
    - Kalikrates savings 500 0.2
    - Unidentified measures 4200 1.8
- 2014 — TOTAL ANNUAL IMPACT: 4700 1.9
  - Temporary measures -0.4
  - Special levy on profitable firms (discontinuation of temporary measures) -600 -0.2
  - Levies on illegal buildings (discontinuation of temporary measures) -450 -0.2
  - Unidentified measures 5750 2.4

### Quantitative Performance Criteria — Selected Entries (Table 2)
- 1. Floor on the modified general government primary cash balance:
  - juin-10: -5.0
  - sept-10: -4.0
  - déc-10: -5.7
  - déc-11: -2.1
  - déc-12: 2.4
  - déc-13: 7.4
- 2. Ceiling on State Budget primary spending:
  - juin-10: 34
  - sept-10: 50
  - déc-10: 67
  - déc-11: 67
  - déc-12: 68
  - déc-13: 69
- 3. Ceiling on the accumulation of new domestic arrears by the general government 5/: 0 (for déc-11, déc-12, déc-13)
- 4. Ceiling on the overall stock of central government debt:
  - juin-10: 342
  - sept-10: 342
  - déc-10: 342
  - déc-11: 365
- 5. Ceiling on the new guarantees granted by the central government:
  - juin-10: 2.0
  - sept-10: 2.0
  - déc-10: 2.0
  - déc-11: 1.0
  - déc-12: 0.0
  - déc-13: 0.0
- Notes:
  - 1/ Cumulatively from January 1, 2010 (unless otherwise indicated).
  - 2/ Cumulatively from January 1, 2011 (unless otherwise indicated).
  - 3/ Cumulatively from January 1, 2012 (unless otherwise indicated).
  - 4/ Cumulatively from January 1, 2013 (unless otherwise indicated).
  - 5/ Applies on a continuous basis from April 30, 2010 onward.

### Structural Conditionality for 2010 — Selected Items (Table 3)
- Prior actions:
  1. Reduce public wage bill by cutting bonuses/allowances; and pension bonuses (except minimum pensions). (Macrocritical relevance: Improves fiscal sustainability; has signaling effect for private sector wage setting.)
  2. Increase standard VAT rate from 21 to 23 percent and reduced rate from 10 to 11 percent and excise tax rates on alcohol, tobacco, and fuel with a yield of at least €1.25 billion in the remainder of 2010. (Macrocritical relevance: Improves fiscal sustainability.)
  3. Appoint staff team and leader in GAO responsible for general government in-year cash reporting. (Macrocritical relevance: Establishes in-year oversight responsibilities of general government fiscal policy.)
- Structural benchmarks: End-June 2010

*Source: IMF staff report content as provided in the supplied PDF excerpt.*

### 1. Establish the indep

### 1. Establish the independent Financial Stability Fund (FSF) to preserve the financial sector's soundness and thus its capacity to support the Greek economy by providing equity support to banks as needed.

### Fiscal consolidation — measures and quantified savings (2010)
- Authorities take measures generating savings for a total amount of 2.5% of GDP in 2010.
- Increase in VAT rates, with a yield of at least EUR 1800 million for a full year (EUR 800 million in 2010).
- Increase in excises for fuel, tobacco and alcohol, with a yield of at least EUR 1050 million for a full year (EUR 450 million in 2010).
- Reduction in the public wage bill by reducing the Easter, summer and Christmas bonuses and allowances paid to civil servants, with net savings amounting to EUR 1500 million for a full year (EUR 1100 million in 2010).
- Elimination of the Easter, summer and Christmas bonuses paid to pensioners, while protecting those receiving lower pensions, with net savings amounting to EUR 1900 for a full year (EUR 1500 million in 2010).
- Cancel budgetary appropriations in the contingency reserve with the aim of saving EUR 700 million.
- Reduce the highest pensions with the aim of saving EUR 500 million for a full year (EUR 350 million in 2010).
- Abolish most of the budgetary appropriation for the solidarity allowance (except a part for poverty relief) with the aim of saving EUR 400 million.
- Reduce public investment by EUR 500 million compared to plans.
- Parliament adopts a Law introducing a progressive tax scale for all sources of income and a horizontally unified treatment of income generated from labour and assets.
- Parliament adopts a Law abrogating exemptions and autonomous taxation provisions in the tax system, including income from special allowances paid to civil servants. The law applies retroactively from January 1, 2010.

### Structural fiscal reforms and transparency
- Government adopts by end June 2010 a law that requires the monthly publication by the General Accounting Office (GAO) of timely monthly statistics (on a cash basis) on revenue, expenditure and financing for the State, as well as on spending pending of payment, including arrears.
- Submit to parliament amendments to Law 2362/1995 to:
  - (i) require the MoF to present a three-year fiscal and budget strategy,
  - (ii) introduce top-down budgeting with expenditure ceilings for the State budget and multi-year expenditure estimates by line ministry,
  - (iii) introduce standard contingency margins,
  - (iv) require a supplementary budget for any overspending above the contingency,
  - (v) and introduce commitment controls.
  - The amended law should be immediately effective, including in the context of the 2011 budget.
- Establish a commitment register in all line ministries and public law entities. Begin publishing monthly data on general government in-year fiscal developments (including arrears).
- Publish 2009 financial statements of the ten largest loss-making public enterprises, audited by chartered accountants, on the official website of the Ministry of Finance.
- Publish a detailed report by the ministry of finance in cooperation with the single payment authority on the structure and levels of compensation and the volume and dynamics of employment in the general government.
- Adopt new Regulation of Statistical Obligations for the agencies participating in the Greek Statistical System.
- Prepare a privatization plan for the divestment of state assets and enterprises with the aim to raise at least 1 billion euro a year during the period 2011-2013.

### Financial sector regulation and supervision
- The Bank of Greece, on behalf of the Government, establishes an independent Financial Stability Fund, with a strong governance structure, to deal with potential solvency issues and to preserve the financial sector’s soundness and its capacity to support the Greek economy, by providing equity support to banks as needed (Annex 2).
- Start implementation of intensified supervision of banks, including by allocating more human resources, also with a view to the take-over of insurance supervision, frequent reporting under tighter deadlines and quarterly solvency stress tests.
- Review the private sector bankruptcy law to ensure consistency with ECB observations.
- Put in place an effective project management arrangement (including tight MOF oversight and five specialist taskforces) to implement the anti-evasion plan to restore tax discipline through:
  - strengthened collection enforcement and recovery of tax arrears—coordinated with the social security funds—of the largest debtors;
  - a reorganized large taxpayer unit focused on the compliance of the largest revenue contributors;
  - a strong audit program to defeat pervasive evasion by high-wealth individuals and high income self-employed, including prosecution of the worst offenders;
  - and a strengthened filing and payment control program.
- Bank support scheme line item in financing table: EUR 10.0 billion (row O).

### Structural reforms — public administration, labour, competition, and absorption of EU funds
- Parliament adopts legislation reforming public administration at the local level, notably by merging municipalities, prefectures and regions with the aim of reducing operating costs and wage bill (Kalikrates).
- Parliament adopts legislation requiring online publication of all decisions involving commitments of funds in the general government sector.
- Government starts discussions with social partners in order to revise private sector wage bargaining and contractual arrangements.
- Government adopts law to simplify the start-up of new businesses.
- Government adopts the horizontal legislation on the Services Directive.
- Government adopts a recovery plan for the railway sector with a timetable for measures to:
  - specify how operational activities will be made profitable, including by closing loss-making lines;
  - ensure the effective implementation of EU Directives allowing for competition amongst providers of railway services;
  - provide for the restructuring of holding company, including the sale of land and other assets.
- To raise absorption rates of Structural and Cohesion Funds:
  - Implement Law 3840/2010, establish a "fast-track project production", and achieve six-monthly targets for payment claims in the absorption of Structural and Cohesion Funds measured by certified data.
  - Government will take steps to achieve an annual target of submitting 10 major projects applications to Commission services.
  - Government establishes a technical task force in direct contact with Commission services to ensure rapid implementation of:
    - major projects in transport sectors;
    - environmental projects;
    - financial engineering instruments;
    - public administration reform, relying on increased technical assistance.
  - Government shall have completed steps to ensure that budgetary appropriations for the national co-financing of Structural and Cohesion Funds are channelled to a special central account that cannot be used for any other purposes and which should be available to provide co-financing to all entities in the general government.

### Fiscal financing gap and disbursement schedule, 2010–2013 (selected figures, billion euro)
- SUM (10Q2-13Q2) totals (column header context):
  - A. GG deficit: 48.5 (SUM)
  - B. GG deficit + PE borrowing need: 53.0 (SUM)
  - C. Debt amortization (existing bonds): 138.3 (SUM)
  - D. of which short-term debt: 50.0 (SUM)
  - E. of which long-term debt: 88.3 (SUM)
  - F. Stock flow adjustment: 1.5 (SUM)
  - G. Public sector financing need (B+C+F): 192.8 (SUM)
  - J. New GG borrowing: 77.9 (SUM)
  - O. Bank support scheme: 10.0 (SUM)
  - P. Financing gap (E-G-H-I+J+O): 109.2 (SUM)
  - Q. Loan disbursements: 110.0 (SUM)
  - R. of which IMF: 30.0 (SUM)
  - S. of which EU: 80.0 (SUM)
- Example quarterly entries (selected):
  - 2010 Jan-Apr: A. GG deficit = 6.1; B. = 6.8; C. = 20.1; G. = 27.0; J. = 28.9; P. = -1.9; Q. = 0.0; R. = 0.0; S. = 0.0.
  - 2010 May-Jun: A. = 3.1; B. = 3.4; C. = 9.5; G. = 13.0; J. = 0.0; P. = 18.0; Q. = 20.0; R. = 5.5; S. = 14.5.
  - 2011 Q1 (as table columns indicate): Example—C. = 13.8; G. = 18.4; J. = 4.0; P. = 14.4; Q. = 15.0; R. = 4.1; S. = 10.9.
- Notes:
  - Row H and I show rollover rates per quarter (percentages) for short-term and long-term debt.
  - Data in this table are subject to revision.

### Conditionality and first review actions (to be completed by end Q2-2010)
- Quarterly disbursements of bilateral financial assistance from euro area Member States will be subject to quarterly reviews of conditionality for the duration of the arrangement. Release of tranches based on observance of quantitative performance criteria and a positive evaluation of progress with respect to policy criteria in the MEFP and this Memorandum.
- Authorities commit to consult with the European Commission, the ECB and the IMF on adoption of policies not consistent with this memorandum and to provide all requested information for monitoring progress (Annex 1).
- Specific actions for the first review include:
  - Progress with implementation of the 2010 budget and fiscal measures, assessed against cumulative quarterly deficit ceilings in the MEFP (including the TMU).
  - Adoption of intensified bank supervision and establishment of the independent Financial Stability Fund.
  - Implementation of structural reforms listed above, including public administration reform, online publication of commitments, labour market discussions, simplification of business start-up, Services Directive legislation, railway sector recovery plan, and measures to raise absorption rates of Structural and Cohesion Funds.

*GREECE: MEMORANDUM OF UNDERSTANDING ON SPECIFIC ECONOMIC POLICY CONDITIONALITY, May 3, 2010*

### 2. Actions for the second review (to be completed by end Q3-2010)

### 2. Actions for the second review (to be completed by end Q3-2010)

### Fiscal consolidation

- Rigorously implement the budget for 2010 and the fiscal consolidation measures announced afterwards, including those in this Memorandum. Progress is assessed against the (cumulative) quarterly deficit ceilings in the MEFP (including the TMU).
- Government submits the draft budget for 2011 to Parliament. The budget:
  - provides information and reliable projections on the entire general government sector and targets a further reduction of the general government deficit in line with the MEFP;
  - includes a detailed presentation of fiscal consolidation measures amounting to at least 3.2% of GDP (4.3% of GDP, if carryovers from measures implemented in 2010 are considered); and
  - includes detailed information on the situation of public enterprises.
- The budget includes the following measures (in exceptional circumstances, measures yielding comparable savings could be considered in close consultation with European Commission, IMF and ECB staff):
  - Implement the rule of replacing only 20 percent of retiring employees in the public sector (central government, municipalities, public companies, local governments, state agencies and other public institutions);
  - Reduction in intermediate consumption of the general government by at least EUR 300 million compared to the 2010 level, on top of savings envisaged in the context of reforming public administration and the reorganisation of local government;
  - Government starts implementing legislation reforming public administration and the reorganisation of local government with the aim of reducing costs by at least EUR 1500 million from 2011 to 2013, of which at least EUR 500 million in 2011;
  - Freeze in the indexation of pensions, with aim of saving EUR 100 million;7
  - Reduction in domestically-financed investments by at least EUR 1000 million, by giving priority to investment projects financed by EU structural and cohesion funds;
  - Temporary "crisis levies" on highly profitable firms, yielding at least EUR 600 million in additional revenue per year in 2011, 2012 and 2013;
  - Incentives to regularise land-use violations, yielding at least EUR 1500 million from 2011 to 2013, of which at least EUR 500 million in 2011;
  - Enforce the presumptive taxation of professionals, with a yield of at least EUR 400 million in 2011 and increasing returns in 2012 and 2013;
  - Broaden the VAT base by including services that are currently exempted and move a significant proportion (at least 30%) of the goods and services currently subject to the reduced rate to the normal rate, with a yield of at least EUR 1000 million;
  - Start phasing in a "green tax" on CO2 emissions, with a yield of at least EUR 300 million in 2011;
  - Collect revenue from the licensing of gaming: at least EUR 500 million in sales of licences and EUR 200 in royalties;
  - Expand the base of the real estate tax by updating asset values to yield at least EUR 500 million additional revenue;
  - Increase taxation of wages in kind, including by taxing car lease payments (at least EUR 150 million);
  - Initiate the collection of a special tax on unauthorised establishments (at least EUR 800 million per year);
  - Increase taxes on luxury goods by at least EUR 100 million;
  - The budget will establish detailed expenditure ceilings for each line-ministry, local governments, and social security funds consistent with the general government deficit target. This also pertains to the medium-term fiscal framework for 2012-2013;
  - The budget will contain indicative information on monthly revenue per category, and expenditure per Ministry. Updated figures will be regularly made available online.
- Parliament adopts modifications to the organic budget law, if necessary, to ensure that the draft budget law for 2011 onwards contains detailed information on outturn and plans of the entire general government sector – including local government, social security, hospitals and legal entities. An annex to the budget will present key figures on the financial performance of the largest public enterprises, concomitant budgetary and tax expenditures, and related fiscal risks.

7 Adjustments may be needed in case of negative inflation.

### Structural fiscal reforms

- Parliament adopts legislation to improve the efficiency of the tax administration and controls, implementing recommendations provided by the European Commission and IMF. In particular, they put in place an effective project management arrangement (including tight MOF oversight and taskforces) to implement the anti-evasion plan to restore tax discipline through:
  - strengthened collection enforcement and recovery of tax arrears (coordinated with the social security funds) of the largest debtors;
  - a reorganized large taxpayer unit focused on the compliance of the largest revenue contributors;
  - a strong audit program to defeat pervasive evasion by high-wealth individuals and high income self-employed, including prosecution of the worst offenders; and
  - a strengthened filing and payment control program.
- Parliament adopts a reform of the pension system to ensure its medium- and long-term sustainability. It should limit the increase of public sector spending on pensions, over the period 2010‒2060, to under 2.5 percent of GDP. The reform will be designed in close consultation with European Commission, IMF and ECB staff, and its estimated impact on long-term sustainability will be validated by the EU Economic Policy Committee. The parameters of the system will ensure long-term actuarial balance, as determined by the National Actuarial Authority. The reform should include the following elements:
  - Simplification of the fragmented pension system by merging the existing pension funds in three funds and introducing a unified new system for all current and future employees. The new universally binding rules on entitlements, contributions, accumulation rules and indexation of pension rights shall be applied pro rata to everybody from 1 January 2013;
  - Introduction of a unified statutory retirement age of 65 years, including for women in the public sector (phased in immediately after adoption), to be completed by December 2013;
  - Gradual increase in the minimum contributory period for retirement on a full benefit from 37 to 40 years by 2015;
  - Amendment of the pension award formula in the contributory-based scheme to strengthen the link between contributions paid and benefits received, with accrual rate limited to an average annual rate of 1.2%, and pensions indexed to prices;
  - Introduction of an automatic adjustment mechanism that, every three years and starting in 2020, will increase the (minimum and statutory) retirement age in line with the increase in life expectancy at retirement;
  - Extend the calculation of the pensionable earnings from the current last five years to the entire lifetime earnings (while retaining acquired rights);
  - Reduction of the upper limit on pensions;
  - Introduction of a means-tested minimum guaranteed income for elderly people (above the statutory retirement age), to protect the most vulnerable groups, consistent with fiscal sustainability;
  - Measures to restrict access to early retirement. In particular, increase the minimum early retirement age to 60 years by 1st January 2011, including for workers in heavy and arduous professions and those with 40 years of contributions. Abolish special rules for those insured before 1993 (while retaining acquired rights). Substantial revision of the list of heavy and arduous professions;
  - Reduction of pension benefits (by 6% per year) for people entering retirement between the ages of 60 and 65 with a contributory period of less than 40 years;
  - Introduction of stricter conditions and regular re-examination of eligibility for disability pensions.
- Government adopts a reform of the GAO, including:
  - Strengthening of the role of the GAO in budget planning and control;
  - Provision of the necessary resources in terms of high-level personnel, infrastructure and equipment support, managerial organisation and information-sharing systems;
  - Provision of safeguards for GAO staff against political interference, and personal accountability in the provision of reliable data;
  - Strengthen the institutional mechanisms for providing reliable and plausible official budgetary forecasts that take into account available recent execution developments and trends; to this end, the official macroeconomic forecasts should be reviewed by external experts.
- Government takes the following measures to ensure timely provision of reliable fiscal accounts and statistics:
  - GAO starts, in June 2010, the publication of timely monthly statistics (on a cash basis) on revenue, expenditure and financing and spending arrears for the "available general government" and its sub entities (state, social security, hospitals, local governments and legal entities);
  - Government adopts a detailed time-bound action plan, to be agreed with Eurostat, to improve collection and processing of general government data required under the existing EU legal framework, in particular by enhancing the mechanisms that ensure the prompt and correct supply of these data, and ensure personal responsibility in cases of misreporting; and seek appropriate resident technical assistance to ensure rapid progress;
  - Government starts to publish timely information on the financial situation in public enterprises (at least the 10 largest loss-making ones) and other public entities not classified in the general government (including detailed income statements, balance sheets and data on employment and the wage bill). To this end, a regular and timely reporting mechanism is introduced.

### Financial sector regulation and supervision

- The Bank of Greece and the Government ensure that the Financial Stability Fund is fully operational.
- Review the adequacy of the insolvency framework, for banks as well as for non-financial entities.

### Structural reforms

- Progress with reforms to modernise public administration:
  - Government launches the process, including the principles and timetable, for establishing a simplified remuneration system covering basic wages and allowances. It shall apply to all public sector employees, and be part of an overall reform of Human Resource management. This should lead to a system where remuneration reflects productivity and tasks.
  - Government launches independent functional reviews of the public administration at central level and of existing social programmes. It is to be conducted by internationally renowned and external experts. The Terms of Reference for the reviews will be agreed with European Commission, IMF and ECB staff. The objectives of the reviews are:
    - To take stock of the use of resources, including human resources, to carry out government functions (e.g., employment, goods and services) in the central government and subordinated public institutions;
    - To identify actions to rationalize the organisation of public administration and generate productivity gains, and quantify possible fiscal savings from implementation of these actions;
    - To assess effectiveness and appropriateness of existing social programmes and make proposals for reform or cancellation of the least effective ones, while quantifying possible fiscal savings from implementation of these actions.
- To strengthen competition in open markets:
  - Authorities make the General Commercial Registry (GEMI) fully operational.
  - Under the Services Directive, the government finalizes the review of existing sectoral legislation (screening), ensures that the point(s) of single contact is(are) operational.
  - Government adopts a law on road freight transport that removes restrictions not provided for in Directive 96/26/EC of 29 April 1996 on admission to the occupation of road haulage, including minimum fixed prices.
  - Issue a Ministerial Decree for the liberalisation of wholesale electricity market and a Ministerial Decision on rationalisation of electricity consumer tariffs.
- Promoting investments and exports:
  - Government takes measures, in line with EU competition rules, to facilitate FDI and investment in innovation in strategic sectors (green industries, ICT etc...) through a revision of the Investment Law, the adoption of measures to facilitate PPPs, action to fast-track large FDI projects and measures to strengthen export promotion policy.

---

### 3. Actions for the third review (to be completed by end Q4-2010)

### i. Fiscal consolidation

- Government achieves the programme target for the 2010 general government deficit.
- Parliament adopts draft budget for 2011 targeting a further reduction of the general government deficit and including the consolidation measures specified in this Memorandum.
- Government prepares a privatization plan for the divestment of state assets and enterprises with the aim to raise at least 1 billion euros a year during the period 2011‒2013.

### ii. Structural fiscal reforms

- Government adopts draft legislation to strengthen the fiscal framework, following discussions with European Commission and IMF staff. Elements to include:
  - Introduce a medium-term fiscal framework covering the general government based on rolling three-year expenditure ceilings for the State, social security entities and local governments;
  - Strengthen the position of the Finance Minister vis-à-vis line ministers in both budget preparation and execution phases (giving him/her veto power on spending decisions and execution);
  - Introduce a compulsory contingency reserve in the budget, corresponding to 10 percent of total appropriations government departments other than wages, pensions and interest; the use of the contingency reserve will be decided by the Finance Minister;
  - Ensure that Parliament does not modify the overall size of the budget at the approval stage, and focus on the composition of public expenditure and revenue, and reliability of projections for expenditure and revenue;
  - Introduce stronger expenditure monitoring mechanisms, particularly by implementing an appropriate control of spending commitments, through which spending entities (line ministries, local authorities, social security funds, hospital and legal entities) would report on a regular basis to the Treasury on their outstanding expenditure commitments against their authorised appropriations in the budget law;
  - Introduce a revenue rule for the general government, according to which the allocation of higher-than-expected revenues should be specified ex-ante in the budget law;
  - Creation of a fiscal agency attached to Parliament providing independent advice and expert scrutiny on fiscal issues, and reporting publicly on the budgetary plans and execution of the spending entities of the general government, and on macroeconomic assumptions used in the budget law.
- Parliament adopts reform of the public wage legislation consistent with this Memorandum.

### iii. Structural reforms

- To reform and modernise public administration:
  - Government adopts all necessary legislation and decree for the full entry into force of the local administration reform.
  - Government completes the creation of a Single Payment Authority for the payment of wages in the public sector. The Ministry of finance publishes a detailed report, based on information and in collaboration with the Single Payment Authority, on the structure and levels of compensation and the volume and dynamics of employment in the general government.
  - Authorities complete the first phase of the public procurement system reform, with a central procurement authority and involving a swift implementation of the electronic platform for public procurement and introducing the use of e-auctioning system. It should ensure a common approach and tendering procedures, ex ante and ex post controls.
  - Government adopts legislation and measures needed to implement the Better Regulation agenda.
- To modernise the health care systems:
  - Government adopts legislation on the institutional framework for health supplies (Law 3580/2007), establishes new systems for the management of drugs that favour more use of generic medicines, including a new system for the electronic monitoring of doctors' prescriptions.
  - Government completes the programme of hospital computerisation, upgrading hospital budgeting systems, and the reform of management, the accounting (including double-entry accrual accounting) and financing systems.
  - Government ensures greater budgetary and operational oversight of health care spending by the Finance Minister, the publication of audited accounts and improvement in pricing and costing mechanisms.
- To strengthen labour market institutions:
  - Following dialogue with social partners, the government proposes and parliament adopts legislation to reform wage bargaining system in the private sector, which should provide for a reduction in pay rates for overtime work and enhanced flexibility in the management of working time. Allow local territorial pacts to set wage growth below sectoral agreements and introduce variable pay to link wages to productivity performance at the firm level.
  - Government amends regulation of the arbitration system, (Law 1876/1990), so that both parties can resort to arbitration if they disagree with the proposal of the mediator.
  - Following dialogue with social partners, government adopts legislation on minimum wages to introduce sub-minima for groups at risk such as the young and long-term unemployed, and put measures in place to guarantee that current minimum wages remain fixed in nominal terms for three years.
  - Government amends employment protection legislation to extend the probationary period for new jobs to one year, to reduce the overall level of severance payments and ensure that the same severance payment conditions apply to blue- and white-collar workers, to raise the minimum threshold for activation of rules on collective dismissals especially for larger companies, and to facilitate greater use of temporary contracts and part-time work.
- To enhance competition in open markets:
  - Government adopts changes to existing (sectoral) legislation in key services sectors such as tourism, retail and education services. New legislation should facilitate establishment, by significantly reducing requirements covered by Articles 15 and 25 of the Services Directive, in particular requirements relating to quantitative and territorial restrictions, legal form requirements, shareholding requirements, fixed minimum and/or maximum tariffs and restrictions to multidisciplinary activities. It should also facilitate the provision of cross-border services by implementing the freedom to provide services clause in Article 16 of the Service Directive through an approach ensuring legal certainty for services providers, i.e. by clearly setting out in the respective (sectoral) legislation which requirements can and which requirements cannot be applied to cross-border services.
  - Government proposes legislation to remove restrictions to trade in restricted professions including:
    - the legal profession, to remove unnecessary restrictions on fixed minimum tariffs, the effective ban on advertising, territorial restrictions on where lawyers can practice in Greece;
    - the pharmacy profession, covering limits on the number of pharmacies and minimum profit margins;
    - the notary profession, covering fixed tariffs, limits on the number of notaries, territorial restrictions on where notaries can practice and the effective ban on advertising;
    - architects, covering fixed minimum tariffs;
    - engineers, covering fixed minimum tariffs;
    - auditing services, covering fixed tariffs.
  - Government adopts legislation and takes all necessary measures to complete the full and effective transposition of EU rules on recognition of professional qualifications, including the transposition of the Professional Qualifications Directive (Directive 2005/36/EC) including compliance with ECJ rulings.
  - Government adopts legislation to simplify and accelerate the process of licensing enterprises, industrial activities and professions, which inter alia revises Law 3325/05, makes Law 3335/05 for business areas, and operationalises the spatial plan.
  - Government adopts a law modifying the existing institutional framework of the Hellenic Competition Commission (HCC) which abolishes the notification system for all agreements falling within the scope of Article 1 of Law 703/1977, gives the HCC the power to reject complaints, to increase the independence of HCC members, and to establish reasonable for the investigation and issuance of decisions.
- Promoting investments and exports:
  - Government carries out in depth evaluation of all R&D and innovation actions, including in various Operational Programmes, in order to adjust the national strategy.
  - Government creates an external advisory council financed through the 7th R&D programme, to consider how to foster innovation, how to strengthen links between public research and Greek industries and the development of regional industrial clusters.
- To raise the absorption rates of Structural and Cohesion Funds:
  - Government to meet targets for payment claims (to be measured against certified data) and for the submission of large projects.

*Source: _cr10111 - 2. Actions for the second review (to be completed by end Q3-2010).*

### 4. Actions for the fourth review (to be completed by end Q1-2011)

### _cr10111 - 4. Actions for the fourth review (to be completed by end Q1-2011)

### Actions for the fourth review (to be completed by end Q1-2011)
- Fiscal consolidation
  - Rigorously implement the budget for 2011 in line with this memorandum, and the fiscal consolidation measures in the budget.
  - Progress is assessed against the (cumulative) quarterly deficit ceilings in the MEFP (including the TMU).

- Structural fiscal reforms
  - Parliament adopts legislation to strengthen the fiscal framework, consistent with this memorandum.

- Structural reforms — public administration
  - Government completes effective transposition of Directive 2007/66/EC on public procurement regarding remedies, and ensures that responsibility for the review of award procedures be vested with the administrative courts.
  - Government completes the transposition of Directives 2009/81 on defence and security expenditure.

- Structural reforms — business environment
  - Government fully implements the recovery plan for the railway sector to make operational activities profitable, implement EU Directives and restructure the holding company.
  - Parliament adopts legislation unbundling electricity and gas activities.
  - Government adopts measures, in line with EU requirements to strengthen the independence and capacity of the Energy Regulatory Authority and further unbundle the transmission system operators DESMIE (electricity) and DESFA (gas), including by bringing forward transparent criteria and procedure to govern the selection of the chair and members of RAE.

---

### 5. Actions for the fifth review (to be completed by end Q2-2011)

### Actions for the fifth review (to be completed by end Q2-2011)
- Fiscal consolidation
  - Rigorously implement the budget for 2011 in line with this memorandum, and the fiscal consolidation measures in the budget.
  - Progress is assessed against the quarterly deficit ceilings in the MEFP (including the TMU).

- Structural reforms — public administration modernisation
  - Government adopts legislation/decrees establishing a simplified remuneration system covering basic wages and allowances that applies to all public sector employees ensuring that remuneration reflects productivity and tasks; this reform should be part of an overall reform of Human Resource management in the public sector.
  - On the findings of the external and independent functional review of public administration at central level, the government adopts legislation and measures to rationalize the use of resources, the organisation of the public administration and social programmes.

- Strengthening labour market institutions
  - Government completes the reform to strengthen the Labour Inspectorate, which should be fully resourced with qualified staff and has quantitative targets on the number of controls to be executed.
  - Government adapts the legislation on tackling undeclared work to require the registration of new employees before they start working.
  - Review the scope for improvements in the targeting of social expenditures to enhance the social safety net for the most vulnerable.

- Strengthening competition in open markets
  - Government adopts specific legislation to in restricted professions including for the legal profession, the pharmacy profession, the notary profession, architects, engineers and auditing services.

- Raise absorption rates of Structural and Cohesion Funds
  - Government to meet targets for payment claims to be measured against certified data.

---

### 6. Actions for the sixth review (to be completed by end Q3-2011)

### Fiscal consolidation (sixth review)
- Rigorously implement the budget for 2011 in line with this memorandum, and the fiscal consolidation measures in the budget.
- Progress is assessed against the quarterly deficit ceilings in the MEFP (including the TMU).
- Government adopts draft budget for 2012 aiming at a further reduction of the general government deficit in line with the programme and including the detailed presentation of consolidation measures amounting to at least 2.2% of GDP, including the following measures (in exceptional circumstances, measures yielding comparable savings could be considered in close consultation with European Commission, IMF and ECB):
  - Reduce public employment on top of the rule of 1 recruitment for each 5 retirements in the public sector; the reduction in public employment on top of the 5-to-1 rule should allow savings of at least EUR 600 million;
  - Establish excises for non alcoholic beverages, for a total amount of at least EUR 300 million;
  - Continue the expansion of the base of the real estate tax by updating asset values to yield at least EUR 200 million additional revenue;
  - Continue the reorganisation of local government, to generate at least EUR 500 million in savings;
  - Nominal freeze in pensions;
  - Continue to increase the effectiveness of the presumptive taxation of professionals, with the aim of collecting at least additional EUR 100 million;
  - Reduction of transfers to public enterprises by at least EUR 800 billion following their restructuring;
  - Make unemployment benefits means-tested (aiming at savings of EUR 500 million);
  - Collect further revenue from the licensing of gaming: at least EUR 225 million in sales of licences and EUR 400 in royalties;
  - Further broadening of VAT base, by moving goods and services from the reduced to the normal rate, with the aim of collecting at least additional EUR 300 million.

### Structural reforms (sixth review)
- Reforms to modernise public administration
  - Government ensures full operation of the Better Regulation Agenda to reduce administrative burden by 20% compared with 2008 level, and sends report to the Commission.

- Improve the business environment
  - Government changes legislation to mitigate tax obstacles to mergers and acquisitions such as the non-transfer of accumulated losses, together with the company and the complex computation of "excessive benefit" (Law 3522/2006, Article 11) in the transfer of private limited companies.
  - Government takes decisions to simplify the process to clear customs for exports and imports and give larger companies or industrial areas the possibility to be certified to clear cargo for the customs themselves; Government abolishes the requirement of registration with the exporter’s registry of the chamber of commerce for obtaining a certificate of origin.

---

### 7. Actions for the seventh review (to be completed by end Q4-2011)

### Fiscal consolidation (seventh review)
- Government achieves the programme target for the 2011 general government deficit.
- Parliament adopts draft budget for 2012 a further reduction of the general government deficit and including consolidation measures amounting to at least 2.2% of GDP, in line with Memorandum.

### Structural reforms (seventh review)
- Raise absorption rates of Structural and Cohesion Funds
  - Government to meet targets for payment claims (to be measured against certified data) and for the submission of large projects.
  - Introduction of a web-based open-access monitoring tool of procedures for approval of project proposals and for implementation of public projects.
  - Ensure that the managerial capacity of all Managing Authorities and Intermediate Bodies of operational programmes under the framework of the National Strategy Reference Framework 2007-2013 has been certified by the International Organization for Standardization according to the standard ISO 9001:2008 (Quality Management).

---

### Annex 1. Provision of data

- General
  - During the programme, the following indicators and reports shall be made available to the European Commission, the ECB and the IMF by the authorities on a regular basis.
  - Reporting information provided to other multilateral and bilateral lenders involved in the programme shall at the same time also be provided to the Commission, unless the Commission indicates otherwise.
  - The authorities shall provide the Commission and the ECB with compliance reports on the fulfilment of conditionality immediately after test dates.

- To be provided by the Ministry of Finance (selected items with reporting frequency preserved exactly)
  - Preliminary monthly data on the state budget execution (including functional breakdown by main categories of revenue and expenditure and by line ministry)
    - Monthly, 15 days after the end of each month; these data should also be included in subsequent transmissions in case of revision
  - Updated monthly plans for the state budget execution for the remainder of the year, including functional breakdown by main categories of revenue and expenditure and by line ministry
    - Monthly, 30 days after the end of each month
  - Preliminary monthly cash data on general government entities other than the State
    - Monthly, 30 days after the end of each month, these data should also be included in subsequent transmissions in case of revision
  - Monthly data on the public wage bill (of general government, including a functional breakdown in nominal wage and allowances paid to government employees per line ministry and public entity), number of employees (including a functional breakdown per ministry and public entities outside the central government) and average wage (including the relative shares of the base wage, allowances and bonuses). A functional breakdown of these data into the main public entities will be added.
    - Monthly, 30 days after the end of each month (starting in June 2010)
  - Quarterly data on general government accounts, and general government debt as per the relevant EU regulations on statistics
    - Quarterly accrual data, 90 days after the end of each quarter
  - Weekly information on the Government's cash position with indication of sources and uses as well of number of days covered as well as information on the main government spending and receipt items
    - Weekly on Friday, reporting on the previous Thursday
  - Data on below-the-line financing for the general government
    - Monthly, no later than 15 days after the end of each month; these data should also be included in subsequent transmissions in case of revision
  - Data on expenditure pending payment (including arrears) of the general government, including the State, local government, social security, and legal entities
    - Quarterly, within 55 days after the end of each quarter
  - Data on expenditure pending payment (arrears) of the State and hospitals
    - Monthly, 30 days after the end of each month
  - Public debt, and new guarantees issued by the general government to public enterprises and the private sector
    - Monthly, within one month
  - Income and expenditure statement and balance sheets of 30 largest public enterprises by total expenditures
    - Quarterly, three months after the end of the quarter
  - Data on EU project grants (reimbursements and advances), capital expenditures and subsidies covered by EU advances or eligible for EU reimbursement on EU supported projects specifically agreed with the EU
    - Monthly, within three weeks of the end of each month
  - Monthly statement of the transactions through off-budget accounts
    - Monthly, at the end of each month
  - Monthly statements of the operations on the special account
    - Monthly, at the end of each month
  - Report on progress with fulfilment of policy conditionality
    - Monthly, at the end of each month

- To be provided by the Bank of Greece (selected items with reporting frequency preserved exactly)
  - Assets and liabilities of the Bank of Greece
    - Weekly, next working day
  - Assets and liabilities of the Greek banking system - aggregate monetary balance sheet of credit institutions
    - Monthly, 30 days after the end of each month
  - Evolution of the external funding provided by Greek banks to their subsidiaries abroad
    - Monthly, 15 days after the end of each month
  - External funding flows for the banking, corporate and government sector, including also expected developments in the 12 months ahead
    - Monthly, 30 days after the end of each month
  - Report on banking sector liquidity situation
    - Weekly, next working day
  - Report on the evolution of financial stability indicators
    - Quarterly, 15 days after the end of each quarter depending on data availability
  - Report on results from the regular quarterly solvency stress tests
    - Quarterly, 15 days after the end of each quarter depending on data availability
  - Detailed report on the balance sheet of the Financial Stability Fund with indication and explanation of changes in the accounts
    - Weekly, next working day

---

### Annex 2. Financial Stability Fund

### General purpose and scope
- Purpose
  - The purpose of the Financial Stability Fund (the ‘Fund’) is to maintain the stability of the Greek banking system by providing equity capital in case of a significant decline of capital buffers.
  - The Fund will not provide liquidity support, which will be provided under existing arrangements.
  - The equity will be provided in the form of preference shares to credit institutions authorised to operate in Greece by license from the Bank of Greece. The preference shares will be convertible into ordinary shares at a later stage under certain conditions to be further specified in the legislation establishing the Fund.
  - Participation in the Fund will be mandatory, based on a trigger linked to the minimum required level of capital adequacy requirements, as established for specific credit institutions by the Bank of Greece, in its capacity as the competent supervisory authority, if no private solution has been found.
  - If banks are then not able to expeditiously raise additional capital on their own and repay the Fund, a restructuring process will take place under the lead of the Fund, in line with EU competition and state aid requirements.
  - The Fund will be established by specific Greek legislation.
  - An initial lifespan of seven years will be set for the Fund. After the end of the lifespan of the Fund, the ownership of the Fund rests with the Greek state to the extent of its shareholding in the Fund.

### Legal status
- The Fund will be established as a private law legal entity in order to enhance its flexibility and efficiency (e.g., to facilitate the recruitment and remuneration of appropriately qualified staff).
- The legal structure of the Fund should allow for private participation.

### Funding
- The FSF will be fully funded by the government out of the resources available under the EU-IMF program for this purpose in the amount of EUR 10 billion.
- This implies that the risk of losses arising out of the Fund’s operations would lie exclusively with the Greek Government, as the primary shareholder in the Fund.
- The purchase of preference shares by the Fund shall be made in cash.

### Organizational issues
- Management and governance
  - The Fund will be managed by a Governing Council composed of (1) a Chairperson, a Chief Executive and three directors appointed by the Governor of the Bank of Greece and (2) two ex officio directors who represent the Minister of Finance and the Governor of the Bank of Greece.
  - The European Commission and the ECB will each nominate an observer who would have a right to participate, without voting, in meetings of the Governing Council (without prejudice, in the case of the Commission observer, to the application by the Commission of state aid and competition rules).
  - The Chairperson, Chief Executive and the non-ex officio directors will be required by law to be persons of recognised standing in banking or financial matters in Greece, the EU or internationally.
  - Each of the Chairperson and the non-ex officio directors will be appointed to a five year term of office, renewable for a further two years, and may only be compulsorily removed from office by an appropriate Greek court on application of either the Governor of the Bank of Greece or the Governing Council of the Fund where (1) no longer capable of fulfilling the conditions required for the performance of the duties of office or (2) guilty of serious misconduct.
  - No member of the Governing Council may be represented on the board of directors of any credit institution.
  - The legislation establishing the Fund will provide that, when exercising the powers and carrying out the tasks and duties conferred upon them under the legislation, neither the Governor of the Bank of Greece nor the members of the Governing Council of the Fund shall seek or take instructions from the Greek Government or any other State entity, institution, body or undertaking.
  - The Governing Council will present a semi-annual report to the Greek Parliament, the European Commission, the ECB and the IMF.
  - The operating expenses will be covered by the Fund.

### Powers of the Fund
- Powers (to be exercised following consultation of the BoG, without prejudice to BoG supervisory powers), including without limitation the power:
  - to require the BoG to provide the Fund with all information on financial institutions necessary for it to fulfil its tasks;
  - to appoint a member of the Board of Directors of a credit institution;
  - to require a credit institution to present a restructuring plan;
  - to veto key decisions of a credit institution (e.g., business strategy, dividend distributions, salary caps, liquidity and asset-liability management, etc.);
  - to call a general shareholders’ meeting for a credit institution in accordance with Greek company law;
  - to require conversion of preference shares into ordinary shares insofar as a credit institution fails to meet (1) the minimum required level of capital adequacy requirements established for credit institutions generally under applicable regulatory requirements or (2) certain financial conditions to be established in the restructuring plan for the credit institution; the legislation establishing the Fund will further specify an objective procedure to be followed in establishing a market-based conversion price, taking account of the impact of the Fund’s intervention, the rights of shareholders under Greek law and EU state aid requirements;
  - to conduct diagnostic studies and special audits with the help of outside consultants to assess the solvency of a credit institution where the Fund considers this necessary.
- Each of the Bank of Greece, in its capacity as the competent authority for the supervision of credit institutions, and the Fund will be authorised to exchange confidential information with one another to the fullest extent permitted by EU law.

### Conditions applicable to capital increases
- The conditions applicable to any capital increases should be aligned with the Commission Decision of 19.11.2008 (N 560/2008 support measures for the credit institutions in Greece).
- The granting of equity capital is made subject to the following conditions in particular:
  - The credit institutions will be expected to pay a market-oriented, non-cumulative remuneration unless an analysis of the restructuring plan warrants an alternative approach.
  - A market-oriented, non-cumulative remuneration can either be 10% as stipulated in the above decision or depending on the risk profile of the credit institution and the quality of the capital, between 7% and 9.3%, whereas core tier 1 capital for fundamentally sound credit institutions should normally be remunerated at not less than 9%.
  - The credit institutions will not pay dividends or coupon on hybrid capital, unless they are legally obliged to do so, which is typically the case when a credit institution is profit making (the credit institution should however not be allowed to use reserves to book a profit).
  - Preference shares shall be repurchased by the credit institution for an amount that is equivalent to the amount originally invested in the credit institution. After five years the shares shall be repurchased or be remunerated at penal rates. If they cannot be repurchased because the capital adequacy requirements are not fulfilled, the preference shares shall be converted into ordinary shares.

### Approval of restructuring plan by European Commission
- Any restructuring plan needs to be in accordance with State aid rules and approved by decision of the European Commission ensuring that the credit institutions will restore viability at the end of the restructuring period, burden sharing of shareholders is achieved and distortion of competition is limited.

### Follow-up
- The Greek authorities would prepare the necessary legislation implementing the details of the above by the end of June 2010, at the latest.

*Source: _cr10111 - 4. Actions for the fourth review (to be completed by end Q1-2011)*

### Annex 3. Structural reforms conditionality

### Annex 3. Structural reforms conditionality

### Public administration reforms
- Simplify the remuneration system for public sector employees:
  - launch a process to create a simplified remuneration system to cover basic wages and all allowances applying to all public sector employees and ensuring that remuneration reflects productivity and tasks.
  - establish a fully operational Single Payment Authority to centralize the payment of all salaries paid to civil servants at all levels of government.
  - adopt legislation for a simplified remuneration system.
  - Timeframes: September 2010; December 2010; June 2011.
- Public procurement:
  - complete the first phase of the public procurement system for all sectors and levels of government with a fully operational electronic platform introducing the use of e-auctioning systems.
  - implement EU Directives and have an effective appeals system.
  - Timeframes: December 2010; March 2011.
- Transparency of public spending decisions:
  - adopt legislation to ensure transparency by requiring online publication of all government expenditure decisions.
  - Timeframe: June 2010.
- Local administration reform:
  - adopt legislation reforming public administration at the local level.
  - adopt all legislation and decrees for full entry into force of the reform on 1 January 2011 involving transfer of responsibilities and resources across entities.
  - Timeframes: June 2010; December 2010.
- Independent functional review of the central government:
  - launch an independent and external review of the organization and functioning of the central administration.
  - adopt legislation and measures to rationalize the use of resources, the organisation of the public administration and the effectiveness of social programmes.
  - Timeframes: September 2010; June 2011.
- Better Regulation:
  - adopt legislation to implement the Better Regulation agenda.
  - ensure full implementation to reduce administrative burden by 20 compared with 2008 level and submit a progress report to the Commission.
  - Timeframes: December 2010; September 2011.

### Labour market and wages
- Start discussion with social partners to prepare the revision of private sector wage bargaining and contractual arrangements.
  - Timeframe: June 2010.
- Reform Employment Protection Legislation:
  - extend the probationary period for new jobs to one year.
  - reduce the overall level of severance payments which should apply equally to blue and white collar workers.
  - raise the minimum threshold for activating rules on collective dismissals especially for larger companies.
  - put measures in place to guarantee that current minimum wages remain fixed in nominal terms for 3 years.
  - facilitate use of temporary contracts and part-time work.
  - Timeframe: December 2010.
- Reform minimum wages:
  - following dialogue with social partners, government to adopt legislation on minimum wages to introduces sub-minima for groups at risk such as the young and long term unemployed.
  - guarantee that current minimum wages remain fixed in nominal terms for three years.
  - Timeframe: December 2010.
- Reform private wage bargaining system to ensure wage moderation:
  - adopt legislation to reform wage bargaining system in the private sector, including local territorial pacts to set wage growth below sectoral agreements.
  - introduce variable pay to link wages to productivity performance at the firm level.
  - amend regulation of the arbitration system.
  - Timeframe: December 2010.
- Increase the flexibility of working hours:
  - adjust legislation to introduce annual time accounts and reduce overtime pay.
  - Timeframe: December 2010.
- Fight undeclared work:
  - strengthen legislation to enforce the registration of new employees.
  - ensure the Labour Inspectorate is fully staffed and quantitative controls targets are in place.
  - Timeframe: June 2011.
- Review social safety net:
  - Review the scope for improvements in the targeting of social expenditures to enhance the social safety net for the most vulnerable.
  - Timeframe: June 2011.

### Pensions
- Reform pension system — Government to adopt a new simplified system (pro rata) for all current and future employees including:
  - by December 2015, a unified statutory retirement age of 65 years, including for those insured before 1 Jan 1993.
  - an increased retirement age of women in the public sector to 65 by 2013.
  - strengthened link between contributions and benefits.
  - pension earnings calculated on the entire lifetime.
  - an average annual accrual rate of 1.2.
  - price indexation of pensions.
  - an automatic adjustment mechanism that links the retirement age with increases in life expectancy at retirement.
  - an increased minimum contribution period from 37 to 40 years by 2015.
  - restricted access to early retirement and increased minimum retirement age of 60 years by 1st January 2011, including for workers in heavy and arduous professions, and those with 40 years of contributions.
  - a revised disability scheme.
  - reduced (by 6 per year) pension benefits for people retiring between the ages of 60 and 65 with less than 40 years of contribution.
  - no special rules for those insured before 1 Jan 1993.
  - substantial cuts in the list of heavy and arduous professions (to no more than 10 of employees).
  - a means-tested minimum guaranteed pension for people aged above 65 years of age.
  - a reduction in the number of funds to 3.
  - Parliament adopts the pension reform.
  - Timeframe for adoption by Parliament: September 2010.
  - Formal adoption of the new simplified system: June 2010.

### Healthcare
- Healthcare reform:
  - Complete reforms to improve management and procurement systems of health system: complete move to double accounting systems, establish operational oversight by the Finance Minister, the publication of audited accounts.
  - Timeframe: December 2010.

### Business environment
- Facilitate business start ups:
  - Simplify the start up of new businesses and make the General Commercial Registry (GEMI) fully operational.
  - Timeframes: June 2010; September 2010.
- Simplify the licensing of industrial units and reduce the costs of doing business:
  - simplify and accelerate the process of licensing enterprises, industrial activities and professions through legislation and by making the spatial plans operational.
  - Government to change legislation to mitigate tax obstacles to mergers and acquisitions, and lower costs associated with customs.
  - Timeframes: December 2010; September 2011.
- Implement the Services Directive:
  - adopt horizontal legislation, finalize screening of sectoral legislation.
  - make single points of contact operational.
  - adopt measures in key service sectors such as tourism, retail and education.
  - Timeframes: June 2010; September 2010; December 2010.
- Open up restricted professions:
  - propose sector-specific legislation to remove restrictions to trade in the legal profession, the pharmacy profession, the notary profession, architects, engineers, auditing services.
  - implement the Professional Qualifications Directive so that qualifications from third countries are recognized.
  - adopt legislation to open up restricted professions.
  - Timeframes: December 2010; June 2011.
- Reform road freight transportation:
  - Liberalize road freight transport by removing all unnecessary restrictions on admission to the occupation of road haulage, including minimum fixed prices.
  - Timeframe: September 2010.
- Competition policy framework:
  - Modify the existing institutional framework of the Hellenic Competition Commission, including to allow prioritisation on important cases and to strengthen the independence of HCC members.
  - Timeframe: December 2010.
- Railways:
  - prepare a recovery plan for the railway sector to restore profitability to operational services, ensure compliance with EU Directives, and specify a timetable for the restructuring of the holding company including the sale of land and other assets.
  - implement fully the recovery plan for the railway sector.
  - Timeframes: June 2010; March 2011.
- Energy:
  - finalise plans for the liberalization of the wholesale electricity market and commence with the rationalization of consumer tariffs.
  - adopt legislation to unbundle electricity and gas activities, including measures.
  - adopt measures to strengthen the independence and capacity of the Energy Regulatory Authority.
  - Timeframes: September 2010; March 2011; March 2011.

### Promoting investment and exports; R&D and innovation
- Promoting FDI and investment in strategic sectors:
  - Government to take measures to facilitate FDI and investment in innovation in strategic sectors (green industries, ICT etc...), through a revision of the Investment Law, the adoption of measures to facilitate PPPs, action to fast-track large FDI projects and measures to strengthen export promotion policy.
  - Timeframe: September 2010.
- R&D and innovation:
  - Carry out in depth evaluation of all R&D and innovation actions, including in various Operational Programmes, in order to adjust the national strategy.
  - create an Advisory Council financed through the 7th R&D programme, to consider how to foster innovation, how to strengthen links between public research and Greek industries and the development of regional industrial clusters.
  - Timeframes: December 2010; December 2010.

### Structural and Cohesion Funds absorption
- Increase absorption of Structural and Cohesion Funds:
  - put in place measures to achieve binding targets for payment claims of Structural and Cohesion Funds and for submission of large projects.
  - establish Task Force with the Commission to speed-up the development of high quality projects, through better coordination and other actions.
  - complete steps to prioritize public investment spending for projects benefiting from EU funds, including the introduction of a central bank account.
  - meet targets for payment claims (measured against certified data) and large projects.
  - introduce a web-based open access monitoring tool of procedures for approval of project proposals and for implementation of public projects.
  - ensure that the managerial capacity of all Managing Authorities and Intermediate Bodies of operational programmes.
  - Timeframes: June 2010; December 2010 and every six months thereafter; December 2011; December 2011.

### Technical Memorandum of Understanding (TMU): definitions, reporting standards, and program parameters
- Purpose and consultation:
  - TMU sets out understandings regarding definitions of indicators subject to quantitative targets specified in the Letter of Intent (LOI).
  - Authorities will consult with the Fund, European Commission and ECB before modifying measures in the LOI or adopting new measures that would deviate from program goals, and will provide the European Commission, ECB and the Fund with necessary information for program monitoring.
  - Document date heading: May 3, 2010.
- Program exchange rates (program purposes; items affecting government fiscal balances measured at current exchange rates):
  - €1 = 1.3315 U.S. dollar.
  - €1 = 125.81 Japanese yen.
  - €1.135 = 1 SDR.
  - Program exchange rates are those that prevailed on April 30, 2010.
- Definition of General Government for program purposes:
  - Entities covered under the State Budget as defined in Chapter 2 of the Law 2362/1995 regarding “Public Accounting, Auditing of Government Expenditures and Other Regulations.”
  - Local authorities comprising municipalities, prefectures, and regional governments including their basic and special budgets, including all agencies and institutions attached thereto, which are classified as part of local authorities according to ESA 95.
  - Social security funds comprising all funds that are established as social security funds in the registry of the National Statistical Service.
  - Includes any new funds, or other special budgetary and extra budgetary programs that may be created during the program period to carry out operations of a fiscal nature as defined in the IMF’s Manual on Government Finance Statistics 2001. Authorities will inform IMF, European Commission and ECB staff of the creation of any such new funds or programs immediately.
- Data and reporting requirements:
  - Ministry of Finance (MoF) will provide to the European Commission, ECB and IMF detailed information on monthly revenues and expenditures, domestic and foreign debt redemptions, new domestic and foreign debt issuance, change in the domestic and foreign cash balances of the central government at the central bank of Greece, all other sources of financing including capital transactions, and arrears of the general government.
  - Data will be provided within 30 days.
  - Bank of Greece will provide detailed monthly data on assets and liabilities of local authorities and social security funds in line with monetary survey data.
- Quantitative performance criteria — Floor of the Modified General Government Primary Cash Balance (MGGPCB):
  - Definition: MGGPCB = modified general government cash balance (MGGCB) minus interest payments by the state budget.
  - MGGCB is the sum of:
    - the cash balance of the ordinary state budget.
    - the cash balance of the investment state budget.
    - the change in net financial assets of local authorities.
    - the change in net financial assets of social security funds.
  - Privatization receipts will be excluded from cash receipts.
  - Net lending operations by the state budget will be recorded as cash expenditures.
  - Cash balance of the ordinary state budget:
    - measured from above the line, based on ordinary budget revenues (recurrent revenue plus non-recurrent revenue minus tax refunds) minus ordinary budget expenditures.
    - ordinary budget expenditures will exclude amortization payments and capital transfers to social security funds by bonds but include salaries and pensions; grants to social security funds, medical care and social protection; operational and other expenditure; returned resources; payments in exchange of claims of insurance fund for the personnel working in the Public Electricity Company; interest payments; payments for military equipment procurement; and NATO expenses.
    - monthly publication on the official website of the General Accounting Office of the Ministry of Finance and in line with the corresponding line items established in the ordinary state budget.
  - Cash balance of the investment state budget:
    - measured from above the line, based on investment budget revenues minus investment budget expenditures.
    - monthly publication on the official website of the General Accounting Office of the Ministry of Finance and in line with the corresponding line items established in the investment state budget.
  - Net financial assets of local authorities:
    - defined as financial assets minus financial liabilities of local authorities.
    - Financial assets include deposits of local authorities in the Bank of Greece and deposits of local authorities in the commercial domestic banking sector; deposits measured at face value excluding accrued interest in line with recording for monetary survey data.
    - Financial liabilities include short and long term loans from the domestic banking system to local authorities, measured at face value, consistent with recording for monetary survey data.
  - Net financial assets of social security funds:
    - defined as financial assets minus financial liabilities of social security funds.
    - Financial assets include:
      - Deposits of social security funds in the Bank of Greece and direct deposits of social security funds in the domestic commercial banking system and indirect deposits held by the IKA mutual fund. Deposits measured at face value excluding accrued interest.
      - Holdings of direct shares or indirect shares (through the IKA mutual fund), held by social security funds quoted on the Athens Stock Exchange measured at the end-of-month market value.
      - Direct or indirect holdings of Mutual Fund units issued by Greek management companies (other than the IKA mutual fund) measured at the end-of-month market value.
      - Holdings of central government bonds, including short and long-term securities issued domestically, long-term securities issued abroad operated from Bank of Greece accounts, and indirect holdings through the IKA mutual fund measured at nominal value.
    - Financial liabilities include the short and long term loans from the domestic banking system to the social security funds, measured consistently with monetary survey data.

*Source: _cr10111 - Annex 3. Structural reforms conditionality*

### 6.      Adjustments. For the purpose of the program, the primary expenditure of the central

### 6. Adjustments

### Exclusions for monitored primary expenditure
- Primary expenditure of the central government monitored under the program excludes payments related to bank support when carried out under the program’s banking sector support and restructuring strategy.
- Costs that may be excluded from the balance include:
  - loans to financial institutions and investments in equity of financial institutions (requited recapitalization);
  - unrequited recapitalization;
  - purchases of troubled assets.
- Any financial operation by central government to support banks, including the issuance of guarantees or provision of liquidity, will be immediately reported to IMF, European Commission and ECB staff.
- This performance criterion will be adjusted upward for any possible revenue overperformance in the central government against the current projection as indicated below.

### Central government revenue (Cumulative from January 1, 2010)
- June 2010: €25,056 million
- September 2010: €41,232 million
- December 2010: €58,382 million

### Supporting material (cash balances, net financial assets)
- Data on cash balances of the ordinary and state budgets will be provided to the European Commission, ECB and IMF by the General Accounting Office in the Ministry of Finance within three weeks after the end of the month. Data will include detailed information on revenue and expenditure items, in line with monthly reports that are published since January 2010 on the official website of the Ministry of Finance.
- Data on net financial assets of local authorities and social security funds will be provided to the IMF, European Commission and ECB by the Statistics Department of the Bank of Greece within four weeks after the end of the month.

### B. Ceiling of State Budget Primary Spending (Performance Criterion)

### Definition
- State budget primary spending = state budget spending (spending of the ordinary state budget plus spending of the investment budget) minus interest expenditures paid by the state budget.
- Primary expenditure of the central government that is monitored for the PC excludes any cash payments related to bank restructuring when carried out under the program’s banking sector restructuring strategy.
- Costs that may be excluded include:
  - loans to financial institutions and investments in equity of financial institutions (requited recapitalization);
  - unrequited recapitalization;
  - purchase of troubled assets.
- Any financial operation by central or general government to support banks, including the issuance of guarantees or provision of liquidity, will be immediately reported to European Commission, ECB and IMF staff.

### Supporting material
- The General Accounting Office of the Ministry of Finance will provide monthly expenditure data of the ordinary and investment state budget, as defined above.

### C. Non-accumulation of Domestic Arrears by the General Government (Continuous Indicative Target)

### Definition and stock
- Domestic arrears are defined as accounts payable to domestic suppliers past due date by 90 days.
- Data will be provided within four weeks after the end of the month.
- The stock of arrears as of end-April stood at 5.6 billion euro.

### Supporting material
- The Ministry of Finance will provide data on monthly expenditure arrears of the general government, as defined above. Data will be provided within four weeks after the end of the month.

### D. Ceiling on the Overall Stock of Central Government Debt (Performance Criterion)

### Definition
- Overall stock of central government debt = total outstanding gross debt liabilities of the central government corresponding to activities of the state budget; includes, but is not limited to, liabilities in the form of securities and loans.
- The program exchange rate will apply to all non-euro denominated debt.
- The ceiling excludes debt arising from payments for bank restructuring when carried out under the program’s banking sector restructuring strategy, including:
  - loans to financial institutions and investments in equity of financial institutions (requited recapitalization);
  - unrequited recapitalization;
  - purchase of troubled assets.
- Any financial operation by the central government to support banks, including the issuance of guarantees or provision of liquidity, will be immediately reported to IMF, European Commission and ECB staff.

### Adjusters
- The ceiling on the overall stock of central government debt will be adjusted upward (downward) by the amount of any upward (downward) revision to the stock of end-December 2009 central government debt.

### Supporting material
- Data on the total stock of central government debt will be provided to the European Commission, ECB and IMF staff by the General Accounting Office consistent with the debt published in the public debt bulletin no later than 30 days after the end of each month.

### E. Ceiling on New Central Government Guarantees (Performance Criterion)

### Definition
- The ceiling on the new central government guarantees shall exclude guarantees to support banks and exclude guarantees related to EIB financed loans.

### Supporting material
- All new central government guarantees will be reported in detail, identifying amounts and beneficiaries. The General Accounting Office will provide the data on a monthly basis within three weeks after the end of each month.

### F. Non-accumulation of External Debt Payments Arrears by the General Government (Continuous Performance Criteria)

### Definition and application
- An external debt payment arrear is defined as a payment on debt contracted or guaranteed by the general government, which has not been made within seven days after falling due.
- The performance criterion applies on a continuous basis throughout the program period.

### Supporting material
- The stock of external arrears of the general government system will be provided by the General Accounting Office with a lag of not more than seven days after the test date.

### G. Overall Monitoring and Reporting Requirements
- Performance under the program will be monitored from data supplied to the EC, ECB and IMF by the Ministry of Finance, the General Accounting Office, and Bank of Greece.
- The authorities will transmit promptly to the IMF, EC and ECB staff any data revisions in a timely manner.

### H. Monitoring of Structural Benchmarks

### Pension reform timeline
- The government has initiated a pension reform which should be adopted by the end of September 2010.
- The National Actuarial Authority will produce a report to assess whether the parameters of the new system significantly strengthen long-term actuarial balance.
- The draft law for the new and actuarially-balanced system should be available by the end of June, 2010.

### Expectations for the Pension Reform
- Merge pension funds in three funds by 2018.
- Introduce a new system to strengthen the link between contributions and benefits, with uniform rules that will apply pro-rata (as a sum of the accrued rights under the old system and the benefits accrued under the new system) to all current and future workers. Workers retiring in and after 2015 will collect benefits from this system.
- Set the normal retirement to age 65 across all systems, including for those insured before 1993 and women in the public sector, by 2015. After 2020, the normal retirement age will increase in line with life expectancy.
- Restrict early retirement to age 60 by 2011, including for those insured before 1993, workers in heavy and arduous professions, and those with 35 or more years of contributions.
- Index benefits to changes in the consumer price index, starting in 2014 (benefits will be frozen 2010–2013).
- Include a means-tested pension for all citizens older than the normal retirement age so that an important safety net is provided, consistent with fiscal sustainability.
- Lengthen the years over which the pensionable earnings base is calculated from the top 5 out of the last 10 years of earnings to lifetime earnings.
- Review conditions for disability pensions by the end of March of 2011 and introduce stricter conditions for eligibility by December of 2011, including periodic re-examination of those with disability pensions.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10111.pdf*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10111.pdf_